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Financial Landscape Shifts as Household Debt Soars and Savings Plummet: Insights from SBI Research

Financial Landscape Shifts as Household Debt Soars and Savings Plummet: Insights from SBI Research

The financial dynamics of Indian households have undergone a significant transformation in FY23, with a substantial increase in household debt and a sharp decline in savings. According to an analysis by SBI Research, these changes are primarily attributed to heightened borrowings from banks, particularly for home loans and retail finances. In this article, we delve into the key findings of this analysis and their implications for India’s financial landscape.

The Savings Plunge

In FY23, the net financial savings of households dropped by nearly 55 percent, accounting for only 5.1 percent of GDP. This marked a stark contrast to the 11.5 percent recorded in FY21 and the 7.6 percent in FY20. The significant decline in savings reflects a 50-year low in household financial prudence, and it’s noteworthy that this dip occurred outside the pandemic period.

Household Debt Soars

Conversely, household indebtedness more than doubled in FY23, reaching a staggering ₹15.6 lakh crore, up from FY21. The lion’s share of this debt, amounting to ₹8.2 lakh crore, was driven by increased borrowings from commercial banks. These borrowings were predominantly directed towards home loans and other retail financial products.

Bank Borrowings and Retail Finances

A staggering ₹7.1 lakh crore of the ₹8.2 lakh crore increase in household debt was attributed to bank borrowings. This highlights the role of banks in facilitating the increased indebtedness of households. Notably, a significant portion of retail credit to households in the past two years has been directed towards housing, education, and vehicle purchases.

Shift in Savings Patterns

The low interest rate environment prevailing in recent years has resulted in a shift in household savings patterns. With interest rates being favorable for borrowing, there has been a paradigm shift from financial savings to physical savings. This shift is particularly evident in the housing sector, where the share of physical savings has seen a substantial increase.

Rise in Physical Assets

Historically, over two-thirds of household savings were in physical assets, but this share had decreased to 48 percent in FY21. However, it is expected to rebound, reaching 70 percent in FY23. The recovery of the real estate sector and rising property prices have contributed to this resurgence in physical asset savings.

Debt-to-GDP Ratio

While household debt-to-GDP ratio increased during the pandemic, it has since declined. In March 2020, it stood at 40.7 percent, falling to 36.5 percent by June 2023. This suggests that while household debt has risen, the economy’s GDP growth has helped mitigate the relative impact of this debt.


The findings from SBI Research underscore the evolving financial landscape of Indian households. The surge in household debt, particularly bank borrowings for real estate and retail purposes, has been accompanied by a decline in financial savings. The shift towards physical savings reflects changing economic conditions and highlights the influence of interest rates on savings behavior. Understanding these trends is crucial for policymakers and investors as they navigate the evolving financial landscape of India.

What led to the significant drop in household savings in FY23?

The decline in household savings is primarily attributed to increased borrowings from banks and a shift towards physical assets.

How has the banking sector facilitated the rise in household indebtedness?

Banks have played a crucial role in the increased indebtedness of households, with a substantial portion of borrowings directed towards home loans and retail finances.

What are the factors contributing to the shift in savings patterns towards physical assets?

The shift towards physical assets is influenced by the low interest rate regime, the real estate sector’s recovery, and rising property prices.

What is the significance of the decline in the household debt-to-GDP ratio, and how has it evolved during the pandemic?

The decline in the debt-to-GDP ratio indicates that while household debt has risen, economic growth has helped offset its relative impact.