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What are net financial assets?
- Net financial asset is- The difference between gross financial assets (deposits and investments) less financial liabilities (borrowings).
Net financial assets of Indian Households?
- RBI data shows that in the year ended March 2020, the net financial assets jumped from
- Rs 13.73 lakh crore in FY’19 (7.2 % of GDP) to Rs 15.62 lakh crore (7.7% of the GDP) last year.
Reason for the increase?
- Gross financial assets (GFA) rose marginally Rs 21.23 lakh crore in FY’19 to Rs 21.63 lakh crore last year.
- The financial liabilities (FL) witnessed a sharp decline from Rs 7.5 lakh crore to 6.01 lakh crore.
- Hence the rise in net financial assets.
What does decline in financial liabilities mean?
- According to RBI, It reflected the economic slowdown and risk aversion of banks.
- Economists say that,
- Since there is an economic slowdown and income levels of individuals are either going down or not increasing,
- The financial sector will practice higher caution in extending loan.
Are households saving increasing?
- Although in value terms GFA has increased marginally Rs 21.23 lakh crore in FY’19 to Rs 21.63 lakh crore last year.
- But in terms of percentage of GDP the GFA declined from 1% to 10.6%.
shift in preference of deposit instruments
- Household savings in bank deposits as a per cent of GDP stood at 3.8% in year ended March 2019.
- It decline to 3.4% in March 2020 as banks reduced their interest rates following sharp cut in repo rate by RBI.
- Small saving instruments that continued to offer higher rates than bank deposits
- Witnessed a higher deployment of household savings as their share as per cent of GDP increased from
- 1% to 1.3% in the same period.
- Households tend to save more during a slowdown and income uncertainty.
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