Writing for Mint, Niranjan Rajadhyaksha takes a look at India's current credit cycle from a long term perspective. He notes that the gap between bank credit and nominal GDP points to broader concerns about domestic savings rates. Excerpts below: 

"A developing economy such as India should normally have bank credit growing faster than nominal GDP because of financial deepening...there is no doubt that the credit gap has been negative since the end of 2013."

On the relationship of slack in bank lending and the current state of the economy:

"...the reduction in financial support to the industrial sector is because of inventory destocking by firms that are seeing weak demand while the decline in funds flow to the services sector is a sign of stress in the real estate industry. These two micro factors are overlaid on an overall drop in nominal gross domestic product (GDP) growth to perhaps its lowest level in two decades."

On how foreign capital flows enter the picture in the current credit cycle:

"The growing dependence on foreign capital inflows to fund the Indian commercial sector fits well with deepening fears of a lower domestic savings rate, especially a sharp decline in the net savings rate of households, which have borrowed to maintain consumption levels during a period of weak income growth."

Read the full article here.