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RBI Annual Report 2019-20: Household Financial Liabilities Fell In FY20 Even Before The Pandemic

Lower household leverage suggests that people were borrowing less as the Indian economy was slowing even before the pandemic.

Sandesh Agare, an executive with a private company, works from home during the 40-day coronavirus lockdown, at Parel in Mumbai, on April 13, 2020. (Photo: PTI)
Sandesh Agare, an executive with a private company, works from home during the 40-day coronavirus lockdown, at Parel in Mumbai, on April 13, 2020. (Photo: PTI)

Financial liabilities of Indian households dropped in the previous fiscal in another indicator of weak demand even before the pandemic disrupted economic activity.

Net financial savings of households are estimated to improve to 7.6% of the gross national disposable income in fiscal 2019-20, according to preliminary estimates published by the Reserve Bank of India in its annual report. This is a reversion to trend after the indicator fell to 6.4%, the lowest in the current GDP series, in 2018-19.

Yet, the improvement came on account of a sharper moderation in household financial liabilities than financial assets, according to the central bank’s estimates. Financial liabilities fell to 2.9% of GNDI in 2019-20 from 4% a year earlier. Gross financial savings of households remained stable at 10.5% versus 10.4% in 2018-19.

Lower household leverage suggests people were borrowing less as the Indian economy was slowing even before the pandemic. Things only worsened since then as the Covid-19 disruption stalled economic activity, causing job losses and salary cuts. Consumer sentiment is at record low and the RBI says the severe shock to private consumption will take time to mend.

Household leverage may have further slowed down in 2020-21 with perhaps a negative growth in disposable income, said Soumya Kanti Ghosh, group chief economic adviser at the State Bank of India. But this may still not result in a decline in net household financial savings as people have accumulated currency, deposits and even shares in large numbers, he said. Consumer demand, he said, is likely to remain muted even in 2020-21.

Consumer demand was already low before and will remain low through increased precautionary savings as the pandemic continues to ravage through the economy.
Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

The National Statistics Office will release data on household financial savings in January.

According to SBI’s estimates, net financial savings increased by Rs 3.4 lakh crore from a year earlier to 15.7 lakh crore in 2019-20. Financial liabilities increased 0.8 times, while disposable income rose by 1.1 times, indicating consumer deleveraging in 2020-21, Ghosh estimated.

Sandeep Narang, chief India economist at Bank of Baroda, said while income has been impacted, consumers are likely to cut down on consumption to balance savings. A recent RBI survey showed that consumer confidence hit a record low in July, indicating lack of consumer appetite, he said. On the other hand, bank credit for personal loans has also failed to pick up, implying low demand as consumers continue to deleverage instead, Narang said.