SBI says low credit growth, high GDP suggest decoupling

State Bank of India said steep decline in credit growth, which hit a multidecadal low in 2016-17 despite the economy clipping at around 7 per cent, suggests decoupling of credit growth and GDP. Loan growth plummeted to a whopping six decadal low of 5.08 per cent in fiscal 2017, against 10.7 per cent a year ago, according to Reserve Bank data. This was the lowest since 1953-54, when credit demand recorded only 1.7 per cent growth.

"Earlier the math was very clear: if GDP grows at 7 per cent credit growth should be at 14-15 per cent. But now it seems a decoupling of the two has happened. There is no relationship between GDP and credit growth now," SBI managing director Rajnish Kumar told reporters here today.

According to economists, usually credit growth is faster than nominal GDP growth but now it is trailing the nominal GDP growth by a wider margin.

The low advances growth is on account of the impaired balance-sheets of banks and weak demand for credit from industries, which are raising shortterm funds from the debt market now, which is comparatively cheaper as well. Kumar said demand for corporate credit or project finance has not picked up despite the economy faring better but consumption demand by way of home and auto loans as well as personal loans is growing at a very good pace.

Asked about the currency shortage which customers have recently experienced, Kumar said the issue is not across the country but in certain geographies.

"It is very important that cash inflow and outflow should balance very quickly so that the problem of currency shortages in some pockets appearing from time to time is resolved," Kumar said.

He said for SBI the outflow of funds is more than what it has received by the way of deposits and so it is more dependent on RBI for fresh supply of currency.