Indian economy is gradually recovering and few are noticing
If you are following the economy you would hear how often that credit growth is a problem. Banks have huge NPAs and are therefore not lending. The Government announced a recapitalization policy that will apparently turn around credit growth.
What if I told you that credit growth has already turned around and is now headed even higher over the next 3 months?
Now, let us see why is everyone complaining about credit growth?
This is the latest data from the RBI Monthly bulletin. The data is very clear, one every credit segment, growth is down from previous financial year. So what am I even talking about? See this chart
When you compare post demonetization data of Jan 2017 with September 2017and compare with the same period of 2016, growth has increased dramatically from 0.5% to 5.1%. Industry, which was trending downwards in 2016 is now trending in a positive direction, personal loans are up too. Agriculture is down probably due to better monsoon and loan waivers announced in UP and Maharashtra, two large agriculture States. The only concern and an important one (25% of all credit) is that services sector is trending downwards. That said, the post demonetization trend is clear, it is significantly better than last year same time and suggests a recovery in the economy from the lows of 2016 and most of 2017
So, why do numbers look so bad when the demonetization period is included?
During the demonetization, credit hardly grew. In the same period in 2015, credit had grown some 3% in nearly 3 months. My hypothesis is that during the demonetization period people used cash to pay off their loans. Using other data points, my sense is that close to 50000 crores of loans were paid off during that period. So while demonetization would have still shown lower growth than 2015, the gap would not have been as low as this if people did not use cash to pay off their loans.
We are still not in a situation of credit boom but data month on month shows a movement upwards. It is incorrect to say that credit growth is getting worse.
It is perhaps accurate to state and say that credit growth is recovering and is trending upwards. May be good days ahead?
GenAI, Platforms, Product @ Apple
7 年Great analyses. But this doesn't necessarily imply an improved credit situation. Could you share the actual Credit data in (INR) for Jan 2017, Sep 2017 , Jan 16 and Sep 2016. Demonetization could have significantly dented lending around Jan 2017 and that could have just bounced back to normal around Sep 2017, in which case we are not looking at an improved credit situation but only a recovery from super low levels.
Agricultural Engineer turned Forestry professional with over 30 years experience in fast growing hardwood plantations development, wood/bamboo harvest and transport logistics, new business development. India-ASEAN region
7 年But this is as you said previously - sharp growth in personal loans ..
Completed Master of Engineering in Electrical Machines and Drives at Government College of Engineering Aurangabad
7 年Please tell, Demonitisation effect is good or bad on indian economy...