Household savings may have rebounded in FY24, estimated at 6% of GDP by Goldman Sachs

May 22, 2024

Household savings in India could have rebounded the last fiscal year after dropping to a record low post the pandemic. Experts also believe that Indians may be investing more in equities, mutual funds and retirement plans rather than parking them in bank deposits owing to high inflationary pressures.

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Two recent reports by Goldman Sachs and CRISIL have forecast that domestic household savings may have rebounded in FY24.

“We estimate net financial savings of households at the end of March 2024 to have increased to nearly 6% of GDP (versus 5.1% of GDP in FY 2023),” said Goldman Sachs in a report on Wednesday. This is mainly driven by the agency’s estimate of higher gross financial savings of 12.5% of GDP (versus 11% of GDP in FY 2023) owing to its estimate of higher bank deposit growth (11% YoY in FY 2024 versus 9.4% YoY in FY 2023), it further said.

“We estimate an increase in household liabilities to 6.6% of GDP (versus 5.9% of GDP in FY 2023) to partially offset the increase in deposits,” it further said.

Net financial savings of households dropped to a five year low in FY23 to Rs 14.16 lakh crore in FY23, sharply down from Rs 17.12 lakh crore in FY22. As a percentage of GDP, it had fallen to 5.3% in FY23, which was much below the average of 7.6%.

In a report on Tuesday, CRISIL too said that as per early indicators, overall household savings likely rose and contributed to higher total savings in fiscal 2024. Household savings constitute about 60% of the total savings in the economy and bankroll a large proportion of the country’s investments.

Data on household savings comes with a year’s lag and data for FY24 will be available by end of the current fiscal.

Goldman Sachs in its report said that household savings may have shifted to non bank alternatives such as retirement savings, partly helped by tax benefits.

Highlighting notable shifts in household financial savings from FY05 to FY23, Goldman Sachs said that bank deposits form the highest share in household financial savings, but their share has declined from around 50% on average in 2005-2015 to around 35% on average in 2016-2023. Meanwhile, the share of retirement savings (pension funds and public provident funds or PPF) rose from an average of about 11.5% in FY05-12 to 18% in FY13-23.

“The overall AUM of retirement savings, insurance, and mutual funds have grown at a CAGR of about 15%, outpacing households bank deposit growth rate of  close to 9% over the last 10 years,” it said.

The share of savings in equity capital markets (shares and debentures) increased from 1% to 7% from FY 2005-2023 mainly driven by higher allocation to mutual funds, it further highlighted.

Crisil also noted that households have been borrowing at a faster pace than they have been saving since the Covid-19 pandemic. “For households, among financial instruments, there is a gravitation from savings in deposits to equities, mutual funds and small savings,” it said, adding that household savings in physical assets have also risen post pandemic.

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