Finance Minister Nirmala Sitharaman on Tuesday said the “worst phase” of the Indian public sector banks was under former Prime Minister Manmohan Singh and former Reserve Bank of India Governor Raghuram Rajan, PTI reported.

“It was in Rajan’s time as governor of the Reserve Bank that loans were given just based on phone calls from crony leaders,” she said at a lecture at Columbia University in New York City. “Public sector banks in India till today are depending on the government’s equity infusion to get out of that mire.”

Sitharaman said she respected Rajan as he was a great scholar who chose to be in the central bank in India, at a time when the Indian economy was “all buoyant”. The finance minister said she was grateful that Rajan had conducted an asset quality review, but everyone should know what has caused the crisis in banks now and “where it has been inherited from”.

The minister was asked about Rajan’s comments at Brown University in the United States, where he said that India’s fiscal deficit concealed a lot and could push the country’s economy to a “worrisome situation”. The former RBI governor attributed the economic slowdown to a decline in investments, consumption and exports, adding that the “ill-conceived demonetisation and poorly executed GST [Goods and Service Tax]” added to the problem.

Sitharaman on Tuesday said that economists may have an opinion on what was going on with the Indian economy now, but she wanted answers for the time Rajan was the governor. She added that it was her duty as the finance minister to give a lifeline to banks. But this “lifeline-kind of an emergency has not come overnight”, she said.

The finance minister said if there was a feeling that there was centralised leadership now, then “very democratised leadership led to a whole lot of corruption” in a reference to the previous Congress government. “You need to have a country as diverse as India with an effective leadership,” she said. “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.”

In September, Singh had pitched for structural reforms to tackle the economic challenges the country is facing. Singh had attributed the slowdown to “blunder of demonetisation, followed by the faulty implementation of GST”.

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