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The recently released RBI report on estimates of household financial savings and debt for the September quarter of FY21 caused some consternation.
This was because household saving, as a per cent of GDP, that had hit a record level of 21 per cent in the June 2020 quarter had fallen to a more moderate 10.4 per cent in the September quarter. But this does not mean that savings dropped precipitously in the second quarter.
An analysis of the numbers shows that incremental savings remained at the same level in June as well as September 2020 quarter.
The sharp spike in household savings as a per cent of GDP in Q1 and then the moderation was mainly due to increase in household liabilities in the September quarter as well as the change in the denominator – GDP.
Increase in liability
If we look at the incremental increase in financial assets, the number is not too different in the first two quarters of this fiscal year.
The increase was ₹7.38 lakh crore in the June quarter and ₹7.37 lakh crore in the September quarter. But while household liabilities decreased by ₹78,000 crore in the June quarter, it increased by ₹2.55 lakh crore in the September quarter. This resulted in reducing the net financial savings for the September quarter.
With severe restrictions on movement due to the lockdowns, household expenditure was down in the June 2020 quarter and fresh discretionary spends were postponed by most households, leading to a fall in incremental financial liability. With the unlocking of the economy in the September 2020 quarter, the needs of the households seems to have increased resulting in increase in financial liability of ₹2.55 lakh crore.
The other reason for the moderation in household savings as a % of GDP is due to the sharper contraction in GDP in June 2020 quarter; of 23.9 per cent.
The contraction had reduced materially to 7.5 per cent by the September 2020 quarter. The decline in the denominator would have resulted in bumping the number in Q1.
Assets, liabilities
There wasn’t any material change in the composition of the assets in the first two quarters with bank deposits continuing to account for the largest share around 52 per cent.
However, when we look at the liabilities, loans taken from commercial banks fell sharply from 76 per cent of household liabilities to 72.6 per cent.
Households seem to have taken more loans from NBFCs, cooperative banks and credit societies during the pandemic with the share of loans from these entities registering a larger increase. With RBI ensuring that NBFCs and smaller financing institutions were well supplied with funds, these institutions seem to have increased their lending to households, even as commercial banks went slow. Loans taken from NBFCs registered 116 per cent increase and stood at ₹7,02,394 crore towards the end of September 2020.
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