Currency and deposits with banks accounted for bulk of total financial assets — 66% — followed by insurance and mutual funds.
The net financial assets or savings of Indian households improved to Rs 15.62 lakh crore in 2019-20 from Rs 13.73 lakh crore a year ago as their liabilities dropped, the Reserve Bank of India (RBI) said in an article in its June bulletin. “Households’ gross financial liabilities turned negative in Q1:2019-20 owing mainly to contraction in borrowings from commercial banks, but picked up thereafter and peaked in Q4, reflecting apart from the seasonal uptick, higher borrowings induced by Covid. Several studies show that households tend to save more during a slowdown and income uncertainty,” the RBI said.
Currency and deposits with banks accounted for bulk of total financial assets — 66% — followed by insurance and mutual funds. Deposits, which had declined persistently since Q3FY17, began to record an uptick starting Q4FY19 as banks competed aggressively to raise resources. The steady rise in insurance and mutual fund products pointed to a growing appetite for alternative financial instruments. The share of currency in total outstanding assets has broadly remained constant, the article said.
At the end of Q4FY20, outstanding loans availed by households from commercial banks accounted for the bulk of their total financial liabilities at 75.9%, followed by housing finance companies (HFCs), non-banking financial companies (NBFCs), cooperative banks and credit societies.
Borrowings by households from NBFCs, which contracted during Q3FY19 due to the liquidity strains triggered by the IL&FS crisis, rebounded in subsequent quarters. The contraction of loans from HFCs during Q3FY20 points to depressed demand for real estate, which is also evident in moderation of housing sales, the RBI said.
Acquisition of liabilities in the form of bank credit contracted to 1.5% of GDP in Q1FY20, followed by an uptick in the subsequent quarters of the year.
“The significant contraction in the households borrowing from banks in Q1FY20 caused by the seasonal factors, seems to have got accentuated by uncertainty about future income growth, and also due to growing risk aversion among banks in view of asset quality concerns,” the RBI wrote in the article.