Indians are undergoing a notable transformation in their approach to savings, stepping away from the conventional habit of stowing money in traditional bank accounts. Recent data from the Reserve Bank of India (RBI) bulletin, disclosed in September 2023, indicates a decline in India’s net household financial savings, prompting a closer look at the evolving landscape of personal finance.
The shift is evident in the statistics, with net household financial savings dropping to 5.1% of the Gross Domestic Product (GDP) in FY23, a decrease from 7.1% in FY20-21. This departure from the traditional mantra of “save more, spend less” raises the question: Where is the money going?
Contrary to concerns about lower financial savings and increased liabilities, the finance ministry explains that Indian households are redirecting their savings towards the creation of physical assets, such as homes and vehicles. This strategic move is attributed to taking advantage of low-interest rates in the aftermath of the pandemic.
SBI Research supports this perspective in a report, emphasizing that a comprehensive view of household savings must consider both financial and physical savings. The rise in liabilities, primarily associated with the creation of physical assets, has led to a substantial shift in household financial savings.
The report reveals that over 50% of retail credit to households in the past two years has been allocated to housing, education, and vehicle purchases. It describes the transition as a “paradigm shift of household financial savings to household physical savings in the last two years.”
In essence, while financial savings in traditional bank accounts may have witnessed a decline, the overall savings landscape is evolving. Indian households are actively participating in the creation of physical assets, fueled by a low-interest regime, a recovery in the real estate sector, and rising property prices.
