Second wave of COVID impacts bank deposits and public currency holding: RBI report


Bombay: Bank deposits and foreign currency holdings with the public were negatively affected during the second wave of COVID, indicating heavy spending on pandemic-induced medical expenses, an RBI report said on Wednesday.

Bank deposits – representing around 55% of total household assets – decelerated by 0.1% at the end of April 2021 month-on-month against growth of 1.1% in April 2020.

The rate of decline in bank deposits relative to bank lending was also higher, indicating that this time around, the banking sector’s component of household savings has declined. This contrasts sharply with the savings spike seen in the first wave, according to the article published in the RBI monthly newsletter.

Foreign currency holding to the public has also slowed significantly to 1.7% in April 2021 from 3.5% growth a year ago, implying heavy spending for COVID-induced medical expenses. “, he noted.

Amid high uncertainty about income, the article indicates that precautionary savings tend to increase with declining discretionary spending, as evidenced by data on India’s private final consumption expenditure during the pandemic period.

According to preliminary estimates from RBI, household financial savings in the third quarter of 2020-2021 fell to 8.2% of GDP, from 21% and 10.4% in the previous two quarters.

High Networth Individuals (HNI) and retail liquid fund savings rose sharply in the first quarter of 2020-21, reflecting the impact of uncertainty amid the COVID-induced lockdown. Households also placed their funds in gold Exchange Traded Funds (ETFs).

“Since then, HNIs ‘investments in liquid funds have been negative (involving a levy), but individuals continue to place their savings in liquid funds,” the article said, adding that HNIs and individuals’ investments in gold ETFs were positive. since June 2020.

In addition, he said household savings in liquid mutual funds and gold ETFs taken together increased in the first quarter of 2020-21, followed by withdrawals in the next two quarters, before a new one. resumed in the fourth quarter of 2020-21.

The one-year pre-tax average return on cash for the period ending April 2021 is higher than the savings deposit rate as of June 4, 2021, he added.

In addition, the tax obligations on the returns of long-term holders of cash (beyond three years) are found to be lower for individuals, especially those in higher income brackets, compared to holders of bank deposits.

Therefore, in a low interest rate scenario, varying expectations of returns on different instruments can alter the savings preferences of some households, the article says.

This story was posted from an agency feed with no text editing. Only the title has been changed.

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