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While the Indian financial market has undergone drastic changes since COVID-19, but some factors have seen a positive boost over the years. One of the key contributors to the improvement in household net financial savings is the reduction in household liabilities, particularly personal loans.
In this blog, we will explore the ways government-led schemes have helped achieve this fundamental change in FY 2025 and what options individuals can pursue to achieve financial security.
For decades, Indians have prioritized saving over spending, setting aside a large part of their earnings for future security. For many of us, saving money feels like a constant balancing act—one month we’re building a financial cushion, and the next, unexpected expenses wipe it out. But there’s some good news on the horizon. After hitting a historic low, household financial savings in India are finally bouncing back. Thanks to a slowdown in personal loan growth and shifting investment patterns, net household financial savings nearly doubled in the first half of FY25. This rebound isn’t just good for individual financial security—it also strengthens the economy by making more local funds available for investments. But what’s driving this change, and how can you make the most of it?
A Positive Turn for India’s Economy
The financial landscape of India is witnessing a promising recovery in household savings, a critical indicator of economic health. After hitting a 47-year low in FY23, net household financial savings improved to 5.3% of GDP in FY24 (GDP measures a country’s economic activity and size, making it the most common way to assess its economy) and are projected to rebound sharply in the first half of FY25. This recovery is a welcome sign for the economy, as it indicates that households will be reducing their debt burden and increasing their capacity to save.
Household savings in India have seen significant fluctuations over the past decade. During the COVID-19 pandemic. However, post-pandemic, savings declined sharply to, primarily due to rising household liabilities and increased consumption.
Things which are key Drivers of the Recovery
- Reduction in Household Liabilities
One of the primary reasons for the improvement in household savings is the decline in personal loan liabilities. The Reserve Bank of India (RBI) has implemented stricter regulations on unsecured personal loans, gold loans, and lending to non-banking financial companies (NBFCs) to mitigate potential financial risks. These measures include raising risk weights on unsecured consumer credit and tightening eligibility criteria for borrowers. As a result, the growth of personal loans has moderated, with banks exercising greater prudence in their lending practices. This improvement in household savings enhances individual financial security and provides a more stable base for investments, contributing to overall economic growth
- Promotion of Financial Literacy:
Initiatives to educate households about prudent financial management have encouraged savings and responsible borrowing. Incentives for Long-Term Savings: Government-backed schemes like the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) continue to attract households seeking safe and tax-efficient savings options
- Increase in Gross Financial Savings
In the fiscal year 2023-24 (FY24), India’s gross financial savings rose to 11.6% of GDP, primarily due to increased investments in insurance products, reduced currency holdings, and heightened participation in capital markets
- Shift in Investment Patterns
Indian households are increasingly diversifying their investment portfolios. While traditional savings instruments like fixed deposits have lost appeal due to declining interest rates, riskier avenues like equities and mutual funds have gained traction.
Investments in equities and mutual funds have historically offered higher returns compared to traditional savings instruments like fixed deposits. This shift has the potential to increase household wealth over time.
How is Household savings are moving to Mutual Funds from Banks
In recent years, Indian households have increasingly diversified their savings strategies by allocating more funds to mutual funds and other financial intermediaries, moving away from traditional bank deposits. Reserve Bank of India Governor Shaktikanta Das highlighted this trend at the FE Modern BFSI Summit 2024, noting a growing consumer preference for capital markets over conventional banking avenues. This shift is evident in the significant growth of the mutual fund industry, which has become crucial in channeling domestic savings toward risk capital formation.
To learn more about mutual funds, WealthRight will assess your financial situation and provide you with the best financial portfolio moving forward. Contact Arpan today and start investing. Mutual Funds Sahi Hai.
Note: “Mutual Funds Sahi Hai” is an investor education initiative by the Association of Mutual Funds in India (AMFI) aimed at spreading awareness about mutual fund investments.
Strategies for Savvy Savings and Smart Borrowing
To sustain the recovery in household savings, policymakers must focus on:
- Promote Micro-Savings Initiatives: ‘Small Steps, Big Savings!’
Imagine setting aside a small amount each day—over time, these modest contributions can grow into a substantial fund. Micro-savings programs are designed to help individuals, especially in rural and urban communities, save regularly without feeling the pinch. By participating in these initiatives, you can build a financial cushion for emergencies, education, or future investments. Remember, every little bit counts, and with consistent effort, small savings can lead to significant financial security.
- Strengthening Traditional Savings Instruments: ‘Revitalize Your Savings with Trusted Tools!’
Traditional savings schemes like the Public Provident Fund (PPF) and Kisan Vikas Patra (KVP) have long been pillars of secure investments. Enhancing these instruments with better returns and easier access makes them even more attractive. By investing in these time-tested options, you can enjoy assured returns and contribute to your long-term financial goals. It’s time to revisit these trusted avenues and make them a part of your savings strategy.
- Enhancing Financial Literacy: ‘Knowledge is Your Best Investment!’
Understanding the importance of savings and making informed investment choices are crucial for financial well-being. Learning about money management (Consult an expert today!) helps you avoid mistakes and make better financial decisions. The more you know, the stronger your future!
- Addressing Rising Debt: ‘Borrow Smart, Live Well!’
While borrowing can provide immediate financial relief, excessive debt can lead to long-term challenges. Adopting responsible lending and borrowing practices ensures that you maintain financial stability and avoid the stress associated with overwhelming debt. By understanding the terms of loans and assessing your repayment capacity, you can make borrowing a tool for growth rather than a burden. Stay informed, borrow wisely, and safeguard your financial future.
Initiatives like the Mahila Samman Savings Certificate (MSSC), Sukanya Samriddhi Yojana (SSY), and Stand-Up India Scheme are empowering women to save, invest, and achieve financial independence. By expanding such programs and ensuring their accessibility, India can create a more inclusive financial ecosystem for women.
Way Forward
The recent rebound in household financial savings rising is a promising indicator of India’s economic health. As we step into FY25, the key to financial success lies in making informed decisions and leveraging the right opportunities.
At WealthRight, we are dedicated to empowering individuals and families to navigate their financial journeys with confidence. Our personalized financial planning services not only offer expert guidance and support but also ensuring that you can make informed decisions to secure your financial future. For personalized assistance, feel free to reach out to us at hello@wealth-right.com. Together, let’s build a financially secure and prosperous future
