Former RBI Governor Raghuram Rajan has said that the central government’s priority should be to strengthen the non-banking finance companies (NBFCs). In his latest interview to business channel CNBC he said that NBFCs must be provided with the capital required for them to resume their lending activities. In his opinion, this is crucial to drive the economy back to the growth track. He wants the government to accelerate the cleaning up of banks and NBFCs.

There have been words exchanged in the media recently between the current Finance Minister Nirmala Sitharaman and former Prime Minister Manmohan Singh over the economy. Nirmala Sitharaman had replied to a question put by a reporter when she was in the US that the NPA mess in the banks in India was created when Manmohan Singh was the PM and Raghuram Rajan was the RBI Governor. In his interview, Rajan, said that the seeds of the non-performing assets (NPA) mess were sown in 2007-08”. He, however, took over as Governor RBI in 2013.

According to him, a lot of investments that ended up as NPAs happened in 2007-08 and these investments created a lot of bad loans that needed to be cleaned up to help spur lending.

During his tenure, RBI asked troubled Indian lenders to clean up their books. “There’s a clean-up which we started, which is underway, which needs to be completed fast,” he told CNBC on Thursday.

On the current slowdown in the economy, the economist felt that the government needed to bring in a new generation of reforms to accelerate growth and that merely tinkering with rates won’t do. The government had recently announced a drastic cut on the corporate tax rates saying that would spur investments, growth and job creation.  

Rajan feels the government has the required political strength and power required to undertake reforms.