Govt needs to plan risk capital for state-run banks: Uday Kotak

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Published: June 5, 2020 4:30 AM

Kotak also backed the Reserve Bank of India’s (RBI) stance that borrowers who avail moratorium on their bank loans would have to pay the interest accrued during the period.

In its reply to the Supreme Court on a plea over waiver of interest charges during moratorium, RBI said such a waiver would hurt banks by Rs 2 lakh crore.In its reply to the Supreme Court on a plea over waiver of interest charges during moratorium, RBI said such a waiver would hurt banks by Rs 2 lakh crore.

Banker Uday Kotak, who has assumed charge as the president of the Confederation of Indian Industries (CII), on Thursday said the government needed to plan risk capital for public-sector banks (PSBs). He further said private-sector banks and NBFCs should also tap the markets to raise capital. Kotak also backed the Reserve Bank of India’s (RBI) stance that borrowers who avail moratorium on their bank loans would have to pay the interest accrued during the period.

Taking stock of the situation amid the Covid-19 pandemic, he said, “Indian banks have a total loan book outstanding of Rs 100 lakh crore and the total capital in the system is aorund Rs 11-12 lakh crore.” Kotak said hypothetically, just 5% loss in the loan book becomes around Rs 4-5 lakh crore, which will be 40% of the total capital in the system. “The government will have to plan some capital for public-sector banks,” he said.

He also urged all financial sector players to raise capital from the market.

Speaking on the issue of banks charging interest during moratorium, Kotak said: “If we have a situation that borrowers get moratorium, banks have an obligation to serve depositors both on principal plus interest,” he said. He added that there could not be a one-sided contract where borrowers ask for moratorium on borrowing and expect full interest on deposits too.

“Banks have to serve borrowers but have a bigger duty to serve their depositors,” Kotak said, adding that depositors were the core of the banking system, and that their trust must be nurtured.

In its reply to the Supreme Court on a plea over waiver of interest charges during moratorium, RBI said such a waiver would hurt banks by Rs 2 lakh crore.

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