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Balancing Act: Addressing India's Growing Credit-Deposit Gap and Its Financial Implications - Vansh Aggarwal

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  Balancing Act: Addressing India's Growing Credit-Deposit Gap and Its Financial Implications The growing disparity between credit and deposit growth in India's banking sector is indeed a significant issue with potential implications for liquidity, financial stability, and the broader economy. This divergence—where credit growth has outpaced deposit growth—can be traced to several interconnected economic, regulatory, and behavioural factors, and understanding them is key to addressing the potential risks posed by this trend.  1. Money Creation Process and the Expected Correlation  In theory, when a bank extends a loan, it simultaneously creates a deposit, since the borrower’s account is credited with the loan amount. This is how the banking system expands the money supply. However, the current situation in India reflects a break in this expected relationship, as the loan growth exceeds deposit growth. As of October 2024, bank loan growth in India stood at 12.8% year-over-...
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RBI's Stealth Hike: Borrowing Gets Costlier Without Rate Twists - Hemank Purohit

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RBI hiked interest rates in a new fashion this time. Some refreshers: Banks are the bridge between people who have excess money and people who are need of one. A bank typically takes deposits from customers and lends them to the borrowers. But a bank can’t just play around with other people’s money. It has to have some skin in the game to be trusted, right? So, as mandated by RBI, each bank has to set aside some percentage of its own money or capital for each penny they lend. This is to make sure there remains an ownership and it’s not just depositors’ hard-earned rupees that’s at stake. And here comes the concept of “Capital Adequacy Ratio” CAR as bankers normally say. Let’s say that percentage is 10, which means for ₹100 bank lends they need to have atleast a ₹10 capital coverage. Now here is where it gets interesting, each loan has a different risk factor. For instance, if the bank gives out a home loan, it can always repossess the home if there’s a default. There is a col...
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Reviving India's Manufacturing Sector: Government Incentives as a Game-Changer - Raghav Modani

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  Reviving India's Manufacturing Sector: Government Incentives as a Game-Changer India has experienced the fastest growth rate among emerging economies, driven by its service sector and increasing consumer demand. However, the manufacturing sector, considered a crucial driver of long-term growth, remains largely underdeveloped. Currently, Indian manufacturing employs only 11% of the workforce and its contribution to the country’s GDP has remained stagnant. This contrasts sharply with other growing economies like Vietnam and China, where manufacturing significantly contributes to economic growth.  To give a scale of comparison, China, recognized as the "factory of the world," contributes 28.7% to global manufacturing output, supported by a well-established ecosystem with advanced infrastructure, extensive supply chains, and economies of scale. Manufacturing accounts for 27% of China's GDP, driven by strong government policies, investment in industrial parks, and a focu...
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