Even as jury is out whether the fall in financial savings of the household is anything to worry about as it has gone towards buying physical assets, the Reserve Bank of India has warned that from the financial stability perspective, household debt needs to be closely monitored.
“ With overall household savings declining to 18.4 per cent of GDP in FY:2022-23 from an average of 20.0 per cent of GDP over 2013-2022, and coupled with an increasing trend in financial liabilities, household debt warrants close monitoring from a financial stability perspective” the Reserve Bank of India said in its latest Financial Stability Report released on Wednesday.
The share of net financial savings in total household savings has been declining: it stood at 28.5 per cent in 2022-23, from an average of 39.8 per cent during 2013-2022
The observations made by the central bank assumes significance as many economists have expressed concerns about the net financial savings of he Indian households falling to a multi-decade low as financial liabilities have increased which could impact economic growth and stability.
But a section of policy makers have rejected this concern as a substantial chunk of the liabilities have gone for purchase of physical assets such as residential assets and gold. Even the RBI report acknowledges that for the household sector, savings in physical assets has been the dominant and rising component.
Household debt in relation to GDP per capita it is comparatively high among emerging market economies, the RBI report said.
Financial liabilities of households have risen in the post-pandemic period, as reflected in the surge in retail loan growth for financing both consumption and investment. Alongside, agricultural and business loans have also grown, RBI said.
On the positive side though, notably, more than two-thirds of borrowers are of prime and above credit quality. 5 At 40.1 per cent of GDP26, the stock of household debt in India is relatively low when compared to other emerging market economies.
