KOLKATA: Former Reserve Bank of India Governor Urjit Patel has raised red flags over the capital position of Indian banks which he says is probably inflated given the high net bad loans. In a presentation at the Stanford University he said that periodic bail outs by the government or the LIC would be necessary as these state-run banks lose market share, which may after all be good for the system efficiency.“It is possible that episodic high risk perceptions for the banking and financial sector as a whole will persist. Market perception is that the principal owner is one step behind regarding capital infusion into its banks due to fiscal constraints,” Patel said, speaking at the event on Indian Economic Policy in Stanford University on June 3.Indian banks needed regular infusion of capital by the government to cover the erosion of capital due to losses on accout of bad loans. The banking regulator pushed banks to recognize the huge pile of hidden stress starting from 2014 and resolve corporate debt through bankruptcy laws. “Short cuts/sweeping the problem under the carpet is unlikely to work and will only delay unlocking of capital, and come in the way of financing future investment efficiently,” Patel said.

Source: Economic Times July 04, 2019 08:04 UTC