The recent household finance data published by the Reserve Bank of India has made it to media headlines. Reportedly, the net financial savings of Indian households have crashed to a nearly five-decade low of 5.1% of GDP; while the financial liabilities of households shot up by 5.8% of GDP in 2022-23. Obviously, it is a worrisome trend from many aspects. Traditionally, household savings have been a stable and cost-effective source of funding for both - the government and corporate. High domestic savings provided a critical cushion to the Indian fiscal position from external shocks during the Asian currency crisis, the dotcom bubble, and the subprime crisis. Of course, the weakening of this cushion should be a cause of worry.
However, there is nothing surprising in this data. Household savings have been consistently declining for the past many years. I have highlighted this trend on several occasions. For example, check Household savings – 1, Household savings - 2, Household savings - the changing paradigm, Household savings - the changing paradigm - 2, Household savings - changing paradigm - 3, Mango vs McAloo, etc.
Deceleration in average deposit and credit
The latest edition of Handbook of Statistics on Indian Economy, published by RBI highlights a noteworthy trend, that might have escaped scrutiny, viz., sharp deceleration in the average deposit and credit per account held with the scheduled commercial banks (SCBs) in real terms.
Moreover, even in nominal terms, the average deposit per account has registered a minimal growth of 1% CAGR over the past decade (2013-2023); whereas the average credit per account has decelerated by ~1% CAGR over the past decade.
Deposits
Segment-wise, over the past decade (2013-2023)—
· Rural and Semi Urban branches of SCBs have seen the number of bank accounts growing at the rate of 9.2% and 9.6% CAGR respectively; whereas the average deposit per account has grown ~2% in these areas.
· Urban and Metro branches of SCBs have seen the number of bank accounts growing at the rate of 8.1% and 9.7% CAGR respectively; whereas the average deposit per account has decelerated in urban branches at the rate of 1.5% CAGR, while metro branches have remained stagnant.
Credit
· Rural credit accounts with SCBs have grown much less than the deposit accounts, at a rate of 7.8% CAGR.
· Semi urban credit accounts grew in line with the deposit accounts, at a rate of 9.4% CAGR.
· Urban (11.9% CAGR) and Metro (15.5% CAGR) credit accounts have grown much faster than the deposit accounts.
· Rural, Semi Urban and Urban areas have seen average credit per account growing at a rate of ~2% CAGR, while in Metro areas average credit per account has decelerated at a rate of 5.26% CAGR over the past decade (2013-2023).
Conclusion
There is not enough data available to make a deeper analysis of this data. Nonetheless, I would like the analysts to examine the following points:
· Whether sharp deceleration in average real deposit amount indicates a rising propensity to consume; declining preference for bank deposits; and/or sharply declining disposable income.
· How effective is the present program and policy of financial inclusion?
· Why rural credit is not accelerating despite several government schemes and incentives?
· Does the trend in metro credit indicate a sharp rise in the number of small ticket personal and appliance loans; while business loans get lower priority?
· Does this trend of lower amount of average deposit and credit per account is also indicative of a rising skew in distribution?
· What impact shall we see if this trend of declining household savings, rising household credit, and negative real growth in average deposits and credit on deficit financing and banks’ profitability?
