Skip to main content

Quick savings recovery after demonetisation jolt: Reserve Bank of India

Image
By
Quick savings recovery after demonetisation jolt: Reserve Bank of India
 
According to the report, financial assets of the Indian households are predominantly in the form of bank deposits, followed by life insurance - a pattern that got disrupted after note ban
 
The Reserve Bank of India’s (RBI’s) first quarterly publication on households’ financial assets pattern shows that Indian households quickly overcame the jitters from demonetisation.
So far the study was published annually, but will now be available every quarter. The reason being an annual study often fails to capture the sharp
volatility witnessed in investments and savings pattern every quarter.Household savings is crucial to gauge macroeconomic and systemic risks and is taken into consideration while preparing the bi-annual financial stability report.
 
According to the report, financial assets of the Indian households are predominantly in the form of bank deposits, followed by life insurance — a pattern that got disrupted after note ban. It was back on track the next quarter as and when new currency notes were introduced in the system.“Indian households are net savers and suppliers of financial resources for the rest of the economy,” the study said. The net financial assets of the households turned negative (-7.3 per cent of gross domestic product, or GDP, in the third quarter of 2016-17) after cash wash, it added.
 
However, with subsequent introduction of new currency notes, households’ net financial assets turned around. In the fourth quarter, they amounted to 14.8 per cent of the quarterly GDP. In 2017-18, net financial assets are estimated at 8.3 per cent of GDP in the second quarter, up from 5.8 per cent of GDP in the first quarter.
 
Households hold its financial assets mainly in the form of currency, deposits, debt securities, equities, mutual fund units, insurance and pension funds, and small savings.Liabilities are mostly in the form of loans and borrowings from banks, housing finance companies and non-banking financial corporations, the study said
 
According to the study, borrowings from banks turned negative after note ban “as demonetised currency was used to pay back loans.”The study said deposits with banks and non-banks increased in the second quarter of 2016-17 to 8.6 per cent of GDP from 8.1 per cent in the previous quarter, reflecting the impact of salary and pension revision due to the implementation of the Seventh Pay Commission. The mobilisation of deposits under the income declaration scheme also had an impact.
 
There was a major shift in the asset classes of households.Currency with households contracted sharply in the third quarter of 2016-17. But the contraction “was not matched by a proportionate increase in deposits due to redemption of the foreign currency non-resident (FCNR-B) deposits and repayment of loans with specified bank notes”.In the fourth quarter of 2016-17, introduction of new currency notes led to a rise in currency holdings — up to 11.1 per cent of quarterly GDP from (-) 21.5 per cent in the quarter that witnessed demonetisation.
 
Aggregate deposits went down to 3.6 per cent in the fourth quarter of 2016-17 from 5.4 per cent in the third quarter.In the first two quarters of 2017-18, currency holdings moved towards normalcy. While currency with the public rose to 1 per cent of GDP in the second quarter of 2017-18, aggregate deposits were 5.9 per cent of GDP. Pension funds and mutual funds picked up in 2017-18 and their shares in GDP were 0.6 per cent and 1.4 per cent, respectively, in the second quarter, the study said.
 
The Business Standard, New Delhi, 12th March 2018

Comments

Post a Comment

Popular posts from this blog

Shrinking footprints of foreign banks in India

By
Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…
Post a Comment
Read more

RBI rushes in to prop up falling rupee

By
RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…
Post a Comment
Read more

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

By
GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…
2 comments
Read more