More Indians now invest in equities as financialisation of household savings rises: SBI

More Indians now invest in equities as financialisation of household savings rises: SBI

The financialisation of household savings in India has gained significant momentum, with the share of equities in household savings rising from 2.5 per cent in FY20 to 5.1 per cent in FY24, according to an SBI Research report released on Monday.

The report noted that the Indian credit market is witnessing structural shifts, with headline bank credit growth figures potentially masking underlying trends. It added that, going forward, the sources of credit origination through bank deposits—primarily household savings—need to be closely monitored.

According to the report, public sector banks (PSBs) are expected to show stable growth of 12.2 per cent in FY25, compared to a growth rate of 13.6 per cent in FY24.

However, PSBs’ share in incremental credit has increased significantly, rising to 56.9 per cent in FY25 from 20 per cent in FY18.

“The government’s 4R strategy—recognition, resolution, recapitalisation, and reforms—has reaped rich dividends. The asset quality in the banking system is now at a record low of 2.6 per cent in H1 FY25, down from 11.5 per cent in FY18,” the report stated.

After 14 years of decline, PSBs’ share in outstanding credit has improved to 52.3 per cent in FY25, up from 51.8 per cent in FY24 and down from 75.1 per cent in FY10.

Sectoral credit growth indicates that lending to various sectors has moderated, driven by a slowdown in credit to the services sector and agriculture and allied activities.

The share of personal loans in incremental credit growth has declined to 37 per cent in FY25 from 43 per cent in FY24, while the industry’s share has increased to 17 per cent in FY25 from 11 per cent in FY24.

“The X factor in credit growth is credit to the MSME sector, which has risen by 17.8 per cent year-on-year,” said Dr Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.

“Interestingly, MSMEs depend greatly on large corporates through backward integration (and at times, forward integration). Hence, MSME activity levels could be a useful gauge of overall corporate activity, with all financing channels—banks and non-banks—embedded holistically,” he noted.

Moreover, private credit deals totalled Rs 774 billion in FY24, marking a 7 per cent growth over CY23. This growth is helping meet the diverse financing needs of India Inc. through tailored solutions, primarily via Alternative Investment Funds (AIFs), while the issuance of Non-Convertible Debentures (NCDs) also remains prevalent.