Household financial savings improved in April-December 2019: RBI

By: |
April 11, 2020 12:30 AM

The savings rate for Indian households has been falling over the years, dropping to 18.2% of gross domestic product (GDP) in 2018-19 from 23.6% in 2011-12.

The RBI said that high-frequency indicators of urban consumption demand present a subdued picture for Q4FY20.The RBI said that high-frequency indicators of urban consumption demand present a subdued picture for Q4FY20.

Financial savings by Indian households improved during April-December 2019 as their liabilities fell more than their deposits with banks, the Reserve Bank of India (RBI) said in its monetary policy report for April 2020. “While the private corporate sector finances its investment predominantly through its own savings, the public sector continues to rely heavily on households for financing its deficit,” the central bank said in the report, adding, “During April-December 2019, household financial savings appeared to have improved as households’ liabilities declined more than the increase in household deposits with scheduled commercial banks whereas their investment in insurance and mutual funds remained at the same level as in the previous year.”

The savings rate for Indian households has been falling over the years, dropping to 18.2% of gross domestic product (GDP) in 2018-19 from 23.6% in 2011-12.
The decline in household liabilities has been accompanied by shrinking urban consumption. The RBI said that high-frequency indicators of urban consumption demand present a subdued picture for Q4FY20.

Sales of passenger vehicles continued to contract in February 2020. Domestic air passenger traffic growth slowed in January 2020. Consumer durables growth contracted in January 2020. “Even though there has been some uptick in vehicle loan growth for households and growth in credit card outstanding in February 2020, overall, urban consumption appears to have lost steam in Q4 with the outbreak of Covid-19 having accentuated the moderation,” the report stated.

The indebtedness of Indian households had nearly doubled in the year to March 2018, with their financial liabilities rising 80% to Rs 6.74 lakh crore. Advances by banks to households had then soared 71.5% to Rs 4.3 lakh crore, reversing a four-year-long trend of declines in households’ bank borrowings.

Households may have borrowed less from banks between 2012-13 and 2016-17, but they accessed credit from non-banks whose loans to households rose anywhere between 3% and 9% annually. Consequently, the aggregate financial liabilities of households increased every year.

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