At the end of a Monday meeting between bankers and the Reserve Bank of India, the head of the Indian Banks’ Association (IBA) said that bank credit is expected to grow at between 20% and 22% in the new fiscal year.
Loan growth in India has been on a roller-coaster ride in recent years, with a credit bubble in 2007 and anaemic credit growth in the middle of 2009. Bank credit bounced back in recent months, much to the relief of companies which feared that the recovery could be choked by risk-averse bankers.
Bank credit is usually a lagging indicator of a recovery in economic activity, because companies start restocking inventories only when they are convinced that demand has recovered on a sustained basis. The fact that IBA expects strong loan growth over the next 12 months means that the economic recovery is becoming more broad-based.
The revival in the domestic and overseas capital markets is good news for large firms, but smaller firms need to take loans from banks if they are to produce and grow.