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Informist, Thursday, Jul 18, 2024

--RBI paper: Households' debt to financial assets ratio stable 

--Study shows deposits still most preferred way of saving 

--In savings, market instruments gaining share 

--Major household investments flow into non-fincl asset

MUMBAI – The household leverage ratio, the ratio of household debt to financial assets, has remained broadly stable between 2011-12 and 2022-23, according to a Reserve Bank of India staff paper published in the July edition of the central bank's monthly bulletin.

In emerging market economies like India, non-mortgage debt makes up around two-thirds of the total household debt. This includes secured and unsecured loans. On the other side of the balance sheet, deposits have continued to dominate financial wealth over the last decade as they remain the preferred mode of saving.

However, the share of other forms of savings in total wealth is increasing. The share of equity and investment funds in total financial wealth increased by more than 50% between 2011-12 and 2022-23, the paper said. The total number of demat accounts in the country surged to 114 mln in March from 36 mln in 2018-19.

The equity wealth of households stood at 10.3% of GDP in Apr-Jun 2012, which rose to a peak of 19.4% of GDP in Oct-Dec 2019, and then moderated to 14.9% of GDP in Jan-Mar. Equity holdings now comprise about 11.1% of the total financial assets of Indian households.

While banks continue to be the biggest source of credit, housing finance companies and non-banking finance companies are emerging as alternatives. The share of non-bank debt increased by around 7% from March 2012 to 20.7% in March 2023.

The accumulation of financial assets wealth surged in 2020-21 owing to pandemic-induced restrictions on mobility and spending, and slower growth in liabilities. Since the return of normalcy, financial wealth has exhibited some normalisation as household consumption has picked up.

As of March 2023, total household financial assets are estimated at 363.8 trln rupees, equivalent to 135% of GDP. In contrast, the outstanding liabilities amounted to 101.8 trln rupees, or 37.8% of GDP. The resultant net financial wealth is estimated at 262 trln rupees, or 97.2% of GDP.

Talking about the share of currency in financial transactions, the paper said its share has moderated with the exponential growth in digital payments.  End

US$1 = 83.65 rupees

Reported by Kabir Sharma

Edited by Rajeev Pai

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