The Securities and Exchange Board of India (SEBI) has done well to review the existing methodology for computing savings by households in the securities market. With its access to granular data on the markets, the stock market regulator has been able to identify shortcomings in the existing methodology and suggest appropriate changes, as discussed by it in a recent working paper. This is much needed because the savings of households are a significant component of the national income and under-reporting of this number could impact policy making.
The data of financial savings of households, disseminated by the Reserve Bank of India (RBI) has not kept up with the changing investor preferences, including new instruments which have found favour with Indian households or the expanding category of investors. This has resulted in understatement of the annual investments by households into securities by ₹1.25 lakh crore in 2022-23 and ₹2.8 lakh crore in 2021-22. The value of securities held by Indian households could be ₹60 lakh crore higher in 2022-23 and ₹63 lakh crore higher in 2021-22, going by SEBI’s methodology (total financial assets are 103 per cent of GDP). SEBI’s computation appears more comprehensive. The RBI accounts for annual investment by households in securities by accessing data on actual mutual fund investment from SEBI and imputing a certain fixed percentage of primary issuances of equity and debt as household investment.
Similarly, RBI takes only the mutual fund investments of households into account when computing their investment into securities markets. SEBI has added investments of NGOs, charities, trusts and other non-profit organisations serving households. It has calculated net primary and secondary market investment in equity and debt based on actual data at its disposal. It has also included investment by households in REITs, InviTs and Alternate Investment Funds, besides mutual funds, while computing the flow of money, as well as the value of outstanding stock of investments. While the computation by the RBI of financial assets in securities could be improved by adopting SEBI’s methodology, there could be other gaps in the central bank’s data on financial assets of households.
RBI includes legacy investment instruments such as bank deposits, investments in small savings, pension and insurance funds, besides mutual funds. But other investment channels which are in vogue now, such as investments in overseas securities, cryptocurrencies, unlisted shares, portfolio management schemes, etc., are excluded from its computation. It may be a good idea for the RBI to review the entire list of household financial assets. Outstanding stock of household financial assets, which stand at ₹280 lakh crore towards the end of FY23, as per the latest RBI data, will be revised higher to ₹340 lakh crore under SEBI’s methodology. These numbers suggest that household net financial savings are not as low as previously estimated; the gap between physical and financial assets is not as large either.
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