Former RBI Governor Raghuram Rajan who was criticised by Finance Minister Nirmala Sitharaman for running things during the "worst phase" of the Indian banking sector responded to her comment saying that he served two-third of his tenure under the BJP government. "I had just over eight months in the previous (Congress) government and I had 26 months under this (BJP) Government. So much of my term (as RBI Governor) was under this government," he said.
In an interview with CNBC, Rajan was asked about Sitharaman's comments in New York where she said that the India witnessed the worst phase in public sector banks under the leadership of Prime Minister Manmohan Singh and Rajan.
The former RBI governor, however, said that he does not want to get into a political debate. "Let me not get into a political back and forth. The reality is, there is a clean-up which we started, which is underway, which needs to be completed fast. The recapitalisation has been done, but it also has to be done in the non-bank financial sector which is ceasing up and you need to clean-up, get the financial system going again if you want stronger growth," he added.
In the interview, Rajan, said that the seeds of the problems were sown in "euphoria" in the pre-2008 global financial crisis. "A lot of investments were made and those slowed down. Those created the bad loans which we needed to clean up. And we started the process of cleaning up," he said.
"There are people who say why did we clean up, we could have gone on. We simply couldn't have gone on because banks were stopping lending because their balance sheets were getting clogged with non-performing loans. So, you had to force the reorganisation and recapitalization to set them back on track," he added.
Rajan also spoke about the economic slowdown and said that 5 per cent growth is bad. "The peak in 2016 was 9 per cent growth in one of the quarters, in the first quarter, now it is down to 5 (per cent). There are people who have raised a concern about whether 5 really is 5. The reality is there has been a substantial slowdown. I think 5 is bad enough. So, you have to do something about it because 5 doesn't get jobs given we are adding 1 million people to the workforce every month," he said.
Sitharaman had commented: "It was in Rajan's time as Governor of the Reserve Bank that loans were given just based on phone calls from crony leaders and public sector banks in India till today are depending on the government's equity infusion to get out of that mire."
(With PTI inputs)