Not with standing incremental credit growth plunging to a 59-year low at 5.56 per cent in FY21, the bank credit-to-GDP ratio rose to a five-year high of a little over 56 per cent in 2020, but way behind its peers and just half of the G20 average, according to the latest data from the Bank for International Settlements (BIS).
At 56.075 per cent credit-to-GDP ratio, total outstanding bank credit stood at USD 1.52 trillion in the country in 2020, according to the BIS data for the year, but this is still the second lowest among all its Asian peers.
And when it comes to the emerging market peers, it is 135.5 per cent and at 88.7 per cent in advanced economies.
It can be noted that in spite of the massive credit-driven stimulus that the government tried to push to help tide over the impact of the pandemic in 2020, incremental credit growth inched up only 5.56 per cent (at Rs 109.51 lakh crore), which was the lowest recorded growth in 59 years when in FY1962 it was at 5.38 per cent. Even in FY20, credit growth was at a 58-year-low at 6.14 per cent, an analysis by SBI Research showed recently.
According to analysts, bank credit growth is a key indicator of economic growth and a credit-GDP ratio of 100 per cent is the ideal, which indicates robust demand for credit without the fear of a bubble in the making.
A higher credit-to-GDP ratio indicates aggressive and active participation of the banking sector in the real economy, while a lower number shows the need for more formal credit. This is also a key reason for economists and analysts calling for privatisation of state-run banks to increase credit growth.