World biz and more as seen from India

Tuesday, August 09, 2005

Think Tank Series : Lending Boom

I consider myself more of a techie (even though my undergrad was in Commerce) but economics theories have always interested me because they work on simple logic. The toughest part in developing a theory is to get the data to support ones logic. So this question goes to all the MBAs and Ph.Ds that are out there.

Fact : The banks loans in India grew 31 percent to Rs.11.43 trillion with the Indian economy growing by 6.3 percent. Under current Indian scenario, I can attribute this increase in bank loans (greatest increase since 1971) to a combination of higher incomes and lowest interest rates in about three decades.

But what interests me about this is the co relation between increase in the issuance of bank loans and an economy.

Question : Does a country’s economic performance always have a direct relation with the bank loans?