{"id":262168,"date":"2023-09-28T19:16:02","date_gmt":"2023-09-28T13:46:02","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=262168"},"modified":"2023-09-28T20:37:28","modified_gmt":"2023-09-28T15:07:28","slug":"what-does-a-drop-in-household-financial-savings-imply-for-india","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/what-does-a-drop-in-household-financial-savings-imply-for-india\/","title":{"rendered":"What does a drop in household financial savings imply for India?"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cWhat does a drop in household financial savings imply for India?\u201d <\/strong>published in \u201cThe Hindu\u201d <\/strong>on 28th September 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3 – Economy<\/p>\n

Relevance- <\/strong>Issues related to savings and investment in the economy<\/p>\n

News<\/strong>– The household financial savings data recently published in the latest issue of the RBI bulletin indicated that India\u2019s net household financial savings rate had declined to only 5.1% of GDP in 2022-23, the lowest in decades.<\/p>\n

What are the factors behind the decline in financial savings rate?<\/strong><\/h2>\n

It can largely be attributed to an increase of around 2% of GDP in financial liabilities<\/strong> in 2022-23 compared to both 2021-22 and 2019-20.<\/p>\n

The largest component of these liabilities by a considerable margin is bank loans. Borrowing from NBFCs <\/strong>comes in a distant second, followed by housing finance and insurance<\/strong>.<\/p>\n

Between the years 2020-21 and 2022-23, there has been a substantial decrease in the proportion of household borrowing from banks<\/strong>. The share of borrowing for housing finance <\/strong>has also decreased during this period.<\/p>\n

However, there has been a significant increase in the share of borrowing from NBFCs.<\/strong> It has surged from 2.4% in 2021-22 to 15.2% in 2022-23.<\/p>\n

What can be inferred from<\/strong> decline in the financial savings rate?<\/strong><\/h2>\n

The decrease in net household financial savings<\/strong> primarily reflects an increase in the financial obligations<\/strong> of the household sector.<\/p>\n

This shift is a consequence of households moving away from borrowing from traditional banks,<\/strong> and seeking loans from non-banking financial companies (NBFCs). <\/strong><\/p>\n

Bank credit has experienced significant growth, a substantial portion of this expanded credit flow <\/strong>has been directed towards NBFCs, real estate, and personal loans rather than industrial purposes.<\/p>\n

Furthermore, the non-performing asset ratios<\/strong> of both private and public sector commercial banks have notably improved.<\/p>\n

It appears that there has been a substantial surge in the demand for loans from households.<\/strong> However, banks have adhered to strict lending criteria. <\/strong>These borrowers, who may not meet the stringent creditworthiness requirements,<\/strong> have turned to NBFCs.<\/p>\n

As a result, banks have managed to clean up their balance sheets<\/strong> while transferring the associated risk<\/strong> to NBFCs.<\/p>\n

However, it’s crucial to recognize that the overall risk exposure of the financial sector<\/strong> has not decreased. In fact, it has increased due to the rising indebtedness<\/strong> of the household sector.<\/p>\n

Is there a substantial decrease in household savings rate?<\/strong><\/h2>\n

The reduction in India’s net household financial savings rate<\/strong> does not signify an abrupt decline<\/strong> in either the household savings rate or the domestic savings rate. <\/strong><\/p>\n

In 2021-22, both rates stood at 19.7% and 30.2% of GDP,<\/strong> respectively. It is slightly higher than in 2019-20.<\/p>\n

A savings rate of 30.2%<\/strong> also surpasses that of many other emerging market and developing economies. However, it falls short when compared to the rates achieved during most of the past two decades<\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cWhat does a drop in household financial savings imply for India?\u201d published in \u201cThe Hindu\u201d on 28th September 2023. Syllabus: GS3 – Economy Relevance- Issues related to savings and investment in the economy News– The household financial savings data recently published in the latest issue of the… Continue reading What does a drop in household financial savings imply for India?<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,8184,10498],"class_list":["post-262168","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-economy","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":8,"cached_at":"","cached_date":1698477891},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/262168","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=262168"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/262168\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=262168"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=262168"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=262168"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}