RBI Data on Household Financial Behaviour (Relevant for GS Paper 3: Economy)

03.11.2025

1. RBI Data on Household Financial Behaviour
    (Relevant for GS Paper 3: Economy)

Context

According to the Reserve Bank of India (RBI) data for 2024–25, Indian households are witnessing a major shift in financial behaviour. The trends reveal a sharp increase in borrowing, slower asset formation, and a decline in savings, reflecting post-pandemic changes in consumption and income patterns.

About the Data

Background:
 The RBI’s analysis of 2024–25 highlights how households have adjusted their financial priorities after the pandemic. Compared to 2019–20, liabilities have grown rapidly, while asset formation has slowed, raising concerns about domestic savings and financial stability.

Core Trends

Rising Household Borrowings:
 There has been a significant increase in household debt, doubling over the past five years.

Slower Asset Growth:
 The creation of financial assets has not matched the pace of borrowing, indicating weaker long-term savings.

The data shows that while liabilities more than doubled, asset creation as a share of GDP declined, signaling weaker domestic capital formation.

Post-Pandemic Savings Behaviour

• Pre-Pandemic: High savings rates focused on financial security.
   
• During Pandemic: Sharp rise in savings due to uncertainty and reduced spending.
   
• Post-Pandemic: Consumption surge and higher borrowing for housing, vehicles, and education led to falling savings rates.
   

Shifts in Investment Preferences

• Earlier Pattern: Reliance on bank and fixed deposits.
   
• Current Trend:
   
  • Mutual Funds: Surge in SIP participation.
     
  • Equities: Growing interest from younger, urban investors.
     
  • Physical Assets: Gold and real estate remain preferred for long-term value.
     

This diversification shows growing risk appetite but also higher exposure to market volatility.

Economic Implications and Policy Role

Key Impacts:

• Reduced Capital Formation: Lower savings constrain investment capacity.
   
• Higher Financial Risk: More exposure to volatile markets.
   
• Short-Term Boost, Long-Term Risk: Consumption-led growth may erode financial resilience if debt rises unchecked.
   

Policy Perspective:

• RBI monitors financial stability and promotes financial literacy.
   
• Encouragement of long-term savings through NPS, PPF, and Sukanya Samriddhi Yojana.
   
• Regulatory emphasis on balanced financial planning and risk diversification.
   

Way Forward

• Strengthen financial education on credit use and investment risks.
   
• Expand formal savings instruments and affordable credit access.
   
• Promote inclusion of rural and low-income households in secure financial systems.
   
• Use data-driven policymaking to predict and manage emerging financial trends.
   

Conclusion

The changing financial behaviour of Indian households — marked by higher borrowing and evolving investment choices — signifies a structural shift in the economy. Ensuring sustainable asset creation, enhanced financial literacy, and a balanced approach between consumption and savings will be vital for long-term stability and inclusive economic growth.