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Credit disbursal far below world average: RBI Working Paper

 Credit disbursal far below world average: RBI Working Paper
A Reserve Bank of India Working Paper titled "Financial Structures and Economic Development in India: An Empirical Evaluation", has found that credit disbursal in India continues to be far below the world average.

"While credit disbursement by Indian banks has increased sharply in the past decades, it is still far below the world average level and even below the level in its emerging market and developing economies peers. In recent years, the market capitalization of Indian stock market has increased sharply reflecting more reliance on market-based sources of funding, " the RBI has said in a release.

The other major findings of the paper are:

* One-way Granger causality running from private sector credit to real GDP confirms the supply-leading process of bank intermediation.

*The autoregressive distributed lag (ARDL) cointegration test, however, suggests that both the bank-based and market-based financial deepening have positive roles in driving India's economic development, while the bank-based system has a stronger impact.

*In a relatively bank-centric financial sector, Indian banks have the potential of further channelization of credit to the productive sectors of the economy. Therefore, Indian Banks need to develop strong linkages with the real sector to develop the ability to maintain high growth levels over a sustained period of time.

"While the role of the financial structures in economic development is not a new theme in the economics literature, the recent global financial crisis has posed renewed concerns. An assessment of various indicators of financial development in India reveals that both the bank-based and market-based intermediation processes have undergone remarkable improvement in the last six decades. Financial sector reforms have altered the organisational structure, ownership pattern and domain of operations of institutions and infused competition in the financial sector," the Reserve Bank of India release on the paper has stated.

Read more about: rbi
Story first published: Saturday, March 16, 2013, 13:32 [IST]
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