'GDP to bank credit growth link due to alternatives'

real GDP growth and bank credit may emerge only in the medium term, once the banks overcome a slew of impediments, reports PTI.

These include tiding over the asset quality stress which they are reeling under, revival in private sector investments and when inflation starts trending lower, which will lead to lower lending rates and push loan demand. Mundra added that banks will continue to remain the mainstay of finance for the economy.

He said for the first 14 years of this century, the credit growth has averaged 1.6 times the GDP growth. Banks recorded a multi-decade low in credit growth last fiscal which did not even break into double digits, while the GDP rose 7.6 per cent under a newer method of calculation.

The bad assets-saddled lenders are yet to witness a revival in credit demand with project loans yet to pick up. Mundra said in the coming years, infrastructure will continue to require credit, given the estimates on the investments coming in. Mundra used a sports analogy to drive the point for changes in the infrastructure sector, saying many of the players of the past are "retired hurt" and there is a need for new talent to emerge.

The infrastructure segment has been one of the biggest pain points, contributing to a bulk of the NPAs for banks.

While speaking on the GDP growth to credit growth ratio, Mundra acknowledged there are a few 'complications' like non-capturing of trade credit data, double counting in case of NBFC and HFC credit and a shift to the gross value added (GVA) growth from the traditional GDP. He also said banks need to put in place an efficient way of demand projections for the credit supply.

Mundra also drew attention to nonbank lenders' and housing finance companies' increased borrowing from the banking system, asking if it is akin to "outsourcing" of core activities by the banks to other entities.

Switzerland-based Frank-Jürgen Richter is known by the top business, political and intellectual leaders around the world, for building bridges between the emerging and developed markets. Moreover, Richter is a scholar and an author, known for creating powerful platform for cooperation among Asian countries. One of the most-talked bonds in the market - Masala bonds, was one of his pet projects. In an interview with Free Press Journal, Horasis’ founder and World Economic Forum’s former director talks about the future of Asian market.