NEW DELHI: Finance Minister Arun Jaitley put private sector debtors on notice, saying they will have to pay their dues to banks or others will step in and take control of the businesses. The minister also defended demonetisation, declaring that its impact was along expected lines and the economy will benefit from it in the medium and long term.Using the new bankruptcy law , the central bank has prodded banks to initiate insolvency proceedings against 12 large corporate defaulters to resolve loans of about Rs 2.5 lakh crore. More defaulters are being notified for action, with ET reporting on August 30 that as many as 50 accounts are in line for debt resolution or, failing that, being sent to bankruptcy court.He said the government was open to providing more funds to banks but cleaning up stressed loans was a bigger priority. "Through the bankruptcy law, I think this is the first time that debtors in India are being taken to task," he said at The Economist's India Summit on Thursday.He said the results of proceedings against major debtors would dictate how the banking situation improves and added that the process will take time. "You can't have a surgical solution to this," he said.The bill shouldn't have to be paid by tax payers, the finance minister said. "A very easy solution to suggest is tax payers must pay because the private sector has defaulted," he said, adding that bank recapitalisation — the government pumping more capital into public sector banks to shore up their books — effectively amounted to that."Therefore, I think, let's try and make the private sector pay for their debts or allow somebody else to step in." The government has already infused about Rs 70,000 crore in banks as capital and is "open" to putting in more money, he said.There is also the possibility of some banks raising resources from the markets, he said. "We are also at an active stage going for consolidation. We don't need so many public sector banks.We need fewer but stronger banks," he said. The cabinet last week decided to speed up mergers among public sector banks (PSBs) to improve efficiency and raise the quality of corporate governance by creating an alternative mechanism. However, without fresh capital infusion by the government, it's doubted whether this will improve public sector banks' weak capitalisation.Jaitley said putting in more money at a later stage is another possibility.The government owns majority stakes in 21 banks and is pushing for consolidation to create fewer but financially more sound entities as part of a broader economic revival strategy. These lenders hold around 74 per cent of all deposits.On interest rates, Jaitley said every finance minister wanted them to go down."That's been constantly the desire of everyone," he said. "But then at the end of the day, the regime and the system we have is that the finance ministry or North Block does not have the last word in this. Therefore, we will live with the regime that we have."The RBI sets benchmark borrowing and repurchase rates, which are used as a reference by banks to decide on interest rates."The fallout of demonetisation is on predicted lines," Jaitley said. "The fact that money got deposited in banks doesn't make it legitimate money." The country was ready for such an exercise even though there was political resistance, he said.A day after the Reserve Bank released data on returned notes in its annual report indicating that most of demonetised currency had come back, Jaitley said the fact that money got deposited in banks did not mean that all of it was legitimate."It's nobody's case that black money has been completely eliminated after demonetisation," he said. He said demonetisation, coupled with the goods and services tax (GST), will give a "significant boost" to direct tax collections as many people have come into the tax net. Money flooding into banks is not a concern as it's good for the economy that more cash has come into the formal system.The RBI annual report had on Wednesday said about 99 per cent of Rs 15.44 lakh crore demonetised currency came back into the system.On GST, Jaitley said its inflationary impact had been avoided and it offers scope for the convergence of tax rates going forward.