'Loans were given based on crony leaders' phone calls ': Nirmala Sitharaman slams Raghuram Rajan, Manmohan Singh

Finance Minister Nirmala Sitharaman Tuesday launched a scathing attack on former RBI governor Raghuram Rajan and former Prime Minister Manmohan Singh over their handling of the banking sector during their reign.

She also said that the Indian public sector banks (PSBs) had the "worst phase" under the duo's time as heads of their respective regimes.

"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," she said during a lecture at Columbia University's School of International and Public Affairs.

Also Read: FM Sitharaman assures EMIs will get cheaper; banks asked to link home, auto loans to repo rate

"Dr Singh was the Prime Minister and I'm sure Dr Rajan will agree that Dr Singh would have had a 'consistent articulated vision' for India," she added. The finance minister further stated that giving all the public sector banks a "lifeline" is today her primary duty.

"I'm taking a minute to respond. I do respect Raghuram Rajan as a great scholar who chose to be in the central bank in India at a time when the Indian economy was all buoyant," Sitharaman articulated.

Asked about Rajan's comments during a recent lecture at Brown University in which he had apparently mentioned that in its first term, the Narendra Modi government had not done better on the economy because the government was extremely centralised and the leadership did not appear to have a consistent articulated vision on how to achieve economic growth, the minister said instead there were major issues with bank loans during Rajan's tenure as the central bank head.

Also Read: 'Don't exacerbate the problems': Raghuram Rajan's advice to Modi 2.0 on economy

"With due respect, I'm not making fun of anybody but I certainly want to put this forward for a comment which has come like this. I have no reason to doubt that Rajan feels for every word of what he is saying," she enunciated.

"And I'm here today, giving him his due respect, but also placing the fact before you that Indian public sector banks did not have a worst phase than when the combination of Singh and Rajan, as Prime Minister and the Governor of Reserve Bank, had. At that time, none of us knew about it," Sitharaman highlighted.

The finance minister said that while she is grateful that Rajan did an asset quality review, but people should know what ails the banks today.

"I am grateful that Rajan did an asset quality review but I'm sorry, can all of us put together also think of asking what ails our banks today. Where has it been inherited from," she said.

Also Read: Manmohan Singh tells PM Modi to stop 'headline management', focus on reviving economy

The event was also attended by former NITI Aayog Vice Chairman Arvind Panagariya, professor and eminent economist Jagdish Bhagwati and India's Consul General in New York, Sandeep Chakravorty.

Sitharaman said, "While economists can take a view of what prevails today or prevailed years ago, but I will also want answers for the time when Rajan was in the Governor's post speaking about the Indian banks, for which today to give a lifeline is the primary duty of the Finance Minister of India. And the lifeline-kind of an emergency has not come overnight".

Responding to the question, Sitharaman further pointed out that if there is a feeling that there's been a centralised leadership now, "I'd like to say that very democratised leadership led to a whole lot of corruption".

"You need to have a country as diverse as India with an effective leadership. A rather too democratic leadership, which probably will have the approval of quite a lot of liberals, I'm afraid, left behind such a nasty stink of corruption, which we are cleaning up even today," she said.

Also Read: All public sector banks are 'flush with money': FM Nirmala Sitharaman on liquidity