India needs to clean up its troubled financial sector fast in order to get economic growth back on track, says a former governor of the Reserve Bank of India, Raghuram Rajan.

Rajan served as RBI governor for three years — from Sept. 2013 to Sept. 2016. During his tenure, the central bank told troubled Indian lenders to clean up their books, which included identifying non-performing assets.

"There's a clean-up which we started, which is underway, which needs to be completed fast," he told CNBC's Nancy Hungerford on Thursday. "The recapitalization has to be done, but it also has to be done in the non-bank financial sector, which is seizing up."

"You need to clean up, get the banking system, get the financial system going again if you want stronger growth," Rajan said.

India's banking system has lost $24.8 billion due to non-performing loans of 416 defaulters being written off, CNN-News18 reported earlier this month.

The government has pumped in billions of dollars to help debt-laden state lenders in exchange for them implementing reforms. Public sector lenders are said to have the highest exposure to bad loans, and experts have said the sheer volume of bad debt remains high.