Bank deposits and insurance/pensions form 14 per cent each of the total household savings, while 19 per cent constitute claims on government and a whopping 135 per cent are in hard currency.
Historically households have been funding a third of the capital formation of the rest of the economy. Overall financial surplus from households has remained steady for the last seven to eight years before rising from mid-2019.
Household savings are still among the highest in peer countries, although it has come off over the last 20 years.
Since FY15, the household savings have been waning due to a host of factors, and one the main reason being a consumption growth driven by staples like processed food, health, education, clothing and daily commodities.
The UBS analysts think all this can unwind as the economy normalises and consumer confidence improves. Contrary to popular belief, these savings appear to be quite granular and broad-based and potential beneficiaries of this theme include consumer stocks and financials.
Savings flowing into equity markets have picked up, but remain less than 5 per cent of the total savings. But this 5 per cent is much higher than the FPI inflows in the past two years combined, which jumped 25 per cent on-year in 2020.
Even without much help from asset appreciation, household financial wealth surged during the lockdown months. While government data come with over 15 months lag, the RBI gives it with 5-6 months lag. But UBS' real-time tracker shows that the overall quantum of savings has been rising since mid-2019 and surged in 2020 (peaked in June 2020 but still running higher than pre-pandemic level).
This coupled with a steady drop in household borrowings since the ILFS crisis has meant that their net financial surplus is almost at a two-decade high. As a result, wealth is also close to multi-decade highs - with negligible help from asset appreciation, the report said.
The sharp surge in retail deposits of banks, inflows into government's small savings schemes, insurance (new business premium and resilient persistency ratios), retail equity flows and rising cash in circulation are all evidence of higher financial savings by the households, it added.
At the same time, weak retail credit growth especially when NBFCs are seen along with banks suggest reduced borrowings flow. In a UBS survey in November 2020, as much as 70 per cent of respondents said they saved more in 2020 than in 2019.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.