India's household financial landscape is undergoing a silent shift. The shift is pronounced almost like how a large ship does not cause ripples when it makes a U-turn. Such a turn takes few hours to effect. Whereas a speed boat could U-turn in seconds, but will cause large waves.
As Kotak Mahindra Bank founder Uday Kotak, in his recent tweet, aptly pointed out, the trend of savers turning into investors is not merely a statistical change but a deeper realignment of the nation’s economic psyche. The data reveals that between 2020 and 2024, household savings allocated to bank deposits have fallen from 53% to 42%, a movement in the context of India’s historically conservative financial culture.
This shift mirrors India's changing demographics and the aspirations of its middle class. With younger generations less inclined to rely on traditional savings accounts and more willing to invest in market-driven financial instruments, such as mutual funds, equities, and portfolio management services, and even experimenting with crypto investments, the country's savings culture is transforming into one driven by returns rather than security.
The attraction of higher returns, even in the face of potential risks, speaks to the growing financial literacy and confidence among Indian households.
India's consumption economy has been expanding at an unprecedented rate, driven by an increase in disposable income, urbanisation, and the influence of digital financial tools. However, as the consumption economy thrives, the nation’s savings rate as a proportion of GDP has been decreasing. This is a double-edged sword. On one hand, increased consumption signals economic activity and optimism about the future.
On the other, a diminishing savings rate raises concerns about the long-term financial stability of households and, by extension, the economy. As savings shift towards asset classes that can generate better returns or on higher lifestyle spends, the challenge is to ensure that this doesn’t come at the cost of financial prudence.
For the banking sector, this shift could mark a significant inflection point. Indian banks have long relied on Current Account and Savings Account (CASA) deposits as a key driver of growth. CASA deposits are a cheap source of capital, allowing banks to lend at more favourable rates. As household deposits dwindle, banks may find themselves needing to adapt quickly to a new reality.
The competition for household capital is no longer limited to other banks but extends to the broader financial services ecosystem, including asset management companies, insurance firms, and fintech platforms. If banks fail to recalibrate their offerings to cater to the changing needs and expectations of their customers, they risk losing a critical source of low-cost funding. Where can banks now look for alternate sources of funding to sustain growth and remain competitive?
This shift also suggests a deeper finalisation of new asset creation, driven by a more sophisticated investor class. The increasing allocation of household wealth towards equities, mutual funds, and alternative investment funds (AIFs) reflects a more holistic approach to wealth management. Indian households are no longer content to park their savings in low-interest bank accounts. Instead, they are seeking diversified portfolios that can withstand market volatility while still offering the potential for higher returns.
This is a fundamental change in how Indian families think about wealth, and it will likely have long-term implications for the broader economy, as well as strategic focus of the banking sector.
Moreover, as more wealth is directed towards financial assets that are inherently linked to market performance, the nation's economic path becomes increasingly dependent on the strength and stability of its capital markets. This introduces new layers of complexity, as the volatility of these markets can impact household financial security, which in turn could influence consumption patterns and overall economic growth.
Already Indian capital markets’ valuations are one of the highest in the world. Policymakers will need to carefully consider how to balance this variable, ensuring that the financial markets remain robust and that households are protected from undue risk.
This shift shows the ability of nimble, tech-forward companies to meet consumer demands in ways that legacy institutions have been slow to adopt. But a profound question emerges — are these disruptions a sign that agile and innovative brands will ultimately displace traditional financial players, especially banks, who may struggle to innovate as fast as consumers want or need?
What the data does not reveal is the profound shift in consumer attitudes towards the very concepts of money and wealth. The younger demographic, particularly Gen Z, is redefining the purpose of money, moving away from the traditional focus on accumulation and preservation of wealth. Instead, they embrace what can be termed the "ME economy"—where Memories & Experiences take precedence.
They are willing to spend for the moment, valuing personal fulfillment and experiential gains over long-term financial security. Younger demographics are increasingly embracing an asset-light lifestyle, opting not to own real estate or cars, with Gen Z and millennials prefer renting homes and using shared mobility services over traditional ownership models, reflecting their focus on flexibility and experiences over material possessions. This shift in priorities is fueling the growth of India’s consumption-driven economy, as these consumers contribute to sectors that offer immediate gratification rather than deferred benefits.
