Household Savings slips in 3rd quarter amid pandemic: RBI

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The first wave of Covid-19 last year impacted the household as their financial savings moderated in the 3rd quarter of FY21 for the second consecutive quarter, driven by a significant weakening in household financial assets stood at ₹6,93001.8 crore, which was more than set off by the moderation in household financial liabilities stood at ₹2,48,418.7 crore.

Preliminary estimates, released by Central Bank showed that household financial savings were at 8.2 % of the Gross Domestic Product(GDP) in the Q3FY21(Oct-Dec). The financial savings were recorded at 10.4% in the 2nd quarter, & stood at a healthy 21% in the 1st quarter of FY21, which was the quarter that bore the brunt of the pandemic-led lockdown.

If the 9 months are taken together, the financial savings pattern does not look so bad, as Q1 showed the healthy growth in financial savings as per reports.

According to the RBI data, a household’s net financial savings to GDP ratio rose to at least a 20- year high of 12.5% during the 1st 9 months of FY21. The earlier high was 12.1% in 2009-10.  The rise in the ratio was largely due to the sharp jump in a household’s gross financial savings last fiscal year.

According to the RBI data, the household gross financial savings were up 45.4 % year-on-year basis during April-Dec 2020 period to 21.78 trillion, from ₹14.9 a trillion year ago. Slower growth in household liabilities led to a sharp jump in household net savings or assets last fiscal year. In the same period, the household liabilities were 8.6 % to 4.26 trillion, from ₹3.92 trillion in 9M FY20. Household net savings were 58.4% YOY in 9M FY21 to  ₹17.5 to trillion up from ₹11.06 trillion a years ago.

The ratio of household (bank) deposits to GDP declined to 3% in Q3, from 7.7 % in the previous quarter (July-Sept). Despite higher borrowings from banks & housing finance Co.s, the flow in household financial liabilities was marginally lower in Q3 FY21, following a marked decline in borrowing from non-banking financial companies, the RBI said in a report. Meanwhile, the household debt to GDP ratio has been increasing regularly since the end of March 2019, the RBI observed. It rose sharply to 37.9 % at the end of Dec 2020, from 37.1 % at the end of Sept 2020.

Experts, attribute this to a decline in discretionary spending by households in 1st half of the FY21 due to the lockdown that has led to a closure of most non-essential economic activity.

In 9M FY21, however, the rise in household financial savings was largely observed by the bank deposits, life insurance policies, mutual funds, equity market, & currency holdings. According to the RBI data, bank deposits were 62.5% YOY, while household investment in mutual funds & equity were 49% YOY in 9M FY21. In comparison, life insurance funds were up  36.4 %, while currency holdings were up 158% in 9M FY21.

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