RBI: households Savings rate drops from 21% in Q1 to 10.4% Q2

The household financial savings rate falls to 10.4% of gross domestic product (GDP) — closer to pre-pandemic levels — in Q2FY21 from 21% in Q1 in a counter-seasonal manner, the Reserve Bank of India said in an article in its March bulletin, released on Friday. The savings rate may have fallen further in Q3 with a pick-up in consumption and economic activity, the article said.

“The Covid-19-induced spike in household financial savings rate in Q1:2020-21 waned substantially in Q2 in a counter-seasonal manner. While households’ deposits and borrowings picked up, their holdings of currency and savings in mutual funds moderated,” the RBI said. This reversion is mainly driven by the increase in household borrowings from banks and non-banking financial companies (NBFCs), accompanied by a moderation in household financial assets in the form of mutual funds and currency. Nonetheless, households’ financial savings rate for Q2FY21 ruled higher than that of 9.8% witnessed in Q2FY20.

The reversal in household financial savings is due to lower surplus in the current account balance. Household debt to GDP ratio rose sharply to 37.1% in Q2FY21 from 35.4% in Q1FY21. This primary declination suggest that household financial savings rate may have gone down further in Q3FY21 with the high consumption rate and economic activity.

RBI said, India appears to be faster in spending amid approaching of festive season demand which in turn reaches the pre-pandemic level of house holding in financial savings in Q2:2020-21.

House hold savings in mutual funds also drops to 0.3% from 1.7% between Q1:2021 an Q2:2021.

By L. Priyanka

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