Household savings are projected to decline for the third consecutive year in FY24 due to increasing liabilities stemming from housing and vehicle loans. However, this trend might reverse in 2024-25 due to the impact of RBI’s restrictions on personal loans.
According to data released by the Ministry of Statistics and Programme Implementation (MoSPI) in the National Account Statistics 2024, net household savings decreased significantly by Rs 9 lakh crore to Rs 14.16 lakh crore over the past three years until 2022-23. ICRA Chief Economist Aditi Nayar attributes this decline to a substantial 73% year-on-year increase in liabilities during 2022-23. Although data for 2023-24 is yet to be released, Nayar suggests that the trend of decreasing household savings likely continued during this period. However, the trend could reverse in 2024-25 due to the RBI’s measures to curb unsecured personal loans.
Chief Economic Advisor V Anantha Nageswaran explains that the decline in household savings is partly due to a shift in investment portfolios, with savings being directed towards real assets. He highlights that although there were concerns about lower household savings flows in FY23, this was primarily a result of a portfolio shift towards real assets rather than an actual reduction in savings.
Historically, household savings reached a peak of Rs 23.29 lakh crore in 2020-21 during the second wave of the Covid pandemic before declining. It fell to Rs 17.12 lakh crore in 2021-22 and further to Rs 14.16 lakh crore in 2022-23.
Liabilities that contribute to the erosion of household savings mainly include housing, auto, personal, and other loans obtained from financial institutions. Loans to households by financial corporations and NBFCs surged four-fold to Rs 3.33 lakh crore in 2022-23 from Rs 93,723 crore in 2020-21. This growth continued with a 73% increase in 2022-23 compared to the previous year.
The rise in liabilities is attributed to various factors, including increased housing loans due to post-Covid recovery in the housing market, as well as loans for vehicles, education, agriculture, and business. However, recent regulatory measures by the RBI, such as raising provisioning requirements for unsecured loans, including personal loans, may slow down the growth of certain loan categories in FY25, potentially improving the household savings rate for the current fiscal year.
