The households' liabilities peaked in the March quarter of FY20, indicating rise in the hardships owing to coronavirus crisis, a study showed. It comes in sharp contrast to the general trend of households tending to save more during an economic slowdown and income uncertainty. "Households' gross financial liabilities turned negative in Q12019-20 owing mainly to a contraction in borrowings from commercial banks, but picked up thereafter and peaked in Q42019-20, reflecting apart from the seasonal uptick, higher borrowings induced by COVID-19 related hardships" showed the RBI study.
While the financial assets are held in currency, bank deposits, debt securities, mutual funds, insurance, pension funds and small savings, liabilities constitute loans and borrowings from banks, non banking financial companies (NBFCs) and housing finance companies(HFCs).
The highest share in households' financial liabilities is borrowing from commercial banks. "At the end of Q42019-20, outstanding loans availed by households from commercial banks accounted for the bulk of their total financial liabilities (75.9 per cent), followed by the HFCs, NBFCs, cooperative banks and credit societies," the report said. COVID-19 related uncertainties resulted in an outflow from mutual funds and a flight to currency holdings, it added.
"Households continue to rely heavily on the banking sector for borrowing and investing their surpluses, although the share of bank deposits in their financial assets has undergone a secular decline," it added.
Households'savings fell to 6.5 percent of gross domestic product (GDP) in FY19 from 7.7 per cent in FY18 and 7.4 per cent in FY17, according to the latest data from the National Statistical Office (NSO). "Going forward, a spike in net financial assets of households is likely in the first quarter of 2020-21 on account of a sharp drop in lockdown induced consumption," the report noted.