With the gradual reopening and unlocking of the economy, households have switched from an ‘essentials only’ approach to discretionary spending, the RBI’s March bulletin said.
This has reflected in the reduced pace of contraction in private consumption to 11.3 percent compared to 26.3 percent contraction in first quarter of FY21, leading to the moderation of household financial savings from the peak in the previous quarter, the RBI bulletin showed.
"Going forward, optimism on account of mass vaccination is expected to further boost consumption demand and work further towards restoration of the pre-pandemic spending and saving pattern," the RBI bulletin said.
Reserve Bank’s consumer confidence survey of November 2020 round showed a marginal improvement over the all-time low recorded in the September 2020 round, indicating scope for further moderation in household financial saving, going forward, the bulletin said.
Additionally, banks' advances at the end of December displayed a significant pick up of 2.7 percent on a QoQ basis from a tepid growth of 0.2 percent in the previous quarter while deposits moderated to 1.5 percent as against 2.9 percent over the same period.
“This could be symptomatic of a further moderation in household financial savings rate during Q3:2020-21, though buoyant stock markets may provide some offset by portfolio re-balancing by households through investments in shares and debentures, including units of mutual funds,” the RBI bulletin said.
The bulletin noted that household financial savings have moderated despite an increase in the savings in the form of deposits as household borrowings from banks and NBFCs have picked up. A significant decline in household savings in the form of currency and mutual funds has also contributed to the moderation in household financial savings, it said.
The RBI publishes a monthly bulletin which analyses the trends in the economy and the financial sector.
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