The Indian Household Finance Landscape Tarun Ramadorai Imperial - - PowerPoint PPT Presentation
The Indian Household Finance Landscape Tarun Ramadorai Imperial College, CEPR, NCAER Imperial College Business School Imperial means Intelligent Business 1 Household Finance Important area of policy in India: financial inclusion . How
Imperial College Business School Imperial means Intelligent Business 1
Important area of policy in India: financial inclusion.
How can we bring all of India into mainstream financial markets?
Imperial College Business School Imperial means Intelligent Business 2
Important area of policy in India: financial inclusion.
How can we bring all of India into mainstream financial markets?
Growing body of academic work in household finance.
Unit of analysis: Household balance sheets.
Imperial College Business School Imperial means Intelligent Business 3
Important area of policy in India: financial inclusion.
How can we bring all of India into mainstream financial markets?
Growing body of academic work in household finance.
Unit of analysis: Household balance sheets. Assets: Houses, gold, retirement savings, insurance. Liabilities: Collateralized and unsecured loans.
Imperial College Business School Imperial means Intelligent Business 4
Important area of policy in India: financial inclusion.
How can we bring all of India into mainstream financial markets?
Growing body of academic work in household finance.
Unit of analysis: Household balance sheets. Assets: Houses, gold, retirement savings, insurance. Liabilities: Collateralized and unsecured loans. Complex interconnections, lifecycle and wealth dynamics. Requires integrated
Imperial College Business School Imperial means Intelligent Business 5
Important area of policy in India: financial inclusion.
How can we bring all of India into mainstream financial markets?
Growing body of academic work in household finance.
Unit of analysis: Household balance sheets. Assets: Houses, gold, retirement savings, insurance. Liabilities: Collateralized and unsecured loans. Complex interconnections, lifecycle and wealth dynamics. Requires integrated
A new subfield: International Comparative Household Finance.
Badarinza, Campbell, and Ramadorai (2016, Annual Review of Economics). http://www.household-finance.net.
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Four broad features visible in the All-India Debt and Investment
Imperial College Business School Imperial means Intelligent Business 7
Four broad features visible in the All-India Debt and Investment
High allocation to non-financial assets (gold and real estate). High levels of non-institutional-source borrowing. Near complete lack of pensions. Low levels of insurance penetration (life and non-life).
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Four broad features visible in the All-India Debt and Investment
High allocation to non-financial assets (gold and real estate). High levels of non-institutional-source borrowing. Near complete lack of pensions. Low levels of insurance penetration (life and non-life). These facts are:
unusual in the international context, and difficult to rationalize using a canonical life-cycle model.
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The average Indian household holds 77% of total assets in real estate, 11% in gold,
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Mortgages are households’ largest liability in China, the US, the UK, and Australia,
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India China USA UK Australia Germany
India China USA UK Australia Germany
India China USA UK Australia Germany Source: Badarinza,Balasubramaniam and Ramadorai (2016)
India and China: high rate of home-ownership and low participation rates in
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India China USA UK Australia Germany
India China USA UK Australia Germany
India China USA UK Australia Germany Source: Badarinza,Balasubramaniam and Ramadorai (2016)
Significantly lower participation of households in all debt markets in both India and
Reduction of debt as people approach retirement age less evident, or even reversed.
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India China USA UK Australia Germany
India China USA UK Australia Germany
India China USA UK Australia Germany Source: Badarinza,Balasubramaniam and Ramadorai (2016)
Over-exposure to non-financial assets, and pensions are a negligible fraction of
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India China USA UK Australia Germany
India China USA UK Australia Germany
India China USA UK Australia Germany Source: Badarinza,Balasubramaniam and Ramadorai (2016)
Intense reliance on unsecured debt, especially at young ages. In both India and China, life-cycle profiles are inconsistent with advanced
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Other India 20 40 60 80
Percent Real estate
countries
Predicted value Realized value
Other India 5 10 15 20
Percent Financial assets
countries
Predicted value Realized value
Other India 5 10 15
Percent Pensions
countries
Predicted value Realized value
Other India 10 20 30 40 50 60
Percent Mortgages
countries
Predicted value Realized value
Other India 5 10 15 20 25 30
Percent Other secured debt
countries
Predicted value Realized value
Other India 10 20 30 40 50 60
Percent Unsecured debt
countries
Predicted value Realized value
Cross-country differences aren’t well-explained by differences in
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Cognitive capabilities, behavioural considerations. Idiosyncrasies arising from occupation, geographic location and
These in turn lead to unique economic conditions and financial goals. Solutions?
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