Shifting Landscape of Indian Household Savings: A BofA Securities Report
According to a recent report by BofA Securities, there has been a notable shift in the financial savings of Indian households, moving away from conventional bank deposits towards capital markets. This shift reflects evolving trends in financial literacy and investment preferences among Indian households.
In fiscal year 2001, conventional bank deposits, including non-bank deposits, accounted for 39% of total financial savings, while capital markets garnered only 4% of the total pie. Fast forward to fiscal year 2023, and the landscape has evolved, with bank deposits still holding a significant share at 37%, but capital markets have seen growth to capture 7% of total financial savings.
Improved financial literacy has played a crucial role in reshaping savings patterns. Savings allocated to life insurance, provident funds, and pension funds have steadily risen from 34% of total financial savings in FY2001 to 40% in FY2023. This indicates a growing awareness of alternative investment avenues among Indian households.
RBI's latest data highlights a shift in the allocation of financial assets by households. Savings parked as currency have declined from 12% of total financial assets in FY22 to 7% in FY23, with a corresponding increase in bank deposits from 22% to 35% during the same period.
Total household savings in financial assets have witnessed substantial growth, reaching Rs 28 trillion in FY22, doubling from Rs 14 trillion in FY12. Despite this growth, physical assets remain a significant component of household wealth.
On average, Indian households allocate 77% of their total assets to real estate, 7% to other durable goods, and 11% to gold. However, the share of physical savings in total household savings has fluctuated over the years, declining from 69% in FY2012 to 49% in FY21, before rising again to 61% in FY22.
The household sector plays a pivotal role in the Indian economy, contributing 70% to total gross domestic savings. Household savings are broadly classified into financial and physical assets, with bank and non-bank deposits accounting for a significant portion of financial savings.
While real estate remains the largest component of physical savings, there has been a gradual shift towards financial assets in recent years. This trend underscores the evolving investment behavior and preferences of Indian households, influenced by factors such as financial literacy, market dynamics, and regulatory changes.
As household savings continue to evolve, policymakers and financial institutions will need to adapt to ensure the efficient allocation of resources and foster sustainable economic growth.
