The finance ministry on Thursday dismissed the criticism over the impact of declining household savings on the economy, saying people are investing in different financial products and “there is no distress”.
The statement posted on X by the ministry brushed aside critical voices raised with regard to the decadal fall in household savings and its overall effect on the economy.
“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,” it said.
Net household savings declined to a 47-year low of 5.1 per cent of gross domestic product in FY23 as compared to 7.2 per cent recorded in the previous year, as per the data released by the Reserve Bank in its latest monthly bulletin.
At the same time, annual financial liabilities of households rose sharply by 5.8 per cent of GDP compared with 3.8 per cent in 2021-22.
Defending the position, the finance ministry said, the Stock of Household Gross Financial Assets went up by 37.6 per cent, and the Stock of Household Gross Financial Liabilities went up by 42.6 per cent between June 2020 and March 2023, no big difference between the two.
“Households added Net Financial Assets of 22.8 lakh crore in FY21, nearly 17 lakh crore in FY22 and 13.8 lakh crore 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,” it 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, it said.
“RBI data on personal loans provides us with evidence. Personal loans given by banks have several components. Key among them are real estate loans and vehicle loans. Both are collateralised. These two constitute 62 per cent of the overall personal loans by the banking sector. The other big categories are other personal loans and credit card loans,” it said.
Pointing out that there has been a steady double-digit growth in loans for housing since May 2021, it said, “so, financial liabilities have been incurred to buy real assets. Vehicle loans have been growing at double digits (y/y) since April 2022 and more than 20% (y/y) since September 2022. The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages.”
Overall household savings (current prices) – which include financial, physical and jewellery – has grown at a Compound Annual Growth Rate (CAGR) of 9.2 per cent between 2013-14 and 2021-22 (8 years) and the nominal GDP has grown at a CAGR of 9.65 per cent during the same period, it said.
It further said, households added net financial assets of Rs 13.8 lakh crore in FY23 compared to nearly Rs 17 lakh crore the year before and Rs 22.8 lakh crore in FY21.
The biggest item that seems to have swung it is the net flow of credit from Non-Banking Financial Corporations (NBFC) to the Household Sector, which includes unincorporated enterprises, it said.
NBFC had lent nearly Rs 2,40,000 crore in FY23 as compared to Rs 21,400 crore in the previous year to the household sector, it said, adding, that is a whopping 11.2 times and that has set off alarm bells as commentators forgot that these are ‘flow’ numbers.
Overall, NBFC retail loans outstanding were Rs 8.12 lakh crore in FY22, and it went up to Rs 10.5 lakh crore in FY23, a growth of ‘only’ 29.6 per cent, it said.
“The two big components in NBFC retail loans are vehicle loans and ‘other retail loans’. Vehicle loan outstanding increased by about 12.5 per cent, from Rs 3.4 lakh crore in FY22 to Rs 3.82 lakh crore in FY23. Other retail loans went up from Rs 3.95 lakh crore to Rs 5.22 lakh crore. These are microfinance loans, loans to Self-Help Groups, Advances to individuals against gold and other loans,” it said.
So, it said, 36 per cent of NBFC’s outstanding retail loans are for the purchase of vehicles and that is not a sign of distress on the part of households but of confidence in their future employment and income prospects.
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.
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