Households likely to build back financial assets as incomes rise, says RBI Dy Guv Michael Patra
Households, which have recently brought down their net financial savings sharply, are likely to build back their financial assets as rising incomes provide a boost going ahead, Reserve Bank of India deputy governor Michael Patra said on Tuesday.
“This process has already begun – households’ financial assets have increased from 10.6 percent of GDP during 2011-17 to 11.5 per cent during 2017-23 (excluding the pandemic year),” Patra said at an event organised by the Confederation of Indian Industry here.
“Accordingly, households will remain the top net lenders to the rest of the economy in the coming decades,” he said.
Recently, the net financial savings of households, have almost halved from the levels that existed in 2020-21 because of behavioural shifts underway in the form of unwinding of prudential savings accumulated during the pandemic as well as transitions from financial assets to physical assets such as housing, Patra said.
The senior central banker pointed household financial assets were at 15% of GDP in the early 2000s up to the global financial crisis of 2007-08. Meanwhile, physical savings have also risen in the post-pandemic years to over 12% of GDP and could rise further, Patra said. Typically, the household sector generates surplus savings relative to investment and therefore lends to other sectors.
The recent decline in household savings has sparked much debate, with government data showing a fall in net financial savings of households by more than Rs 9 lakh crore between 2020-21 and 2022-23,
