India’s household financial savings saw its first improvement after nearly 6 years in FY16 driven by higher exposure to capital markets, currency holding and government deposits.
Gross financial savings (GFS) of households increased to 10.9 percent of the gross domestic product (GDP) in FY16 from 10.1 percent in FY15, says a report by domestic broking house Motilal Oswal Securities quoting Reserve Bank of India data.
Capital market exposure (investment in both shares and debentures) of households at Rs 918 billion in FY16 was the highest absolute amount in a single year on record since 1950s. Currency emerged the most preferred method of savings, with holdings increasing to 13.5 percent of GFS in FY16, the highest since 1990. Despite lower interest rates, savings in government schemes also increased considerably.
Although the GFS to GDP might look trivial compared to average 14.4 percent seen in the decade leading up to 2011, it gains significance as being the highest increase in the GFS growth rate since.
This did not account for any real improvement in savings rate at the net level due to similar increase in financial liabilities of households alongside. Net financial savings (NFS) inched up only marginally to 7.8 percent in FY16 from 7.6 percent of GDP in FY15. Although the highest NFS rate in five years, it was much lower than the average rate of around 11 percent of GDP in the decade to FY11.
Motillal says a look at several leading indicators to gauge household financial savings for FY17 points to further pick-up in GFS.
The build-up in bank deposits growth in the first five months of FY17 is 3.6 percent versus 2.9 percent in the corresponding period last year, the note says. Similarly, currency till August 2016 was up 4.7 percent, as against 2.7 percent in April-August 2015 and exposure to equity also seems to be stronger, the note adds.
“While GFS is likely to increase further in FY17 – a definite positive development – higher borrowings may keep improvement in NFS limited,” the note concludes.