There were lots of debates and discussions around the decline in household financial savings a couple of years ago. Data collated by the RBI had showed that net financial savings of Indian households had registered a precarious drop from 7.8 per cent of national income in 2018-19 to just 5.1 per cent by 2023-24.

Various theories were put forth to explain the dip, ranging from increasing debt of Indian households to the higher purchases of physical assets such as homes, motor vehicles and gold. While these may be partly responsible, it is also quite possible that the data being compiled by the RBI on household savings is incomplete. The data is not capturing the shift in investment patterns of Indian households accurately. The savings of the Indian families appear to have been on an even keel over the last two decades, if we consider their investments in bank deposits. These deposits have grown at a compounded average growth rate of 14.5 per cent between 2005 and 2024; higher than the average growth in nominal GDP in this period. This suggests that households have been able to generate enough surplus and park a substantial portion of it in banks. This is good news for the economy since households are the biggest owners of bank deposits with over 60 per cent share.

These deposits are used to lend to other sectors, making aam admi the biggest driver of credit growth in the economy. They held 55 per cent of term deposits and 81 per cent of savings deposits, thus helping boost banks’ net interest margins too.

This was underlined by former RBI deputy governor Michael J Patra, in a speech: “In India, the household sector typically generates surplus saving relative to its investment which it lends to other sectors…for India, domestic savings have largely financed the overall investment requirements of growth, with external financing playing a supplemental role as reflected in largely modest current account deficits.”

Ownership of deposits

The share of bank deposits held by Indian families amounted to ₹10.8 lakh crore in 2005, accounting for 60.7 per cent of total bank deposits. The share ranged between 58 per cent and 59 per cent until 2013, when it started moving higher, in line with domestic interest rates. The highest share was seen during Covid when households had more surplus due to curtailment of travel and mobility. Though a gradual decline is seen in recent years, it still stands at 61.08 per cent of total bank deposits, valued at a whopping ₹132 lakh crore, in 2024. Even as households held their share in bank deposits steady, the Central government has witnessed a reduction in its share from 2.4 per cent in 2005 to 1.74 per cent in 2024. This shows the tight ship the Centre has been running, limiting its borrowing to the deficit, so that there is minimal surplus parked in banks. State governments have been laxer, increasing their share from 2.5 per cent to 5.34 per cent in this period. The segment which has witnessed a large increase in share of bank deposits between 2005 to 2024 is the corporate (non-financial) sector. This sector more than doubled its share of bank deposits from 8.7 per cent to 17.52 per cent. This is indicative of the large savings they have generated due to higher profitability and corporate tax cuts in the last few years.

The annual growth in deposits held by households has, however, not been even. It was extremely high between 2007 and 2012, averaging 24 per cent. The high repo rate of 7-9 per cent, coupled with distress in the economy during that period seems to have played a role in this increase. There is, however, a marked deceleration in household deposit growth in recent years. The CAGR in bank deposits has slowed to 10.3 per cent between 2020 to 2024. This is even below the growth in total bank deposits of 11.4 per cent. This recent slowdown could be due to channelling of investments to other avenues.

Diversion of savings

The increased participation of individual investors in equity markets, mutual and insurance funds since the pandemic is well chronicled. The individual investor has evolved quite fast over the last five years, moving money into assets that generate higher returns. But the RBI’s data on financial savings does not capture much of this change.

For instance, the stock of household financial assets compiled by the RBI does not include direct holding of Indian investors in the stock market. This currently amounts to ₹42.8 lakh crore. Alternative investment funds and PMS schemes have assets under management of ₹18.8 lakh crore, which is predominantly held by Indian families. Individuals also hold direct stakes in REITs, InvITs, crypto assets, NFTs, etc.

While collating the stock of financial assets held by the households, the RBI considers bank deposits, non-bank deposits, life insurance funds, currency, mutual funds, public provident fund, pension funds and small savings. But the assets mentioned above are yet to be included in the RBI’s compilation.

This gap was also pointed out in a SEBI working paper: “In the existing methodology, RBI is considering the actual data relating to mutual fund investments sourced from SEBI and AMFI... certain segments and products in the Indian securities market are not considered in the existing computation.”

Focus on household surplus

The data shows that not only are Indian households the main lenders to other sectors through the surplus invested in bank deposits, but they are also fuelling growth through their investment in the primary and secondary markets for equity and debt and through indirect investments in mutual funds, pension funds, insurance funds etc. The total financial assets of households, per the RBI, was ₹254 lakh crore as of March 2024. This figure will be much higher if the other asset classes, which have been omitted from the computation, are also considered. How are household financial savings increasing while income is stagnating? Though salary income is growing at a sluggish pace, the non-salary income such as business income or income of the more affluent agricultural households could be more resilient, reaping the benefits of the fast-paced growth in the economy in the last two decades. The frugality of many Indian households, which believe in saving before consuming, could also be responsible for this.

The Centre is doing well to put more money in the hands of the common man through income tax rate cuts, pay commission revision, etc. This may be the right way to increase saving, which will eventually translate into a growth booster for the economy.

Published on June 12, 2025