Credit, Investment and GDP

The failing of the government to achieve growth of credit target is contributing to lower investment. At the same time, the incremental capital output ratio (ICOR) that measures investment required to increase GDP has deteriorated in the past few years. For example, the government would require investment rate to rise at 32.0 percent of GDP for achievement of 7.2 percent GDP rate of growth in FY 2013-14, if the
ICOR remains same of the outgoing year. This tendency of the ICOR is also necessitating greater investment, and thus further growth of credit in the private sector. Moreover, if the existing policies remain unchanged, the savings-investment gap might increase sharply and might continue to increase in the upcoming fiscal years. This gap might increase5.47 percent and 5.81 percent of the nominal GDP in FY 2013-14 and FY 2014-15. Low credit delivery is likely to have an adverse effect on this gap as well.
Risk management comprises of capital adequacy, asset quality, non-performing loan, expenditure- income ratio and return on Asset (ROA), return on Equity (ROE) and non-performing loan (NPL) which indicates the lack of presence of prudential surveillance on the financial sector and profitability of bank.
Here, ROA is the ratio of net earnings of a year to average whole assets of a business in a financial year while ROE means the measurement of the rate of return on the ownership interest of the common stock owners and the term NPL refers to the loan that is in default.