Household financial savings climb to 7-year high, says RBI report

Illustration by Binay Sinha
Household financial savings — the most important source of funds for investment in an economy — climbed to a seven-year-high in 2017-18 (FY18), the annual report of the Reserve Bank of India released on Tuesday showed. In 2016-17 (FY17), it was 9.1 per cent of the gross national disposable income (GNDI); in FY18, it climbed to 11.1 per cent.

However, much of this increase was in the form of cash. The incremental savings in the form of bank deposits stooped to their lowest in seven years, at 2.9 per cent of the GNDI. In the form of cash, it rose to a peak of 2.8 per cent of GNDI, underlining the prevalence of cash in the economy to pre-demonetisation levels. 

The government had demonetised Rs 500 and Rs 1,000 notes on November 8, 2016.

The impact of the sharp increase in financial savings of households was cancelled out by rising financial liabilities. These, too, soared to their highest in seven years. Liabilities stood at 4 per cent of GNDI, up from 2.4 per cent in FY17, most likely because of increase in personal loans as RBI data has previously shown. 

As a result, net household financial savings remained at 7.1 per cent, very close to the average of the past six years. This marginal change might not impact investment rate as a whole in the economy.

GNDI is the collective money available with households in the country, for the purpose of saving and spending, after tax and other deductions. It is the portion of an individual’s income over which they have complete discretion.

But, there are some interesting trends in the preliminary estimates. 

This sharp fall in savings in the form of bank deposits was due to excess deposits that happened in FY17 due to demonetisation. The numbers represent the change in outstanding at a particular year and the outstanding at the same date the previous year. The sum of savings in cash and deposits changes smoothly over the years, say economists. For example, the sum of both hovered between 6 and 7 per cent till 2015-16 (FY16). It went down abruptly in FY17, because of demonetisation, and is showing signs of recovery in FY18. 

Household savings parked in equity and debt markets rose to a record 0.9 per cent of the disposable income, from a stagnant 0.2 per cent for the past six years, barring FY16. 

This is in line with growth of the mutual funds industry after demonetisation. 

Savings in the form of insurance funds, however, saw a blip, from 2.3 per cent of the disposable income in FY17 to 1.9 per cent in FY18. 


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