Household savings reflect changing consumer preferences
R
ecent concerns about household savings in India have been met with data indicating that changing consumer preferences for financial products, rather than economic distress, are driving shifts in savings.
SBI Research has clarified the situation by providing facts and insights into household savings trends in the country.
Between June 2020 and March 2023, the Stock of Household Gross Financial Assets increased by 37.6 per cent, while the Stock of Household Gross Financial Liabilities rose by 42.6 per cent, showing little difference between the two. Households added Net Financial Assets of Rs 22.8 lakh crore in FY21, Rs 17.0 lakh crore in FY22, and Rs 13.8 lakh crore in FY23.
Ministry of Finance posted on X, "Lately, critical voices have been raised w.r.t. to household savings and its overall effect on the economy. However, data indicates that changing consumer preference for different financial products is the real reason for the household savings and there is no distress as is being circulated in some circles".
https//twitter.com/FinMinIndia/status/1704742328077107244
While the increase in financial assets was lower than in previous years, it's important to note that overall net financial assets are still growing.
This shift is partly due to households taking loans to invest in real assets like homes.
RBI data on personal loans reveals that the sector is not in distress but rather investing in real assets.
Loans for housing have seen steady double-digit growth since May 2021, while vehicle loans have grown at double-digit rates since April 2022, with over 20 per cent year-on-year growth since September 2022.
The overall household savings, including financial, physical, and jewellery assets, have grown at a Compound annual growth rate of 9.2 per cent between 2013-14 and 2021-22.
This is in line with the growth rate of nominal GDP during the same period, maintaining a consistent ratio of household savings to nominal GDP, indicating stability.
The surge in credit from Non-Banking Financial Corporations to the household sector played a significant role in this shift.
In FY22, NBFCs lent Rs 21.4 thousand crore to the household sector, which increased to nearly Rs 240,000 crore in FY23.
According to SBI Research, the changing landscape of household savings reflects evolving consumer preferences, with households investing in real assets like homes and vehicles, backed by confidence in future employment and income prospects.
This trend is in line with a recovery in the real estate sector and shifting preferences from financial to physical assets.
The research noted that 55 per cent of retail credit to households in the past two years was allocated to housing, education, and vehicle purchases, countering claims that household savings were at a 50-year low.
The data suggests that the decline in net financial savings is accompanied by an increase in savings in physical assets, partly driven by the real estate sector's recovery and property price increases.
✔️ Household savings reflect changing consumer preferences
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