It’s the time for the govt to decide the fate of PSU banks, says Uday Kotak

It’s time that the government decides whether it ill put more money into public sector banks or instead decide something strategic for these lenders plagued by rising bad loans and shrinking capital, says Uday Kotak, vice chairman of Kotak Mahindra Bank in the bank's annual report.

"The time has now come to bite the bullet. The state, sooner or later, may have to make the difficult choice between putting in more good (tax payers') money after bad or being open to 'strategic' choices. I wonder whether that can happen now or sometime after 2019," Kotak said in a letter he wrote to shareholders.

Indian banking industry has total stressed loans worth more than Rs 12 lakh crore, including restructured loans and those that have turned bad.

In the last quarter of last fiscal, bad loans in the banking sector crossed Rs 7 lakh crore, mainly constituted by linked to infrastructure and metals.

Private sector banks like Kotak Mahindra have very few infrastructure loans, mainly depending on retail banking and working capital loans. However, Indian banking industry is largely dominated by public sector.

"The system's inability to recognise the inconvenient truth that banking is an economic and commercial activity with high leverage, and that years of 'kicking the can down the road' in high risk areas, mixing of social objectives and weak governance have all contributed to bringing this industry to a weak position," Kotak said.

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