E
CO
S
COPE
The Economy Observer
16 August 2024
Household financial net worth at 97.2% of GDP in FY23
Posting the highest improvement in the post-pandemic period vs. many other major economies
The RBI
published
an article in Jul’24 in its Bulletin, which presented the first-ever quarterly estimates of the financial
wealth of Indian households from FY12 to FY23 (Jun’11-Mar’23). These efforts go a long way in bridging the data gap and
providing more insights into household financial position in India. In this note, we highlight the key conclusions from the
RBI’s study and compare the financial net worth (FNW) of Indian households with that of few other major nations in the
world.
Key headline data:
As of Mar’23 end, household gross financial assets (GFAs) stood at 135.0% of GDP, up from 121.8% of GDP as of Dec’19
(pre-Covid) and 110.5% in FY12
(Exhibit 1).
At the same time, their financial liabilities (=debt) were at 37.8% of GDP in
FY23 vs. 33.4% in Dec’19 and 29.8% in FY12
(Exhibit 2).
It means that FNW of Indian households was at 97.2% of GDP in
FY23, much better than 88.4% in Dec’19 and 80.7% in FY12
(Exhibit 3).
In other words, while GFAs increased at a CAGR of
12.8% between FY12 and FY23, household debt increased at a slightly faster pace (13.2%), implying a CAGR of 12.7% in
households’ FNW
(Exhibit 4).
Compositional of household GFAs:
Unfortunately, although the article estimated household GFAs using all major components (except the unlisted equity), it
did not provide data regarding the components of GFAs. While discussing the compositional shifts in GFAs, the article
highlighted that the share of currency and deposits (including small savings) in FY23 was lower than in FY12, while it
increased for other components such as insurance & pension funds, equity & investment funds and debt securities
(Exhibit 5).
The share of deposits in FY23 was 43% of household GFAs, down from 51% in FY12, while the corresponding numbers for
currency were 8.6% and 10.1% respectively. In contrast, the share of insurance & pension funds increased to 29.5% (from
27%), and the share of equity & investment funds increased to 17.6% in FY23 from 11.2% in FY12.
It also means that while total GFAs increased 3.8x between FY12 and FY23, the exposure to equity & investment funds
rose by 5.9x during the same period.
The article further stated that the share of listed equity holdings was 11.1% of household GFAs in FY23. Accordingly, the
reverse calculation suggests that households held INR40.4t worth of equity as of Mar’23 or 15.6% of total market
capitalization (INR259.1t). As per the article,
“…the equity wealth of households stood at 10.3% of GDP in Q1:2011-12,
which rose to a peak of 19.4% of GDP in Q3:2021-22, and then subsequently moderated to 14.9% of GDP in Q4:2022-
23….”
Some details of household debt (outstanding liabilities):
Like other emerging market economies, the banking sector accounted for 79.3% of household debt in India in FY23, down
from 86.4% in FY12. It means that the share of non-bank debt increased by about 50% during the past 11 years.
The RBI article also mentioned that
“…Mortgages make up the lion’s share (more than 50%) of household debt in
advanced economies (AEs), while in emerging market economies (EMEs) non-mortgage debt forms at least two-third of
the total…”.
It fell short of sharing the same data for Indian households; however, as we have
highlighted
many times
earlier, our estimates suggest that mortgages account for less than 30% of household debt in India.
Household leverage ratio:
Lastly, the household leverage ratio – defined as the ratio of household debt to financial assets – has remained largely
flat and range-bound since FY12
(Exhibit 6).
At 28% in FY23, household leverage in India was not significantly different
from 27.4% in Dec’19 or 27% in FY12.
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com)
Tanisha Ladha
– Research analyst
(Tanisha.Ladha@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.