While much has been done on the awareness front, with perceptible changes in people’s financial behaviour regarding wealth, economic growth and financial well-being, there is much more to be done to ensure financial wellbeing, said Deepak Mohanty, chairperson of the Pension Fund Regulatory and Development Authority (PFRDA) in a keynote address at the Confederation of Indian Industry’s (CII) 3.0 summit themed “Preparing for Viksit Bharat” in Mumbai on Tuesday.

Mohanty said, “We are witnessing not merely a change in the financial behaviour but rather a shift in how we perceive wealth, economic growth, and financial well-being.” However, he stressed that as India “Transition from a nation of savers to investors, there is still more to do to achieve greater depth in the financial sector”.

Here are some areas he stressed in his speech:

Household Savings:

From 2000 to 2016, 81 per cent of the household financial assets, on average, were held in cash and bank deposits, and an average of 3 per cent in bonds and equity. From 2017 to 2022, cash and bank deposits dropped to 46 per cent, and bonds and equity rose to 7 per cent, drawing attention to behavioural changes in household savings. Mohanty said that social security savings have also increased in insurance, pension, and small savings.

He emphasised that with increased income as aspired over the next 25 years, investment will also need to grow, so an effective conversion of savings to capital is crucial. To achieve an annual GDP growth rate of 8 per cent, assuming a capital-output ratio of 4.5, there will be a need to invest around 36 per cent of the GDP annually, and it will be better to get it from domestic savings than depending on foreign capital.

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Financial Liberalisation And Investments:

After the financial liberalisation in the early 1990s, the Indian market opened for private players. Several private sector banks, insurance, financial institutions, mutual funds, etc., came into existence after that, and regulatory frameworks were strengthened for transparency, good governance, and investors’ protection. These changes created more investment opportunities and diversified investments in equity and debt.

At the same time, investments drove demand, particularly among insurance and pension entities. The retirement savings sector holds investments totalling around Rs 50 lakh crore or 16 per cent of the GDP. The National Pension System (NPS) and the Atal Pension Yojana (APY) collectively account for around Rs 13 lakh crore, including Rs 2 lakh crore in infrastructure investments and Rs 2.6 lakh crore in equity investments.

Financial Inclusion:

The Jan Dhan bank accounts have helped bring the low-income and unbanked population into the formal banking system, making formal finance accessible. There are 53.20 crore Jan Dhan accounts with deposits totaling Rs 2.3 lakh crore. Additionally, technology has made it easier for people to enter financial markets at a low cost, driven by increased smartphone usage, which has fueled interest and awareness about financial markets. Access to financial information, investment opportunities, and other resources has become more affordable via phones.

Changing Financial Behaviour:

Due to policy changes, the evolving financial landscape and economic conditions, people’s behaviour and attitudes have also changed notably. The trend shows the shift from a risk-averse to a risk-taking attitude. Mohanty backed this view with the growing number of demat account holders at 16.2 crores, mutual fund SIP accounts at 9.34 crores, and increasing online trading platforms reflecting the behavioural change.

Investors’ willingness to invest in newer instruments gave rise to the introduction of Real Estate Investment Trusts (REITs), Alternative Investment Funds (AIF), Infrastructure Investment Trusts (INVITs), Exchange-Traded Funds (ETFs), green bonds, digital gold, cryptocurrency, peer to peer lending, etc.

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What Needs To Be Done?

Mohanty laid out five points:

• Need to provide depth, scale, and risk capital to continue the growth trajectory.
• Innovative mechanisms are needed to support small- and medium-scale enterprises.
• Focus on data privacy, cybersecurity, and mitigating risks.
• Improve financial literacy, including imparting knowledge about cyber risks.
• Regulators to adopt a robust mechanism for consumer protection.

Finally, Mohanty called for efforts from all stakeholders to “cultivate a culture of informed investing” and build a “resilient economy” for the benefit of all citizens.