FM is confident of 8% growth, credit expansion

Economy Bureau
Posted: Thursday, Aug 14, 2008 at 0150 hrs IST
Updated: Thursday, Aug 14, 2008 at 0150 hrs IST

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New Delhi, Aug 13: “If the Prime Minister’s Economic Advisory Council pegs (GDP) growth at 7.7%, I can confidently say that it will be close to 8%,” said finance minister P Chidambaram on Wednesday, after a marathon four-hour meeting with the chiefs of public sector banks. While industrial growth for the first quarter has slowed and interest rates are running high after monetary policy was tightened to contain inflation, Chidambaram stressed that “there is no slowdown in demand for credit”.

“There is some slowdown in consumption credit, or personal loans, but there is no slowdown in any other sector. Banks may be exercising some restraint, but demand for home loans continues to be very high,” the minister said.

Expressing confidence that “credit growth will still be brisk and productive sectors will not be starved of debt,” the FM reiterated: “One of the intentions of the current monetary policy is that the aggregate demand must be moderated. While non-food credit seems to have moderated very slightly, there is no sign of any slowdown as far as the infrastructure, project expansion, and new projects are concerned.”

While advances and deposits in the first quarter grew faster than last year, Chidambaram admitted that banks’ margins have come under pressure due to deterioration in their treasury portfolios. “Most banks have taken a hit on their treasury operations because the rise in the interest rates on bonds. They had to mark-to-market... As the market sentiment changes, there is a possibility that a substantial part of this may be written back.”

Dismissing concerns about a slowdown in agricultural credit, the FM said, “There was no growth in agriculture advances in the first three months because of the debt relief and debt waiver package and the delayed monsoon in Maharashtra, AP, Karnataka, MP and western Rajasthan. But it has picked up in the month of July and we will only see the comparable and meaningful number only at the end of the second quarter.”

On August 11, FE had reported that growth in agricultural credit in the first two months of this fiscal has slowed by 19%, according to RBI data.

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» Slow Agri growth affecting Agri output:F M should prod Banks to increase Agri credit significantly

Posted by K.R.S.Reddy on 2008-08-14 12:22:09.998784+05:30
The F.M impressed upon the banks to increase disbursement of auto loans as well as personal loans. He did not ask Banks to increase loans to agriculture even though there is a slow down by may 2008( on y-o-y basis),from Rs54,038 crore(32%)toRs 42,745 crore(19%).As on May 2008 agri loans are only Rs2,64,787crore compared to personal loans of Rs 5,28,046 crore(only 12% of net bank credit agaist mandated 18%).Now which is priority productive agr loans or non-productive personal loans? FM should ask Banks to increase agri loans to 18% of net bank credit viz; unto Rs 4,00 ,000 crore by March 2009, to help enhance food production. By down playing slow agri credit growth by merely saying that “it has picked up in the month of July and we will only see the comparable and meaningful number only at the end of the second quarter” will not improve the position, unless Banks are prodded to accelerate agri credit and the same is effectively monitored monthly. The Economic Advisory Committee has predicted a downtrend in agri output during 2008-09 to a mere 2% from a record 4.5% during 2007-08. Therefore, there is all the more need to increase significantly production and investment credit to Agriculture at least by additional Rs 1 lakh crore(by March 2009), to improve agric output during 2008-09 appreciably to meet the growing food needs of our teeming millions.

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