​Make growth piggyback on savings

At 21.7% of GDP in 2024-25, households account for the largest share of savings. Private corporations contribute another 10.2%, while public sector contribution is small. But within household savings, roughly 2/3rd (14.6% of GDP) is held in physical assets like housing, land and gold.

For households, these are valuable stores of wealth. But for an economy trying to finance large investments in manufacturing, infrastructure, energy and technology, the form in which savings are held matters. A large part is not available to finance new productive investment.

There is a second concern. Households acquired financial assets equivalent to about 12% of GDP in 2024-25. But they also added financial liabilities of 4.9% of GDP. The surplus left after borrowing - net household financial savings - was, therefore, 7.1%.


The decline is being driven not only by changes in saving behaviour but also by the rapid growth of household liabilities. Housing loans are part of this. So are personal loans, consumer finance, credit cards and EMIs. In a June 30 report, RBI noted that household debt rose to 45.5% of GDP by end-September 2025, driven primarily by non-housing retail loans.

Consumption is critical to growth. But there is a distinction between consumption supported by rising incomes and consumption supported by borrowing. If household liabilities grow faster than household incomes, a larger share of future income gets committed to debt servicing. That reduces the net financial surplus available to fund the rest of the economy.

A major shift is underway - households are moving savings from traditional bank deposits into MFs, SIPs and direct equity investments. This broadens participation in wealth creation, deepens capital markets and reduces dependence on foreign investors.

But financialisation does not guarantee that household savings are financing new productive assets. Much of the money invested in equities goes into the secondary market - purchase of existing securities from other investors. That improves liquidity, supports valuations and strengthens capital markets. But it does not itself put fresh capital into a company or create a new productive asset - a new factory, power plant or freight corridor. For that, capital must reach enterprises and projects through primary equity issuance or debt.

There is another distinction that matters. Equity and debt perform different functions. Large infrastructure projects, manufacturing facilities and long-gestation investments need substantial amounts of long-term debt. They cannot be financed entirely through equity.

For decades, banks have been the principal channel through which household savings were converted into credit for businesses and projects. But as household money moves away from deposits and towards financial markets, mainly equity-linked products, banks face a growing deposit-to-credit mismatch.

As deposit growth slows, banks must compete harder for deposits offering higher interest rates and depend more on expensive CDs and term deposits. That raises their cost of funds and, in turn, the cost of borrowing for businesses and households. This is not just a banking-sector issue. It can push up the cost of capital across the economy. Precisely when India needs cheaper, long-term financing for investment.

India has built deep and liquid equity markets. Its corporate bond and long-term debt markets remain far less developed. The banking system is in its strongest position in over a decade, with repaired balance sheets and improved profitability. But banks have an inherent limitation: they fund themselves largely through short- and medium-term liabilities, while infrastructure and manufacturing require long-duration capital. Banks cannot carry the full burden of financing India's investment ambitions.

Despite steady growth, the corporate bond market is just 16% of GDP, against over 100% in the US and 85-90% in South Korea. The market is concentrated in highly rated issuers and dominated by private placements. Secondary market liquidity is limited, retail participation is low, and long-term institutional capital - insurance and pensions - is cautious.

India needs stronger channels through which household savings can also finance long-term debt. Otherwise, it risks developing sophisticated equity markets, while continuing to rely excessively on banks for debt financing. That is not an adequate financial architecture for the scale of investment India is contemplating. What it needs are:

Higher household net financial savings.

Greater share of incremental wealth in financial rather than physical assets.

Stable funding for banks even as household portfolios change.

Much deeper markets for long-term debt.

Fixing the mismatch between where savings are deployed and where investment capital is needed will be central to financing India's next phase of growth.

The writer is former CEO, Crisil