According to a report by State Bank of India (SBI), increasing credit will guarantee a time of sustained Gross Domestic Product (GDP) expansion
The report by the State Bank of India (SBI) states that there is anticipation that the loan-to-GDP ratio will increase from 1.2 in FY23 to 1.7 in FY24, guaranteeing a prolonged period of GDP expansion. As a result of increased credit demand in the economy and growing industrial sector capacity utilisation, the credit-to-GDP gap shrank.
Since the beginning of 2022, scheduled commercial banks' credit growth has been accelerating, outpacing the growth in total deposits. In the coming months, it is expected that credit demand will remain robust due to the holiday season.
SBI predicts GDP growth to average 6.7% in FY24, which is higher than the 6.5% projection from the RBI and the 6.3% forecast from other foreign agencies. The findings of five banks for the second quarter of FY24 were cited by the researchers as evidence of improved performance.
The net profits of these five banks have increased by 50% year over year and by 25% over the most recent quarter, despite a decline in non-performing assets. The economists further pointed out a broader flow of credit, with both secured and unsecured loans rising, as a sign of improving economic momentum.
It was also observed that banking sector growth leads to GDP growth; nominal GDP also increased 1.4 times during 2014 to 2023.
The report also dismissed issues about unsecured credit, stating that there is now little need to be concerned about unsecured loans given the slow growth in credit card outstandings. August saw a 13% increase in credit card outstanding, up from a 24% increase at the beginning of the year.
With only 10% of all loans being unsecured, there is restricted risk in the retail credit market. It also made note of the fact that even recent clients are demonstrating a commitment to repayment discipline.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.