Indian Household Saving And Borrowing Pattern

Domestic savings play a very important role in any country’s long run development and aids to enhance the growth of the nation. When these saved sums are channelized efficiently they lead to capital accumulation and investments which undoubtedly adds to the GDP and prosperity of any nation. Indian household savings have been rising year after year and the same stood at 13.56% of the Indian GDP for the financial year 2019-20. The RBI Bulletin data on the bifurcation of total national savings sheds light on the fact that Households contribute almost 50%to the Total savings yearly, followed by Corporates and then the Public sector. The data also reveals a positive upwards trend signifying that the percentage contribution by households is growing.

 As per a survey carried out by SEBI it was found that almost 90% of Indians consider Bank Fixed deposits as the best and safest alternative for the surplus they save out of their hard earned money. This suggests that only a handful of Indian households are open to investing in options like Mutual funds, equities etc. As of September 2020, nearly 52% of Financial Assets held by households are in the form of Commercial Bank deposit followed by Life insurance (24%) and Currency (12.9%). The RBI Bulletin of March 2021, also revealed that Commercial Bank loans occupy a lion’s share in the composition of financial liabilities of households at a whopping high level of 72.6%. But why are Commercial bank deposits so popular and preferred by an average Indian?

In.this article the fixed deposit obsession of Indians is discussed, various reasons for such strong liking for FDs are listed below:


FDs are considered safe and a source of help during financial stress and uncertainty. The same are preferred due to the fact that the interest rate offered on the same is fixed and doesn’t vary depending on market fluctuations. Macroeconomic factors influence the rate offered but once the rate is set there is almost zero volatility in the same. Other alternatives such as Equity and Mutual Funds come with added downside risk and volatility based on major events. If one looks at the income bifurcation of the Indian economy the largest chunk is that of middle class families. Much of what they earn is usually spent to run the household, leaving them with meagre monthly savings and they are generally more risk averse and would not want to take any added risks with their hard earned money and hence prefer FDs. There is always a risk of a Bank run and Bank Panic but the Deposit Insurance and Credit Guarantee Corporation (DICGC) offers an insurance of RS. 5 Lakhs on all commercial banks. Given the major depositors are retail their deposits are usually less than 5 lakhs at one single bank. The amount of deposit insurance was Rs.1 Lakh and has only recently

increased to Rs.5 Lakhs. Lack of awareness is another factor that makes other investments more riskier than they actually are.


Fixed deposits are a very good source of funds during times of need. RBI noted that the financial stress caused by the ongoing COVI 19 Pandemic and Lockdown has led to many fixed deposits being broken prior to maturity. It was found that the number of Districts that saw a decline in Fixed Deposits stood at 159 in Q4 of financial year 2020-21. This number has grown tremendously, having quadrupled from nearly 40 in Q4 2018-19. The liquidity feature of these is an added benefit for almost all middle class families as they can now withdraw their hard earned money at their convenience.


There are many FD options that also offer Tax benefits, under the Section 80C of the Income Tax Act one can get an exemption of up to Rs.1, 50,000 for a FD locked in for a period of 5 years. A minimum of Rs.10,000 needs to be put aside as deposit in order to be eligible for this deduction with the maximum limit being capped at Rs.1.5 lakhs.


The Indian Economy doesn’t offer a public security system as in many other nations, hence savings for retirement as of utmost importance. The sum when accumulated can also be used in one’s retirement as well and is viewed as a safety back up plan for the future. However, each individual has their own preferences regarding savings and investments. Many Banks also offer higher rates of interest to senior citizens making it a more likable investment option by the old. 

All of these features indeed make it clear why Fixed deposits are the first choice of an average middle class Indian to park their hard earned money.

Author: Kushboo Luniya
B.Sc. Economics & Finance, University Of London

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