President Pratibha Patil today cautioned the Reserve Bank of India (RBI) against unrestrained credit growth that may lead to bad debts, but at the same time asked it to ensure loans to productive sectors of the economy.
The Indian economy, the President was confident, will grow by over seven per cent.
"If there is a lesson that can be drawn from this (global financial) crisis is that there cannot be unbridled extension of credit. The Reserve Bank must continuously ensure that banks have proper guidelines for risk management," Patil said here after releasing a commemorative stamp on the occasion of the Platinum Jubilee celebrations of the RBI.
The President's words of caution to the RBI came amid bankers expressing apprehensions that their non-performing assets may rise.
On January 11, the country's largest bank, State Bank of India (SBI), Chairman O P Bhatt had said loan defaults would continue to rise for the next six months.
It may be remembered that the global financial meltdown basically emerged from defaults in the housing loans.
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However, the President said, "While indiscriminate grant of credit must be avoided, credit policies should definitely not deny finance for productive enterprises."
The funding requirements of productive sectors is expected to increase with the rebound in economic recovery.
Patil expressed the hope that the economy may witness over seven per cent growth next fiscal.
"Though we did see a fall in our growth rate initially we have now risen close to 7 per cent growth rate, justifying the correctness of our policy stance. Our growth trajectory is expected to be higher in the coming year," she said.
Indian economy has already recorded seven per cent growth in the first half of this fiscal and Finance Minister Pranab Mukherjee has pegged the economic expansion at 7.75 per cent during 2009-10.
Impacted by global slowdown, economic growth had slowed down to 5.8 per cent in the last two quarters of 2008-09. To spur up the economy, the government provided three stimulus packages with revenue implications of Rs 1.86 lakh crore.
These measures have in fact started yielded results. Economy grew by 6.7 per cent in the first quarter of this fiscal and a stunning 7.9 per cent in the second quarter.
The President equated the global financial crisis with Great Depression of 1930s.
"The impact of the credit and financial crisis of the last two years, in terms of lowered economic growth rates and high unemployment rates, is somewhat comparable to the Great Depression," she said and appreciated the RBI's and the government's role in enabling the country weather the impact of the crisis.
RBI was established in 1935, in the aftermath of the Great Depression, and is celebrating Platinum Jubilee when financial crisis is ebbing.
Mukherjee also lauded RBI's role in ensuring that the government's borrowing of Rs 4.5 lakh crore does not leave private sector crying for resources.