Amid the raging debate over declining household savings and its impact on the economy, the finance ministry has said that changing consumer preference for different financial products is the real reason for the decline, and not any “distress.”
The finance ministry’s statement on the platform X (formerly Twitter) comes after the Reserve Bank of India’s Bulletin for September showed that household net financial savings rate fell to a 47-year low of 5.1% of GDP in FY23, down from 7.2% in FY22.
“Between June 2020 and March 2023, the stock of household gross financial assets went up by 37.6%, and the stock of household gross financial liabilities went up by 42.6%—no big difference between the two,” the finance ministry said.
Households added net financial assets of Rs 22.8 trillion in FY21, nearly Rs 17.0 trillion in FY22 and Rs 13.8 trillion in FY23. “So, they added less financial assets to their portfolio than in the previous year and the year before, but it is important to note that their overall net financial assets are still growing,” the finance ministry said. “They added financial assets by a lesser magnitude than in the previous years because they have now started taking loans to buy real assets such as homes.”
There has been a steady double-digit growth in loans for housing since May 2021. Vehicle loans have been growing at double digits year-on-year since April 2022 and more than 20% since September 2022. “The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages,” the finance ministry noted.
The overall household savings (current prices) – which includes financial, physical and jewellery – has grown at a CAGR of 9.2% between 2013-14 and 2021-22. Nominal GDP has grown at a CAGR of 9.65% during the same period. “Hence, Household savings/nominal GDP has remained constant – from around 20.3% to 19.7% as of FY22,” the finance ministry said.
The ministry also mentioned that net flow of credit from the non-banking financial corporations (NBFCs) to the households increased 11.2% year-on-year to Rs 2.4 trillion in FY23. “That has set off alarm bells as commentators forgot that these are ‘flow’ numbers,” it said.
Overall, NBFC retail loans outstanding were ₹8.12 lakh crore in FY22, and it went up to ₹10.5 lakh crore in FY23, a growth of ‘only’ 29.6%, the finance ministry said.
Within retail loans, two big components are vehicle loans and ‘other retail loans’. Vehicle loan outstanding increased by about 12.5%, from Rs 3.4 trillion in FY22 to Rs 3.82 trillion in FY23. Other retail loans went up from Rs 3.95 trillion to Rs 5.22 trillion. These are microfinance loans, loans to self-help groups, advances to individuals against gold and other loans.
“So, 36% of NBFC’s outstanding retail loans are for the purchase of vehicles. That is not a sign of distress on the part of households but of confidence in their future employment and income prospects,” the ministry asserted.
“That has been amply brought out in the recent Consumer Confidence Survey of RBI, and the C-Voter Survey of Consumer Optimism conducted in July and August, respectively,” it said.