Household debt to double in FY23, savings more than half: SBI Research
Households’ net financial savings fell by close to 55 per cent in FY23 to 5.1 per cent of GDP and their debt has more than doubled to Rs 15.6 lakh crore from FY21, mainly led by massive borrowing from banks, an analysis of latest official figures shows speak up.
According to SBI Research, a good part of the withdrawal from savings has gone to physical assets and of the Rs 8.2 lakh crore increase in household indebtedness in FY23, as much as Rs 7.1 lakh crore was accounted for by bank loans, mainly for home loans and other retail economy.
In FY23, household savings fell to 5.1 percent of GDP, from 11.5 percent in FY21, a 50-year low, and 7.6 percent in FY20, which was not the pandemic period.
It can be noted that the most important source of financing for the two deficit sectors – the public finances and the non-financial corporations – is household savings.
The household sector in the national accounts includes, apart from individuals, all non-governmental, non-corporate enterprises such as agricultural and non-agricultural enterprises, unregistered enterprises such as sole proprietorships and partnerships and non-profit institutions.
According to Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, financial liabilities have increased by Rs 8.2 lakh crore since the pandemic, outstripping the increase in gross financial savings of Rs 6.7 lakh crore.
On the household asset side, there was an increase of Rs 4.1 lakh crore in insurance and provident funds and pension funds during the period.
On the household liability side, the increase was Rs 8.2 lakh crore, as much as Rs 7.1 lakh crore was accounted for by an increase in household borrowing from commercial banks.
When this increase in borrowing from banks is equated with the increase in bank credit, as much as 55 percent of retail credit to households in the last two years has gone to housing, education and car purchases.
According to Ghosh, this is possible because of the low interest rate regime, resulting in a paradigm shift of household financial savings to household physical savings in the last two years.
He sees a significant long-term correlation between housing loans and household savings in physical assets. As a result, the decline in household net financial savings has resulted in a simultaneous increase in household savings in gross physical assets.
In fact, savings in physical assets, which accounted for more than two-thirds of household savings in FY12, had declined to 48 percent in FY21.
However, the trend is shifting again and the share of physical assets is expected to reach 70 percent in FY23 due to a decline in the share of financial assets.
Ghosh also believes that the shift to physical assets is also triggered by an upswing in the real estate sector and the rise in property prices.
Meanwhile, household debt-to-GDP increased during the pandemic but has declined since. ` Household debt as a percentage of GDP was 40.7 in March 2020 and has since fallen to 36.5 in June 2023.
Over the years, 80-90 percent of the household’s physical savings were in housing, other buildings and constructions and rest in machinery and equipment.
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