``The Indian banking system has basically been a wishy-washy moneylending system, without even the moneylender's ability to collect. It has to learn to look beyond at people,'' Kannan said.

He was addressing the Southern India Chambers of Commerce and Industry in Chennai on Friday.

According to Kannan, there is a fundamental difference between a customer who defaults because he cannot pay and the other who won't pay. The system does not distinguish between the two, thus often turning an enterprise sick which could have been revived.

According to Kannan, the time for action is when an asset is showing signs of incipient sickness. Timely rescheduling or provision of some comfort can then help save the asset. While this is recognised at the top, it does not get translated into action due to anumber of constraints and the `fear psychosis' prevalent at the interface level between banks and customers, he pointed out.

Of course, there are a number of constraints on banks as well. Kannan quoted an international credit rating agency as saying that the Indian economic system was `defaulter-friendly.' Banks are effectively denied right of foreclosure due to the cumbersome judicial processes, he said.

Kannan said economic growth was experiencing a slowdown and not a recession, as growth is still positive. Spending on infrastructure could kickstart the economy, he felt. But red-tape continues to be a problem. Kannan revealed that his bank alone had sanctioned over Rs 1,300 crore to infrastructure projects, but no drawals have taken place. This is because none of the projects have managed to reach financial closure, due to snags of one kind or the other.

Co-ordination between central and state governments is also essential, Kannan pointed out. ``The minister can announce a road between A and B butunless the state government acquires the land, it cannot be built.''