However, finance, at its core, remains a zero-sum game. The surge in consumption comes with its own set of trade-offs. As younger generations prioritise spending over savings, the long-term implications for capital accumulation and wealth preservation is harsh. In the context of a consumption economy, the money flowing into experiences, services, and short-term assets may very well come at the cost of traditional wealth-building avenues like savings, investments, or retirement funds.
In a zero-sum system, where every gain for consumption is a potential loss for savings, the consequences of this shift may become more evident as the consumption cycle accelerates, leaving fewer resources for future financial security.
The era of passive savings is giving way to an age of active investing. The banking sector’s future, therefore, lies not only in adjusting to this shift but in actively participating in it. Banks must evolve from being mere custodians of savings to becoming holistic financial service providers. They need to offer innovative products that blend the stability of traditional savings accounts with the growth potential of investment products.
This will require a mindset shift at both the corporate and consumer level. Indian banks must also embrace the digital revolution fully, leveraging technology to offer personalised and integrated financial solutions that cater to the diverse needs of their customers.
Indian banks have historically been skewed towards government and corporate business, while globally, these two segments primarily rely on bond markets for borrowing, leaving banks to focus on retail and SMEs. With the current shift in savings rates and the competition for household capital intensifying, will Indian banks finally be pushed to innovate and shift their focus towards retail and SME customers?
This moment could mark the end of what has been termed "lazy banking," where traditional players have relied on predictable consumer bases and offerings. The question now is whether Indian banks will develop differentiated, competitive strategies, breaking away from the uniformity where all players chase the same customers and offer nearly identical products. Can the banks bank on their own strategies for the future ?
—The author, Dr. Srinath Sridharan (@ssmumbai), is a Policy Researcher & Corporate advisor. The views expressed are personal.
Read his previous articles here
As Kotak Mahindra Bank founder Uday Kotak, in his recent tweet, aptly pointed out, the trend of savers turning into investors is not merely a statistical change but a deeper realignment of the nation’s economic psyche. The data reveals that between 2020 and 2024, household savings allocated to bank deposits have fallen from 53% to 42%, a movement in the context of India’s historically conservative financial culture.
This shift mirrors India's changing demographics and the aspirations of its middle class. With younger generations less inclined to rely on traditional savings accounts and more willing to invest in market-driven financial instruments, such as mutual funds, equities, and portfolio management services, and even experimenting with crypto investments, the country's savings culture is transforming into one driven by returns rather than security.
The attraction of higher returns, even in the face of potential risks, speaks to the growing financial literacy and confidence among Indian households.
India's consumption economy has been expanding at an unprecedented rate, driven by an increase in disposable income, urbanisation, and the influence of digital financial tools. However, as the consumption economy thrives, the nation’s savings rate as a proportion of GDP has been decreasing. This is a double-edged sword. On one hand, increased consumption signals economic activity and optimism about the future.
On the other, a diminishing savings rate raises concerns about the long-term financial stability of households and, by extension, the economy. As savings shift towards asset classes that can generate better returns or on higher lifestyle spends, the challenge is to ensure that this doesn’t come at the cost of financial prudence.
For the banking sector, this shift could mark a significant inflection point. Indian banks have long relied on Current Account and Savings Account (CASA) deposits as a key driver of growth. CASA deposits are a cheap source of capital, allowing banks to lend at more favourable rates. As household deposits dwindle, banks may find themselves needing to adapt quickly to a new reality.
The competition for household capital is no longer limited to other banks but extends to the broader financial services ecosystem, including asset management companies, insurance firms, and fintech platforms. If banks fail to recalibrate their offerings to cater to the changing needs and expectations of their customers, they risk losing a critical source of low-cost funding. Where can banks now look for alternate sources of funding to sustain growth and remain competitive?
