Net Financial Assets Of Indian Households Gathered Pace In 2019-20, Touch 7.7% Of GDP

RBI noted in a latest update that households are the main suppliers of the financial resources to other sectors of the economy. Their role is likely to become critical in the context of the ongoing slowdown and, more recently the life-threatening COVID-19 pandemic. Information on movement in financial assets and liabilities of households on a quarterly basis can provide a better understanding of the dynamics of growth in the Indian economy. This article updates the March 2018 pilot exercise and consolidates information on households' financial assets and liabilities for twelve quarters extending to March 2020.

Net financial assets of Indian households after having moderated in 2018-19, gathered pace in 2019-20 touching the levels reached in 2017-18, i.e., 7.7 per cent of GDP. The improvement has occurred due to moderation in household bank borrowings being sharper than those in bank deposits.

Households' gross financial liabilities turned negative in Q1:2019-20 owing mainly to contraction in borrowings from commercial banks, but picked up thereafter and peaked in Q4:2019-20, reflecting apart from the seasonal uptick, higher borrowings induced by COVID-19 related hardships.

Both financial assets and liabilities of households remain bank-centric, with some shift in favour of mutual funds and insurance in recent quarters.

A seasonal pattern is discernible in at least three financial instruments, namely, currency and bank deposits on the assets side, and bank borrowings on the liabilities side.

While acquisition of currency peaks in the first quarter, deposits and loans from the banks expand in the last quarter of the financial year.

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