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Household sector not in distress; people buying vehicles, homes on mortgages: Finance Ministry

The finance ministry also says that the concern over the drop in net household savings is unwarranted as the figures cited are ‘flow’ numbers or net additions in FY23. With growing concern over India’s net household financial savings falling to a 50-year low of 5.1% in 2022-23, the government has clarified that changing consumer preference for different financial products is the real reason for the fall in household savings and that there is no distress as is being circulated in some circles.

The finance ministry also says that the concern over the drop in net household savings is unwarranted as the figures cited are ‘flow’ numbers or net additions in FY23, and that the overall household savings remain almost static. In a clarification, the Finance Ministry has said that households added net Financial Assets of Rs 22.8 lakh crore in FY21, nearly Rs 17 lakh crore in FY22 and Rs 13.8 lakh crore in FY23.

“So, they added less financial assets to their portfolio than in the previous year and the year before, but it is important to note that their overall net financial assets are still growing,” said the finance ministry. The drop in net financial assets (also called net financial savings of households) in FY23 is largely due to a sharp increase in additional financial liabilities, which grew from Rs 5.9 lakh crore in 2021-22 to Rs 15.8 lakh crore in 2022-23.

“They added financial assets by a lesser magnitude than in the previous years because they have now started taking loans to buy real assets such as homes,” explains the finance ministry. It further says that RBI data on personal loans provides evidence. According to the finance ministry, personal loans given by banks have several components -- key among them are real estate loans and vehicle loans. Both are collateralised. These two constitute 62% of the overall personal loans by the banking sector. The other big categories are ‘other personal loans’ and ‘credit card loans’.

“So, financial liabilities have been incurred to buy real assets. Vehicle loans have been growing at double digits (y/y) since April 2022 and more than 20% (y/y) since September 2022. The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages,” says the Finance Ministry clarification.

On the drop in net addition of financial assets, the ministry says that the biggest item that seems to have swung financial liabilities is the net flow of credit from Non-Banking Financial Corporations (NBFC) to the Household Sector, which includes unincorporated enterprises. In FY22, NBFC had lent only ₹21,400 crore to the household sector. In FY23, they had lent nearly ₹2.4 lakh crore.

“That has set off alarm bells as commentators forgot that these are ‘flow’ numbers,” says the finance ministry. The finance ministry further says that the overall household savings (at current prices) - which includes financial, physical and jewellery - has grown at a CAGR of 9.2% between 2013-14 and 2021-22 (8 years). Nominal GDP has grown at a CAGR of 9.65% during the same period. Hence, according to the ministry, household savings as a percentage of nominal GDP have remained constant -- from around 20.3% to 19.7% as of FY22. (THE NEW INDIAN EXPRESS)