This shift also suggests a deeper finalisation of new asset creation, driven by a more sophisticated investor class. The increasing allocation of household wealth towards equities, mutual funds, and alternative investment funds (AIFs) reflects a more holistic approach to wealth management. Indian households are no longer content to park their savings in low-interest bank accounts. Instead, they are seeking diversified portfolios that can withstand market volatility while still offering the potential for higher returns.
This is a fundamental change in how Indian families think about wealth, and it will likely have long-term implications for the broader economy, as well as strategic focus of the banking sector.
Moreover, as more wealth is directed towards financial assets that are inherently linked to market performance, the nation's economic path becomes increasingly dependent on the strength and stability of its capital markets. This introduces new layers of complexity, as the volatility of these markets can impact household financial security, which in turn could influence consumption patterns and overall economic growth.
Already Indian capital markets’ valuations are one of the highest in the world. Policymakers will need to carefully consider how to balance this variable, ensuring that the financial markets remain robust and that households are protected from undue risk.
With financial services rapidly evolving through the expanded use of digital infrastructure and data, consumers are now encountering newer brands that bring unprecedented convenience to their transactions. What was once the exclusive domain of traditional banks—particularly in the payments space—has been completely disrupted by fintech companies, driven by innovations like the Reserve Bank of India’s Unified Payments Interface (UPI).
This shift shows the ability of nimble, tech-forward companies to meet consumer demands in ways that legacy institutions have been slow to adopt. But a profound question emerges — are these disruptions a sign that agile and innovative brands will ultimately displace traditional financial players, especially banks, who may struggle to innovate as fast as consumers want or need?
What the data does not reveal is the profound shift in consumer attitudes towards the very concepts of money and wealth. The younger demographic, particularly Gen Z, is redefining the purpose of money, moving away from the traditional focus on accumulation and preservation of wealth. Instead, they embrace what can be termed the "ME economy"—where Memories & Experiences take precedence.
They are willing to spend for the moment, valuing personal fulfillment and experiential gains over long-term financial security. Younger demographics are increasingly embracing an asset-light lifestyle, opting not to own real estate or cars, with Gen Z and millennials prefer renting homes and using shared mobility services over traditional ownership models, reflecting their focus on flexibility and experiences over material possessions. This shift in priorities is fueling the growth of India’s consumption-driven economy, as these consumers contribute to sectors that offer immediate gratification rather than deferred benefits.
However, finance, at its core, remains a zero-sum game. The surge in consumption comes with its own set of trade-offs. As younger generations prioritise spending over savings, the long-term implications for capital accumulation and wealth preservation is harsh. In the context of a consumption economy, the money flowing into experiences, services, and short-term assets may very well come at the cost of traditional wealth-building avenues like savings, investments, or retirement funds.
In a zero-sum system, where every gain for consumption is a potential loss for savings, the consequences of this shift may become more evident as the consumption cycle accelerates, leaving fewer resources for future financial security.
The era of passive savings is giving way to an age of active investing. The banking sector’s future, therefore, lies not only in adjusting to this shift but in actively participating in it. Banks must evolve from being mere custodians of savings to becoming holistic financial service providers. They need to offer innovative products that blend the stability of traditional savings accounts with the growth potential of investment products.
This will require a mindset shift at both the corporate and consumer level. Indian banks must also embrace the digital revolution fully, leveraging technology to offer personalised and integrated financial solutions that cater to the diverse needs of their customers.
Indian banks have historically been skewed towards government and corporate business, while globally, these two segments primarily rely on bond markets for borrowing, leaving banks to focus on retail and SMEs. With the current shift in savings rates and the competition for household capital intensifying, will Indian banks finally be pushed to innovate and shift their focus towards retail and SME customers?
This moment could mark the end of what has been termed "lazy banking," where traditional players have relied on predictable consumer bases and offerings. The question now is whether Indian banks will develop differentiated, competitive strategies, breaking away from the uniformity where all players chase the same customers and offer nearly identical products. Can the banks bank on their own strategies for the future ?
—The author, Dr. Srinath Sridharan (@ssmumbai), is a Policy Researcher & Corporate advisor. The views expressed are personal.
Read his previous articles here
(Edited by : Unni Krishnan)
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