Households after note ban
RECENTLY, ANALYSTS at the National Accounts’ analysis division published the first quarterly estimates of household financial assets (HFAs) and liabilities in India. According to these, gross financial assets (GFAs) of households fell from 95.2 per cent of gross domestic product (GDP) at the end of Q2 of 2016-17 to 89.2 per cent at the end of Q3 of 2016-17, the period when the note ban was announced. Much of this decline was due to the collapse of currency with households. As remonetisation gathered steam, households’ GFAs rose to 95.4 per cent of GDP at the end of Q1 of 2017-18, as seen in Chart 1.
Much of the HFAs are parked as bank deposits. As seen in Chart 2, deposits in commercial banks account for almost half of HFAs. While life insurance funds continue to be the second-most preferred avenue for households, they are increasingly allocating more to mutual funds (MFs). As seen in Chart 3, household MF assets have risen from 9 per cent of GDP in Q1 of 2015-16 to 12.5 per cent in Q2 of 2017-18, eclipsing assets held in provident funds.
The currency with households has also recovered from the note ban shock, though not completely. As seen in Chart 4, it declined from 10.6 per cent of GDP in Q2 of 2016-17 to 4.8 per cent in Q3 of 2016-17, recovering thereafter to 8.7 per cent in Q2 of 2017-18. On the other hand, as seen in Chart 5, household financial liabilities have risen from 25.8 per cent of GDP in Q1 of 2015-16 to 29.1 per cent in
Q2 of 2017-18. Much of these liabilities are in the form of loans taken by households from commercial banks, as seen in Chart 6. Loans from other financial institutions, which include those from housing finance firms, rose to 5.1 per cent of GDP in Q2 of 2017-18, up from 3.6 per cent in Q1 of 2015-16. ISHAN BAKSHI