Drop in household savings, rising debt warrant close watch: RBI

New Delhi: India’s overall household savings declined to 18.4 per cent of GDP in the financial year 2022-23 from an average of 20 per cent between 2013-2022, while there is an increasing trend in financial liabilities, which warrant close monitoring from a financial stability perspective, the Reserve Bank of India (RBI) said in a report on Thursday.

In its June edition of the Financial Stability Report, the RBI noted that the share of net financial savings in total household savings has declined. It fell to 28.5 per cent in 2022-23, from an average of 39.8 per cent during 2013-2022.

“Combined with the rise in financial liabilities, net financial savings also declined to 5.3 per cent of GDP during 2022-23 from an average of 8 per cent during 2013-2022,” the RBI said.

The RBI noted that for the household sector, “savings in physical assets have been the dominant and rising component.”

India’s gross savings rate declined to 29.7 per cent of gross net disposable income (GNDI) in 2022- 23, with households being the primary savers and forming 60.9 per cent of aggregate savings. However, the 10-year average during 2013-2022 stood at 63.7 per cent.

On the other hand, there is a rise in debt. “Financial liabilities of households have risen in the post-pandemic period, as reflected in the surge in retail loan growth for financing both consumption and investment. Alongside, agricultural and business loans have also grown. Notably, more than two-thirds of borrowers are of prime and above credit quality,” the RBI noted in the report.

At 40.1 per cent of GDP, the stock of household debt in India is relatively low when compared to other emerging market economies, but in relation to GDP per capita, it is comparatively high.

As per the RBI report, the Indian economy and the financial system remain robust and resilient, anchored by macroeconomic and financial stability. “With improved balance sheets, banks and financial institutions are supporting economic activity through sustained credit expansion,” the central bank said in a statement.

Gross non-performing assets (NPA) of scheduled commercial banks in India declined to a 12-year low of 2.8 per cent and the net NPA to 0.6% as of March 31, 2024.

Public sector banks (PSBs) recorded a substantial reduction (76 bps) in their GNPA ratio during the second half of 2023-24.

“Today, the matrix of financial stability is perhaps at its best, but the real challenge is to maintain it and improve upon it further. The regulators, on their part, remain committed to these goals,” RBI Governor Shaktikanta Das said in the foreword of the report.

“We are focused on having in place an ecosystem that is adaptive and proactive in safeguarding the stability of the financial system,” Das added.

An analysis of the composition of credit shows that there has been a moderation in the offtake to industry, while for services and personal loan segment there was picked up.

The share of slippage from retail loans (excluding housing loans) in overall fresh accretion to NPAs is increasing. It formed 40 per cent of fresh accretion to NPAs in FY24, even as the share of these loans in total advances is 21.3 per cent, an analysis of the report by a Bank of Baroda economist showed.