How India’s 53% credit-to-GDP ratio exposes a lending gap

Formal borrowing is expanding but still trails the scale of domestic economic activity.

India’s credit-to-GDP ratio stands at 53%, suggesting that access to formal credit is improving but remains limited compared with the country’s overall economic size, according to CareEdge Ratings.

Several major economies report high bank credit relative to the size of their economies, reflecting deep reliance on bank lending by companies, households and cross-border borrowers.

The UK, France and China record high bank credit-to-GDP ratios, whilst Germany and Japan also show elevated levels, in line with their bank-centred financial systems. 

By contrast, the US has a relatively low credit-to-GDP ratio, largely because businesses and households rely more on bond markets, securitisation and non-bank financial institutions than on traditional bank loans.

On the funding side, bank deposits relative to GDP are highest in France, China and Japan, supported by strong household savings and the presence of large international banking groups. 

The UK shows a lower deposits-to-GDP ratio despite very high credit levels, indicating a heavier reliance on wholesale and market-based funding. 

The US and India display more balanced deposit mobilisation relative to GDP, reflecting steady household savings alongside more diversified funding sources.

India’s banking system is operating with significantly lower leverage than its peers in Europe and Japan, whilst delivering stronger returns, according to comparative data.

The sector’s average gearing ratio stands at 11.6 times, well below levels seen in most developed markets. In contrast, European banks and Japanese lenders cluster at higher gearing levels but show weaker profitability.

Indian banks are generating returns through more efficient use of capital rather than by increasing leverage. 

When combined with India’s relatively low credit penetration, the figures point to room for balance-sheet growth without a corresponding increase in systemic risk.

This combination of lower leverage, stronger returns and underpenetrated credit supports the view that India offers long-term growth potential for the banking sector.