The economy will grow about 9 per cent overall during the current fiscal, maintaining the momentum of the previous year, when the economy grew by 9.2 per cent, C Rangarajan said.
On public sector banks, he said that the government should find ways and means of funding them before crippling their growth.
"For the year as a whole the growth rate would be maintained. There could be some special features I have not yet analysed. But overall the growth rate of the economy during the year will be about nine per cent," said Rangarajan, chairman of the Economic Advisory Council to the Prime Minister.
He had earlier inaugurated the FICCI-IBA conference on 'Global Banking- Paradigm Shift: Managing Transition.'
Responding to a query on a possible interest rate hike by the Reserve Bank of India (RBI) in the wake of softening of inflationary pressures, Rangarajan said that the monetary policy had played a role in keeping inflation within its target level, but the price trends have to be well established before it could act.
"Monetary policy changes have to come after clear trend has been well established," he said.
While inaugurating the conference, Rangarajan said that the government should make up its mind either to bring in additional capital or move towards reducing its share from 51 per cent through appropriate statutory changes, including making them quasi-government organizations like that of Life insurance Corporation of India (LIC).
"The public sector banks' ability to meet the growing needs will be inhibited, unless the government is willing to bring in more capital," Rangarajan, who was former RBI governor, added.
Emphasising on financial inclusion, Rangarajan asked the bankers to study the need for organisational changes to address the issue. He also said that the efforts for ironing out legal impediments for smoother consolidation of banks were on. However, he said that the case for smaller banks cannot be ruled out, stating, small banks may be the more natural lenders to small businesses.
Speaking on the occasion, State Bank of Indian chairman OP Bhatt, warned that the problem of non-performing assets (NPAs) will rear its head once there is a reversal in economic fortunes like as it could be understood from the Supreme crisis in the US.