He informed the council that credit expansion has been quite high in the private sector and broad based, as it has led to the expansion of almost all industries.
Private sector credit expanded by Rs 285 billion in the first six months of the current fiscal year.
Manufacturing sector received 52 percent of the total credit while commerce, transport and communication and services sectors got 26 percent.
Within manufacturing sector, all important sub-sectors were the beneficiaries, particularly the textile sector. In addition, a significant growth in consumer financing, including auto finance and housing was observed.
The chairman said it is imperative to encourage these sectors as benefits of this credit goes to the middle-class of the society which was deprived of access to the bank credit in the past.
Further, these sectors have strong linkages with employment and other domestic sectors, which help maintain the current growth momentum, besides enabling the economy to surpass the economic growth target of 6.6 percent.
The council was informed that the growth of broad money (M2) has resulted mainly from the expansion in the net domestic assets (NDA) of the banking system during the first half of fiscal year 2004-05.
The credit to private sector was the driving force behind the expansion in the NDA. The government budgetary borrowings amounted to Rs 24 billion while the public sector enterprises continued to show improvement as their net credit retirement totalled Rs 9.8 billion. The net foreign assets (NFA) of the banking system showed an expansion of Rs 8.1 billion.
The council agreed upon the need to revise some of the credit plan targets in view of substantial expansion in credit to the private sector.
Based on the developments during the last six months and revised estimates of the GDP growth rate and inflation of more than 7 percent, each, the council realised the need for higher monetary expansion during the next half of the current fiscal year and suggested revisions in the credit plan targets.
In the revised credit plan for fiscal year 2004-05, the broad money is estimated to grow by 14.5 percent (Rs 360 billion) mainly due to higher credit disbursements to the private sector.
The government is estimated to borrow Rs 60 billion for budgetary support purposes and Rs 5 billion for commodity operations.
While summing up, the chairman advised banks to discourage large syndicated loans and encourage companies with big names to raise funds either in the domestic TFC market or in the international capital market so that more banks' credit was available for the SMEs and agriculture sectors.
The chairman also advised banks to empower the middle-class by giving it the opportunity to borrow funds for housing, consumer durable and other micro loans essential for poverty alleviation.
He informed the council that 23 percent of the total bank credit given during July-December 2004 had gone to the small and medium enterprises.