Household debt needs to be kept under watch
household debt, having already raised the risk weighting on unsecured retail exposure to moderate the pace of credit expansion in a loan segment that could prove vulnerable in the future.
«With overall household savings declining to 18.4% of GDP (gross domestic product) in FY23 from an average of 20% of GDP over 2013-2022, and coupled with an increasing trend in financial liabilities, household debt warrants close monitoring from a financial stability perspective,» the Reserve Bank of India (RBI) said in its latest Financial Stability Report released on Wednesday.
The share of net financial savings in total household savings has been declining. It stood at 28.5% in 2022-23, from an average of 39.8% during 2013-2022.
The observations made by the central bank assumes significance as many economists have expressed concerns about the net financial savings of Indian households falling to a multi-decade low as financial liabilities have increased, potentially affecting economic growth and stability.
But other policy makers have rejected this concern as a substantial chunk of the liabilities have gone for purchasing physical assets such as residential assets and gold. Even the RBI report acknowledges that for the household sector, savings in physical assets have been the dominant and rising component.
Household debt in relation to GDP per capita is comparatively high among emerging market economies, the RBI report said.
Financial liabilities of households have risen in the post-pandemic period, as reflected in the
