Household savings may rise in Q1, then moderate, say RBI officials

Lags in the pickup of economic activity may cause the financial surplus of households to taper off in subsequent quarters, said an article, published in the RBI Bulletin
Some  officials in the RBI expect a spike in net financial assets of households in the first quarter of FY21 on account of a sharp drop in consumption during the lockdown. Net financial assets are financial assets of households minus liabilities. Lags in the pick-up of economic activity might cause the households’ financial surplus to reduce in subsequent quarters, said an article published in the RBI Bulletin. 

With construction activity at a standstill, there is a possibility of a shift by households from physical to financial assets, the article said. Net financial assets of households after having moderated in FY19 gathered pace in FY20, touching levels reached in FY18 at 7.7 per cent of GDP, it said. Banks continued to be a preferred choice for households in terms of financial assets, even as there was some shift to mutual funds and insurance products. 

Bank deposits constituted 52.6 per cent of assets, followed by life insurance products at 23.2 per cent, currency at 13.4 per cent, and mutual fund products at 7 per cent. Cooperative banks accounted for 3.8 per cent of deposits till March, it said.

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