India Household Savings Dip As Leverage Grows, But RBI Lending Curbs Can Reverse Trend

India's household savings are estimated to have declined for the third year in a row in FY24, as liabilities on account of interest towards housing and vehicle loans have continued to rise.

Net household savings declined sharply by Rs 9 lakh crore to Rs 14.16 lakh crore in three years to FY23, as per the National Account Statistics 2024 data, released by the Ministry of Statistics and Programme Implementation.

Household savings had touched a peak of Rs 23.29 lakh crore in FY21. It then fell to Rs 17.12 lakh crore the following year.

The trend of falling household savings could reverse in FY25 on account of the impact of Reserve Bank of India's curbs on personal loans.

Explaining the data, ICRA Chief Economist Aditi Nayar attributed the declining trend in household savings to a sharp 73% year-on-year increase in liabilities during FY23.

As per the indication, the trend of decrease in household savings has continued in FY24, the data for which is likely to be released later, she said.

However, the trend could reverse in FY25 as RBI has taken measures to curb unsecured personal loans, she told PTI.

Chief Economic Advisor, V Anantha Nageswaran, attributed the decline to a shift in portfolio, where savings were being channelised to real assets.

"Household net financial savings flows were lower in FY23 and there were some concerns around that, which said households are saving less. But, in reality, it was a portfolio shift where the savings were going into real assets," Nageswaran had said at a NCAER event on Wednesday.

Loans to households by financial corporations and NBFCs increased fourfold to Rs 3.33 lakh crore in FY23 from Rs 93,723 crore in FY21. It grew 73% in FY23 over Rs 1.92 lakh crore worth of loans in FY22.

According to Nayar, a part of high liabilities is towards housing loans. "We have seen the housing market recover after Covid and housing sales have touched highs in the next few years post Covid. But it is not just housing loans where household liabilities have gone up. It also includes vehicle and education, agri and business loans."

"It looks quite likely that household liabilities will go up in FY24, so some of these trends may continue. However, with the recent tightening of regulation by RBI, we do expect that some categories of personal loans will see slower growth in FY25 and that will augur well for household savings rate for the current fiscal," Nayar said.

Seeing a surge in personal loans, the RBI in November last year, raised the provisioning requirement for unsecured loans, including personal loans.

(With inputs from PTI)