Scaling the economic ladder: Indian savings climb, yet rungs remain

Domestic households are pivoting away from keeping their savings in traditional bank deposits. Instead, they are opting to invest in mutual funds (MFs), direct equities, insurance, and pension schemes. This trend was recently underscored by Reserve Bank of India Governor Shaktikanta Das.

At Rs 61.2 trillion, the assets under management at domestic MFs are now almost a third of bank deposits, which stand at Rs 213 trillion, up from just 15 per cent during the peak of Covid-19.

Including other asset classes such as equities, insurance, and pension products, the share of non-bank instruments in Indian household savings could be as high as 43 per cent.

While India has made considerable strides in moving beyond bank deposits, the share of non-bank holdings is still below that of the developed world and some of its emerging market (EM) peers, according to a study by Goldman Sachs.

For instance, only 15 per cent of US households’ assets are in banks, compared to 46 per cent in South Korea.

“There has been an increase in household savings to non-bank alternatives due to multiple factors such as financial literacy (on say, retirement or pension savings), government efforts towards digitalisation and formalisation of the economy, among others.

Despite this, Indian household savings allocation towards non-bank instruments is well below that of developed markets and some major EM peers like Korea and Taiwan, indicating further scope for this trend to sustain in the coming years,” says the US-based brokerage in a note.