Concerns over decline could hamper recovery
Faced with the surge of Covid-19 infections in recent months combined with lockdowns that led to job losses and drop in income, many households are understood to have started using their accumulated savings to fund expenditure.
According to the Reserve Bank of India’s monthly bulletin for March, household net financial savings rose to 21 per cent of GDP in the first quarter of 2020-21 and fell to 10.4 per cent in the second quarter. A report by Motilal Oswal in April had said household net financial savings had likely fallen to 8.4 per cent of GDP in the third quarter last fiscal.
Anecdotal data as well as the slowdown in bank deposits indicate that household savings have been impacted by the second surge of Covid-19 infections.
Deposits of commercial scheduled banks grew 9.7 per cent on an annual basis to ₹1,51,66,808.18 crore for the fortnight ended May 21, 2021 as against a 9.9 per cent growth in the fortnight ended May 7, 2021.
“Growth in deposits with scheduled commercial banks (a proxy for household saving, having about 50 per cent share in households’ overall savings portfolio), has declined starting April 2021. Last year, in contrast, deposit growth had moved up. This could be indicative of pressure on incomes and a simultaneous rise in medical expenditure given the heightened ferocity of the second wave,” said a recent report by Crisil.
People also seem to be withdrawing funds from retirement savings. By May 31, 2021, the EPFO had settled over 76.31 lakh claims under the Covid-19 advance scheme amounting to over ₹18,698.15 crore. The government has now allowed a second round of such withdrawals from the Employees’ Provident Fund.
Gold loan NBFCs are auctioning more gold in recent months indicating higher distress amongst borrowers. For instance, Manappuram Finance said it auctioned gold worth ₹404 crore in the fourth quarter of 2020-21 compared to ₹8 crore in the nine month period ended December 2020.
Sale of life insurance policies has also declined in recent months but there are expectations that it may revive in coming months.
“Equity markets have been performing well. It is expected that products such as mutual funds and ULIPs will continue to do well this fiscal as bank deposits have lost their sheen,” said an executive with a private insurer.