BIS: India’s bank credit-to-GDP ratio grows 56% in 2020

June 26, 2021

As per the latest data from Bank for International Settlements (BIS), incremental credit growth has decreased to 59-year low at 5.56% in Financial Year 2021.

Key points

As per data, bank credit-to-GDP ratio has increased to a five-year high at about 56% in 2020.
However, this increase is way behind its peers and is half of the G20 average.
Total outstanding bank credit was at $1.52 trillion in 2020 at the credit-to-GDP ratio of 56%. However, this was the second lowest among all other Asian countries.
In case of emerging market peers’ credit-to-GDP ratio is 135.5% while it is at 88.7% in advanced economies.
Massive credit-driven stimulus which government pushed to help tide over impact of covid-19 pandemic in 2020, incremental credit growth increased by only 5.56%. It was the lowest recorded growth. In 1962, the growth rate was at 5.38%.

Bank Credit Growth

As per analysts, bank credit growth is the key indicator of economic growth. Credit-GDP ratio of 100% is the ideal, indicating robust demand for credit without fear of bubble in making. High credit-to-GDP ratio indicates aggressive & active participation of banking sector in real economy. Lower credit-to-GDP ratio indicates the need for more formal credit.