E
CO
S
COPE
Household financial savings at 5-year high
Leading indicators show further pick-up in FY17
19 September 2016
The Economy Observer
Reserve Bank of India (RBI) data indicate that household gross financial savings (GFS) increased from 10.1% of GDP in
FY15 to 10.9% in FY16 – the first significant pick-up in six years. However, with financial liabilities also picking up, net
financial savings (NFS) – key element for the economy – moved only marginally from 7.6% to 7.8%.
Households’ exposure to shares & debentures in FY16 was the highest ever in absolute terms. Holding of currency as a
percentage of GFS was the highest since 1990. Notwithstanding lower interest rates on small savings schemes,
households increased their claims on government schemes.
Leading indicators show that the build-up of growth in bank deposits, currency and equities has been better in April-
August 2016, indicating further pick-up in household GFS in FY17. However, with faster growth in borrowings, the
improvement in NFS could remain subdued in FY17 also.
Household GFS increased for the first time in six years…:
Recently released RBI
data indicate that Indian households increased their gross financial savings (GFS)
from 10.1% of GDP in FY15 to 10.9% in FY16
(Exhibit 1).
While this is still much
lower than the average GFS rate of 14.4% in the decade to FY11, FY16 marked
the highest increase in GFS rate in six years
(Exhibit 2 on the next page).
…driven by higher exposure to capital markets, more currency holdings and
government deposits:
Households increased their exposure to capital markets,
as they bought shares & debentures worth INR918b in FY16 – the highest
absolute amount in a single year on record (since 1950s). Further, currency was
the most preferred method of savings, currency holdings increased to 13.5% of
GFS in FY16, the highest since 1990. Notwithstanding lower interest rates,
household savings in government schemes also increased considerably
(Exhibit
3).
On the other hand, unlike in FY15, savings in long-term safe assets
(insurance, provident & pension funds, IP&PFs) grew slowly. Finally, deposit
growth was also subdued despite low base (declined 6.5% in FY15).
The increase in NFS, however, was marginal:
While GFS increased significantly,
household financial liabilities also picked up from 2.6% of GDP in FY15 to 3.1% in
FY16. Consequently, household net financial savings (NFS), which is what
matters for the economy, inched up only marginally from 7.6% of GDP in FY15 to
7.8% in FY16 – broadly in line with our estimates. Though this is the highest NFS
rate in five years, it was much lower than the average rate of ~11% of GDP in the
decade to FY11
(Exhibit 4).
Leading indicators point to further pick-up in GFS in FY17:
A look at several
leading indicators to gauge household financial savings for FY17 points to
further pick-up in gross financial savings. The build-up growth in bank deposits
in the first five months of FY17 is 3.6%, as against 2.9% in the corresponding
period last year. Similarly, currency till August 2016 was up 4.7%, as against
2.7% in April-August 2015 and exposure to equity also seems to be stronger
(Exhibit 5).
While GFS is likely to increase further in FY17 – a definite positive
development – higher borrowings may keep improvement in NFS limited.
Nikhil Gupta
(Nikhil.Gupta@MotilalOswal.com); +91 22 3982 5405
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
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Exhibit 1: Household financial savings and liabilities
% of GDP
Gross financial savings
Currency
Deposits*
Insurance, provident & pension funds
Claims on government
Shares & debentures
Financial liabilities
Net financial savings
FY10
15.3
1.5
6.4
6.0
0.7
0.7
3.1
12.1
FY11
13.9
1.8
7.2
4.5
0.4
0.0
3.6
10.3
FY12
10.4
1.2
6.0
3.2
(0.2)
0.2
3.2
7.1
FY13
10.5
1.1
6.0
3.3
(0.1)
0.2
3.3
7.3
FY14
10.6
0.9
5.9
3.3
0.1
0.4
3.0
7.5
FY15
10.1
1.1
5.0
3.6
0.0
0.4
2.6
7.6
FY16
10.9
1.5
4.8
3.5
0.4
0.7
3.1
7.8
* Include bank deposits, non-bank deposits and (net) trade debt
Source: RBI, Central Statistics office (CSO), MOSL
Exhibit 2: Household financial savings witnessed first
meaningful pick-up in six years…
20
15
10
5
0
(% of GDP)
(% of GDP)
(4)
Change in GFS (RHS)
GFS
4
Exhibit 3: …driven by currency, government deposits and
capital markets
Currency
100%
2
0
(2)
75%
50%
25%
0%
-25%
FY12
FY13
FY14
FY15
FY16
* Bank and non-bank deposits
#shares & debentures
0
3
6
1
(0)
Deposits*
0
3
IP&PFs
0
0
3
Govt
0
0
4
5
1
Risky#
1
0
4
5
1
6
1
(0)
6
1
FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16
Exhibit 4: NFS, however, was up only marginally
20
17
14
11
8
5
Gross financial savings
(% of GDP)
Net financial savings
Exhibit 5: Leading indicators point to further pick-up in FY17
Apr-Aug 2015
(Build-up
growth, %)
Apr-Aug 2016
26.8
16.0
2.9
3.6
MFs AUM
2.7
4.7
Deposits
Currency
Source: Reserve Bank of India (RBI), CEIC, MOSL
19 September 2016
2

NOTES
19 September 2016
3

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