An Econometric Analysis of the Determinants of Bank Credit Growth in India (2002–2022)

This study investigates the macroeconomic and financial determinants of bank credit growth in India over the period 2002 to 2022 using linear and log-linear econometric models. The analysis focuses on the impact of five key variables bank deposits, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), investment in government securities, and Gross Domestic Product (GDP)—on the expansion of bank advances. Drawing from time-series data, the study reveals that deposits and GDP have strong and statistically significant positive effects on credit growth, underscoring their pivotal roles in expanding the credit base. In contrast, regulatory instruments such as CRR and SLR exhibit negative elasticities, suggesting their constraining effect on credit supply. Investment in government securities also shows a negative relationship, indicating a crowding-out of private lending. Among the estimated models, the log-linear specification demonstrates superior explanatory power, particularly Model VII, which captures 35% of the variation in advances with significant coefficients and minimal autocorrelation. The findings suggest that while macroeconomic expansion supports credit growth, regulatory measures must be carefully calibrated to avoid excessive restrictions. The study offers policy insights for enhancing financial intermediation through balanced monetary regulation, effective deposit mobilization, and economic growth stimulation.