Precautionary Household Financial Savings Waned In Q2: RBI Data

Indian household savings fell in the quarter ended September as the nation eased Covid-19 restrictions, increasing discretionary spending.

Household financial savings rate dropped to 10.4% of the GDP in the second quarter of FY21 from 21% in the preceding three months, according to preliminary estimates published in the Reserve Bank of India's monthly bulletin. Still, that's higher than 9.8% recorded a year earlier.

This reversion is mainly driven by an increase in household borrowings from banks and non-bank financial companies, accompanied by a moderation in household financial assets in the form of mutual funds and currency, the central bank said. With the gradual unlocking of the economy, households switched from an “essentials only” spending pattern to discretionary spending, resulting in the reversal of household financial savings from the peak it attained in the first quarter.

A pick-up in consumer confidence, along with a rise in bank credit could be symptomatic of a further moderation in household financial savings rate during third quarter of FY21, according to the RBI bulletin. Buoyant stock markets may offset some portfolio rebalancing by households through investments in shares and debentures, including units of mutual funds, it said.

Household Debt To GDP

The moderation in households' financial savings was accompanied with a rising indebtedness. Household debt-to-GDP ratio, which has been steadily increasing since first quarter of FY19, rose sharply to 37.1% in the three months to September 2020 from 35.4% in the April-June period.

To be sure, data for India's household debt do not capture their indebtedness towards the non-institutional sector, the report said.

The moderation in household financial savings came despite an increase in their financial assets, as the flow of financial liabilities has returned to positive territory in the second quarter, according to the central bank. The flow of household financial assets has increased, led by their deposits with banks, despite a significant drop in their holding of currency and mutual funds, the central bank said.