According to statistics released by RBI, the household savings rate increased in most major economies during the quarter (April – June) 2020. In India, aggregate deposits of regular commercial banks increased significantly in the first few years. and third fortnights of 2020-2021. and 2021-2022, unlike in previous years.
Preliminary indications suggest that the COVID-19 pandemic has led to an increase in financial savings of households around the world. For the Indian context, we look at the household financial savings rate, as well as deposits and loans with regular commercial banks (SCBs) to understand the changes brought about by the pandemic compared to previous years. The Reserve Bank of India (RBI) publishes a “weekly statistical supplement” which provides data on a variety of indicators, including deposits and credit. We are reviewing data from these publications for the purposes of this story.
Household savings saw a significant increase in Q2 and Q3 of 2020 worldwide
Globally, the amount and composition of spending has seen visible changes as the pandemic has resulted in mobility restrictions and forced and precautionary economies. While many advanced economies have faced challenges in their recovery journey, inflicted by the second wave of the virus and fear of more virulent strains, their home / personal economies over the quarters (April-June) and ( July-September) of 2020 remained much higher. as pre-pandemic levels, according to a recent RBI bulletin.
Household / personal savings rates in the United States, United Kingdom, Australia and Canada reached over 20% in April-June 2020. The savings rate corrected considerably over the course of the period. following quarter, that is to say the quarter from July to September, but was maintained. at a rate much higher than pre-pandemic levels. In contrast, Indian household financial savings returned closer to pre-pandemic levels in the following quarter, that is, the July-September quarter.
In India, the COVID-19-induced spike in the household financial savings rate in the first quarter of 2020-21 declined significantly in the second quarter on a counter-seasonal basis. According to a recent RBI bulletin, India appears to have increased spending more quickly, possibly due to the approach of holiday demand and the release of pent-up demand, thus approaching levels household financial savings before the pandemic in the third quarter (July-September) of 2020.
Total SCB deposits in India increased in 2020 and 2021
Trends in aggregate deposits and loans with regular commercial banks (BSCs) have shown an increase due to the COVID-19 pandemic. Compared to previous years, deposits in SCB increased by Rs. 2.8 lakh crore in 2020-21 and in 2021-22 it has already increased by Rs 1 lakh crore until 07 May 2021.
Household deposits and loans recovered sharply in 2020-21 and show signs of increasing in the first half of 2021-22. Typically, bank deposits and direct debits decline in April and May, according to the SBI research report (May 2021). Therefore, this is an unusual increase for the months of April and May in 2020-21 and 2021-22. With the lockdowns in effect, experts believe this could be a sign of precautionary savings, compounded by the need to have cash on hand to counter health and economic uncertainties.
Another interesting point to note is that the deposits experienced alternating periods of expansion and contraction in 2021-22 during the first 3 fortnights. The report explains that it is possible that such an expansion followed by a contraction could indicate stress in households as people getting salary credits in the first fortnight withdraw them in the second fortnight for expenses. health / currency storage as a precautionary measure and an uncertain scenario and the trend continues. However, this pattern would be better understood once the data for the following fortnights were published.
Although aggregate deposits increased during the pandemic, however, this could mask the uneven impact in terms of household savings and consumer spending on non-essential items, as several households in the unorganized sector suffered losses of money. employment, income and borrowing opportunities.
Going forward, with optimism about the progress of mass immunization, household financial savings are expected to decline further to pre-pandemic levels in India as well as in other countries. With the economy gradually reopening / unlocking, households have moved from a “only essential” approach to discretionary spending, according to the RBI.
The selected image: Scheduled commercial banks