Household financial savings rise to 21.4% of GDP: RBI report

RBI preliminary estimates show a jump in household financial savings to 21.4 per cent of the gross domestic product (GDP) in the first quarter of 2020-21, up from 7.9 per cent in Q1 and 10 per cent in the fourth quarter of 2019-20.

“The sharp increase is counter-seasonal and may be attributed to the Covid-19-led reduction in discretionary expenditure or the associated forced saving and the surge in precautionary saving despite stagnant/reduced income,” the Reserve Bank of India (RBI) said, explaining the reasons for the rise in savings.

The yawning gap between credit extended and deposits mobilised during Q1FY21 contributed to the spike in household financial savings as the financial instruments relating to banks continue to dominate the household financial assets and liabilities, it said. Significantly, the RBI report also mentioned the “irrational exuberance” in the equity market, driven by monetary and fiscal policy measures undertaken in the context of the pandemic.

“Irrational exuberance in domestic equity markets extended into October 2020, driven by monetary and fiscal policy measures undertaken in the context of the pandemic as well as better than expected corporate earnings in Q2 of 2020-21, it said.

“Banking, finance and information technology (IT) stocks powered the surge. The benchmark index (Sensex) crossed a seven-month high in the first week of October, and rallied further in ensuing days, recouping 52 per cent of the losses suffered on March 23,” it said. In August, RBI Governor Shaktikanta Das had said there was a clear disconnect between the sharp surge in stock markets and the state of the real economy, as surplus global liquidity was driving up asset prices across the world.