India’s banks are lending money quite freely. Credit growth is soaring at its highest level in over a decade — it’s growing at over 15% year-on-year!
And people are overjoyed. Because when bank credit rises, it’s a harbinger of economic growth — it could be companies borrowing money to fund new investments, consumers who need loans to buy homes or cars, or it could be governments too. And all this increased economic activity generates employment. It bumps up the GDP. It’s a virtuous cycle.
So, what’s driving this credit growth for India?
See, our GDP is driven primarily by 3 factors:
[1] Consumption expenditure - This is the biggest driver. This is when you and I buy and use goods and services in the economy. And it makes up nearly 70% of the GDP.
[2] Government expenditure- Then there’s the folks in power to build roads, bridges, and other infrastructure. This generates employment and money flows within the economy.
[3] Private expenditure - Finally, there’s private capital expenditure — and this is arguably the most crucial indicator of our credit growth. This is when India Inc or the corporates decide to set up new manufacturing units to cater to increasing demand. So if Maruti Suzuki thinks that more people are buying cars today and that demand will continue on that same trajectory — they might expand manufacturing. They might borrow money to set up a plant too. All because we are consuming more.
Now, these folks will only take the risk of borrowing and investing in new plants if they really see green shoots in the economy. They need to be sure that demand will continue to rise. Otherwise, they’ll be left with spare capacity that doesn’t earn them enough money. It’ll hurt their financial performance.
So when there’s an uptick in corporate loans, it could tell you something about economic growth, especially considering corporates haven’t been investing all that much in the past few years into new factories and plants.
So now the question is — why are companies finally getting ready to spend more?
India’s banks are lending money quite freely. Credit growth is soaring at its highest level in over a decade — it’s growing at over 15% year-on-year!
And people are overjoyed. Because when bank credit rises, it’s a harbinger of economic growth — it could be companies borrowing money to fund new investments, consumers who need loans to buy homes or cars, or it could be governments too. And all this increased economic activity generates employment. It bumps up the GDP. It’s a virtuous cycle.
So, what’s driving this credit growth for India?
See, our GDP is driven primarily by 3 factors:
[1] Consumption expenditure - This is the biggest driver. This is when you and I buy and use goods and services in the economy. And it makes up nearly 70% of the GDP.
[2] Government expenditure- Then there’s the folks in power to build roads, bridges, and other infrastructure. This generates employment and money flows within the economy.
[3] Private expenditure - Finally, there’s private capital expenditure — and this is arguably the most crucial indicator of our credit growth. This is when India Inc or the corporates decide to set up new manufacturing units to cater to increasing demand. So if Maruti Suzuki thinks that more people are buying cars today and that demand will continue on that same trajectory — they might expand manufacturing. They might borrow money to set up a plant too. All because we are consuming more.
Now, these folks will only take the risk of borrowing and investing in new plants if they really see green shoots in the economy. They need to be sure that demand will continue to rise. Otherwise, they’ll be left with spare capacity that doesn’t earn them enough money. It’ll hurt their financial performance.
So when there’s an uptick in corporate loans, it could tell you something about economic growth, especially considering corporates haven’t been investing all that much in the past few years into new factories and plants.
So now the question is — why are companies finally getting ready to spend more?🤔
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