Mumbai: Admitting that credit growth is "very low" given the size and growth rate of the economy, the Reserve Bank on Wednesday said for both the numbers to match, "the very very wide output gap" has to close. The central bank also clarified that low credit growth does not necessarily mean low credit flow to the economy, or choking of credit to the system, as bank credit growth numbers that the RBI publishes regularly represent only the outstanding credit in the system.
Output gap means due to poor demand conditions, companies are unable run their plant at full installed capacity or, in a larger sense, an economy is not producing optimally as the demand is missing.
Addressing reporters at the post-policy presser, Deputy Governor Michael Patra admitted that credit demand is still missing in the economy.
It is certainly not good enough for an economy of India's size and scale, he said and apportioned it to "the very very wide output gap" in the economy that he feels "will take several years to close". RBI Governor Shaktikanta Das said the thriving commercial debt/credit market — commercial papers, NCDs and ECBs — and the massive deleveraging that large corporates have been undertaking with such credit is the main reason for the low demand for bank credit.