Quick savings recovery after demonetisation jolt: Reserve Bank of India
According to the report, financial assets of the Indian households are predominantly in the form of bank deposits, followed by life insurance - a pattern that got disrupted after note ban
 "A woman walks past the Reserve Bank of India (RBI) head office in Mumbai | Photo: Reuters")
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A woman walks past the Reserve Bank of India (RBI) head office in Mumbai | Photo: Reuters
The Reserve Bank of India’s (RBI’s) first quarterly publication on households’ financial assets pattern shows that Indian households quickly overcame the jitters from demonetisation.
So far the study was published annually, but will now be available every quarter. The reason being an annual study often fails to capture the sharp volatility witnessed in investments and savings pattern every quarter.
Household savings is crucial to gauge macroeconomic and systemic risks and is taken into consideration while preparing the bi-annual financial stability report.
According to the report, financial assets of the Indian households are predominantly in the form of bank deposits, followed by life insurance — a pattern that got disrupted after note ban. It was back on track the next quarter as and when new currency notes were introduced in the system.
“Indian households are net savers and suppliers of financial resources for the rest of the economy,” the study said. The net financial assets of the households turned negative (-7.3 per cent of gross domestic product, or GDP, in the third quarter of 2016-17) after cash wash, it added.
However, with subsequent introduction of new currency notes, households’ net financial assets turned around. In the fourth quarter, they amounted to 14.8 per cent of the quarterly GDP. In 2017-18, net financial assets are estimated at 8.3 per cent of GDP in the second quarter, up from 5.8 per cent of GDP in the first quarter.
Households hold its financial assets mainly in the form of currency, deposits, debt securities, equities, mutual fund units, insurance and pension funds, and small savings. Liabilities are mostly in the form of loans and borrowings from banks, housing finance companies and non-banking financial corporations, the study said.
According to the study, borrowings from banks turned negative after note ban “as demonetised currency was used to pay back loans.”
The study said deposits with banks and non-banks increased in the second quarter of 2016-17 to 8.6 per cent of GDP from 8.1 per cent in the previous quarter, reflecting the impact of salary and pension revision due to the implementation of the Seventh Pay Commission. The mobilisation of deposits under the income declaration scheme also had an impact.
So far the study was published annually, but will now be available every quarter. The reason being an annual study often fails to capture the sharp volatility witnessed in investments and savings pattern every quarter.
Household savings is crucial to gauge macroeconomic and systemic risks and is taken into consideration while preparing the bi-annual financial stability report.
According to the report, financial assets of the Indian households are predominantly in the form of bank deposits, followed by life insurance — a pattern that got disrupted after note ban. It was back on track the next quarter as and when new currency notes were introduced in the system.
“Indian households are net savers and suppliers of financial resources for the rest of the economy,” the study said. The net financial assets of the households turned negative (-7.3 per cent of gross domestic product, or GDP, in the third quarter of 2016-17) after cash wash, it added.
However, with subsequent introduction of new currency notes, households’ net financial assets turned around. In the fourth quarter, they amounted to 14.8 per cent of the quarterly GDP. In 2017-18, net financial assets are estimated at 8.3 per cent of GDP in the second quarter, up from 5.8 per cent of GDP in the first quarter.
Households hold its financial assets mainly in the form of currency, deposits, debt securities, equities, mutual fund units, insurance and pension funds, and small savings. Liabilities are mostly in the form of loans and borrowings from banks, housing finance companies and non-banking financial corporations, the study said.
According to the study, borrowings from banks turned negative after note ban “as demonetised currency was used to pay back loans.”
The study said deposits with banks and non-banks increased in the second quarter of 2016-17 to 8.6 per cent of GDP from 8.1 per cent in the previous quarter, reflecting the impact of salary and pension revision due to the implementation of the Seventh Pay Commission. The mobilisation of deposits under the income declaration scheme also had an impact.