Disentangling demand and supply side determinants of post-GFC credit slowdown: an Indian perspective

Saurabh Ghosh (), Snehal Herwadkar (), Radheshyam Verma () and Pawan Gopalakrishnan
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Saurabh Ghosh: Reserve Bank of India
Snehal Herwadkar: Reserve Bank of India
Radheshyam Verma: Reserve Bank of India

Indian Economic Review, 2023, vol. 58, issue 2, No 6, 399-421

Abstract: Abstract In an emerging market economy (EME) that depends largely on bank-credit, it is important to decipher whether supply-side or demand-side factors are responsible for a sluggish credit growth phase. A formal empirical analysis using Indian data and a disequilibrium model suggests that demand side factors have majorly contributed to the credit slowdown during the post-GFC period and prior to the pandemic. This could be because of adequate supply of funds, and several concerted policy actions taken by the regulatory authorities to mitigate concerns over the asset quality risks. In contrast, lower investment demand and global supply side bottlenecks have often contributed to demand side weaknesses, suggesting the need for strong policy support to uphold credit demand.

Keywords: Bank credit; Financial intermediation; Credit demand; Disequilibrium model (search for similar items in EconPapers)
JEL-codes: E02 E44 E58 G21 G23 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s41775-023-00177-w

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