Deposits remain preferred saving instrument but equity gains steam

Equity, investment funds share in total financial wealth up by over 50% between 2011-12 and 2022-23

Indian households are moving beyond bank deposits and increasingly exploring avenues such as equity instruments and investment funds to deploy their savings, according to a research paper authored by the Reserve Bank of India (RBI) staff.

While deposits have maintained their dominant position in the total financial wealth of households over the last decade, there has been a growing interest in other investment instruments such as equity and investment funds, insurance, and pension funds. Additionally, the share of equity and investment funds in the total financial wealth of households increased by more than 50 per cent between 2011-12 and 2022- 23, the report said.

RBI Governor Shaktikanta Das also noted that households and consumers, who traditionally relied on banks for parking or investing their savings, were increasingly turning to capital markets and other financial intermediaries.

“While bank deposits continue to remain dominant as a percentage of financial assets owned by households, their share has been declining with households increasingly allocating their savings to mutual funds, insurance funds, and pension funds. To be precise, households are increasingly turning to other avenues for deploying their savings instead of banks,” Das said at an event in Mumbai on Friday.

According to the RBI research paper, as of March 2023, total household financial assets were estimated at Rs 363.8 trillion, equivalent to 135 per cent of the gross domestic product (GDP). In contrast, outstanding liabilities amounted to Rs 101.8 trillion, accounting for 37.8 percent of GDP. Thereby, the resultant net financial wealth (NFW) stood at Rs 262.0 trillion, or 97.2 per cent of GDP.

The pandemic period witnessed a jump in the financial assets and NFW for the two-year period from March 2020 to March 2022. However, with the resumption of normal economic activities in 2022-23, the NFW normalised due to a strong revival in both bank and non-bank lending to households coupled with relatively moderate growth in financial assets, the paper said.

It also states that the participation of Indian households in the equity market has significantly increased over time. The share of households in total market capitalisation from March 2010 to March 2023 averaged around 14.5 per cent, experiencing a generally rising trend with intermittent fluctuations. The post-pandemic recovery in the stock market coincided with an increase in household share in total market capitalisation mainly driven by a rapid increase in shareholdings of non-promoter households, the paper said.

The equity wealth of households stood at 10.3 per cent of GDP in Q1FY12, which rose to a peak of 19.4 per cent of GDP in Q3FY22, and then subsequently moderated to 14.9 per cent of GDP in Q4FY23. Also, the total number of demat accounts surged from 3.6 crore in 2018-19 to 11.4 crore in 2022-23. As of March 2023, listed equity holdings accounted for 11.1 per cent of the total financial assets of Indian households.