Former RBI Goverr Raghuram Rajan has put out his full 17-p response to Lok Sabha's Committee on Estimates which h issued him a letter seeking his inputs on current n-performing Asset (NPA) problem that is being faced by Indian banks and also, consequently, as debate has turned, to Indian ecomy.

Rajan, who h exited India's central bank in September 2016, h also h RBI's action during his high-profile three-year term cited as having eventually led to two-year slowdown in India's growth -- a period that also witnessed demonetisation and implementation of GST. specific argument, me by Niti Aayog Vice Chairman Rajiv Kumar was that mechanisms instituted during Rajan's term saw NPA's being earmarked at a large scale, ballooning from about Rs 4 lakh crore to almost Rs 10 lakh crore, reby impacting banks who moved to rein in ir outlay and NPA debtors who faced a squeeze in working capital, impacting ongoing projects. In his response, Raghuram Rajan has dressed matter, at one point, explicitly. 

He first speaks about need for NPA classification:

"Think refore of NPA classification as an anaestic that allows bank to perform extensive necessary surgery to set project back on its feet. If bank wants to pretend that everything is all right with loan, it can only apply band-aids – for any more drastic action would require NPA classification."

n, in relevant section, titled "Did NPA recognition slow credit growth, and hence ecomic growth?", he writes:

" RBI has been accused of slowing ecomy by forcing NPA recognition. I actually gave a speech in July 2016 on this issue before I demitted office, kwing it was only a matter of time before vested interests who wanted to torpedo clean-up started attacking RBI on growth issue."

"Simply eye-balling evidence suggests claim is ludicrous, and me by people who have t done ir homework."

At this point, Rajan produces credit growth charts (reproduced with full te below) of private banks vs public sector banks with respect to n-food credit growth, industry, MSMEs, Agriculture, Personal loans and housing, from which he concludes:

"What we see here is a slowdown in lending by public sector banks vis a vis private sector banks"

AND

" reality is that public sector banks slowed lending to sectors where y were seeing large NPAs but t in sectors where NPAs were low"

He n gives his main answer to Rajiv Kumar's 'accusation':

" fact that public sector bank credit slowdown to industry dates from early 2014 suggests that bank cleanup, which started in earnest in second half of fiscal year 2015, was t cause"

...and proceeds to present real cause of slowdown:

"Indeed, slowdown is best attributed to over-burdened public sector bank balance sheets and growing risk aversion in public sector bankers. ir aversion to increasing ir activity can be seen in rapid slowdown of ir deposit growth also, relative to private sector banks. After all, why would public sector banks raise deposits aggressively if y are unwilling to lend?"

His final assessment is that this is 'classic behaviour' and he also presents a solution, which he pointedly says isn't a "foreign solution", likely in reference to a certain allegation me against him:

"In sum, Indian evidence, supported by experiences from or parts of world such as Europe and Japan, suggests that what we were seeing was classic behavior by a banking system with balance sheet problems. We were able to identify effects because parts of our banking system – private banks -- did t suffer as much from such problems. obvious remedy to anyone with an open mind would be to tackle source of problem – to clean balance sheets of public sector banks, a remedy that has worked well in or countries where it has been implemented. This is t a “foreign” solution, it is an ecomically sensible solution. It is something that has been repeatedly flagged by government’s own Ecomic Survey, under guidance of respected Dr. Arvind Subramanian. Clean up was part of solution, t problem."

Here is full te of Raghuram Rajan to Murli Mahar Joshi-led panel: