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Informist, Tuesday, Sep 3, 2024

 

--RBI Patra:Households will likely build back fincl assets going ahead 

--CONTEXT: RBI Deputy Governor Michael Patra at CII-organised event 

--RBI Patra: Households will remain top net lenders to rest of econ 

--RBI Patra: Cos' fincl needs may be met by external funding sources 

--RBI Patra: Sustenance of external debt to remain policy priority 

--RBI Patra: Cos' fincl needs likely to be met by household savings 

--RBI Patra: Fincl sector to be much more sophisticated, diversified 

 

MUMBAI – Households will likely build back their financial assets going forward due to rising incomes, Reserve Bank of India Deputy Governor Michael Patra said at the 'Financing 3.0 Summit' organised by the Confederation of Indian Industry today. Moreover, households will remain the top net lenders to the rest of the economy in the coming decades, he said.

 

"A peak of financial assets by households was at 15% of GDP in the early years of 2000s, right after the closure of the financial crisis. So that is the potential that we can take into account. That process has already begun," Patra said.

 

Patra said that recently the net financial savings of households have almost halved as a proportion of GDP, due to behavioural changes. "(These are) in the form of unwinding of prudential savings accumulated during the pandemic, as well as from shifts from financial assets to physical assets such as housing. Going forward, boosted by rising incomes, households will likely build back their financial assets," he said.

 

He also said the financial assets of households have gone up from 10.6% of GDP on average during 2011-2017 to 11.5% during 2017-2023, excluding the pandemic year. "The physical savings are also rising in the post-pandemic years. There, the peak was 16% of GDP in 2010-2011. So that's where things will go," he said.

 

He said the private corporate sector has been reducing its net borrowings from the rest of the economy, which reflected the culmination of rise in internal accruals on high profitability and subdued capacity creation. "Looking ahead, its (private corporate) net borrowing requirements are likely to rise on the back of a revival in the capex cycle. Financing requirements will largely be met by households and external resources," he said.

 

On foreign savings, Patra said that in the case of India, domestic savings have largely financed the investment needs of the economy, with external financing playing a supplemental role.

 

"As the productive capacity of the economy rises and its ability to absorb foreign resources expands, the volume of external financing and its composition may undergo fundamental shifts," he said. However, he said that in light of past experiences, external debt sustainability will remain a policy priority. 

 

Patra also said that market financing will likely grow in depth and sophistication. "The institutional architecture of financial intermediation may become more diversified while exploiting niches of specialisation and leveraging on technological solutions," he said.  End

 

Reported by Kshipra Petkar

Edited by Manisha Baxla

 

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