Finance Minister P Chidambaram on Wednesday said he was confident that the economy will grow close to 8 per cent this fiscal, although the Prime Minister's Economic Advisory Council saw gross domestic product expansion slowing to 7.7 per cent.
"If the Prime Minister's Economic Advisory Council pegs it (economic growth) at 7.7 per cent, I can confidently say it will be close to 8 per cent," he told reporters after his meeting with chairpersons of public sector banks.
Chidambaram's remarks came a day after industrial growth halved in the first quarter of this fiscal.
Referring to undue competition among banks to take bulk deposits from public sector organisations, the minister said he would ask the Department of Public Enterprises to instruct public enterprises not to resort to bidding route, and deposit 60 per cent of their surplus fund with the public sector banks.
Chidambaram also said that bankers told him that credit will grow at very brisk pace and productive sectors will not be starved of credit.
There was an overwhelming view that there is no slowdown in the demand for credit, though there is some slowdown in demand for personal loans.
So far as the real estate sector is concerned, banks have imposed certain restrains but the demand for credit in this sector also continues to be very high.
Chidambaram said many banks have raised their benchmark lending rates by 0.75 per cent to 1 per cent, but all existing home loans, all new home loans up to Rs 30 lakh (Rs 3 million), existing automobile and educational loans are being spared from the hike.
The finance minister said profitability of banks have declined to some extent in the first quarter because of fall in returns from treasury operations.
He, however, expressed the hope that some of the losses in treasury operations would be recovered if market sentiments improve.
He said both gross and net NPAs (non-performing assets) of banks have declined in the first quarter compared to what they had as on March 31, 2008.