Banks need to overcome problems fast to lend large credit: Rangarajan

The primary role of the banks is to raise deposits and lend, former RBI governor

Indian banks need to overcome their current problems quickly to be able to lend in large amounts, former Reserve Bank governor C Rangarajan has said.

His remarks come amid the Rs 127 billion fraud detected recently at the Punjab National Bank (PNB) and the banking system's overall struggle to overcome mounting bad loans.

To a query on the problems of non-performing assets (NPAs) or bad loans and frauds that have hit the country's banking system, Rangarajan said, "I think the banking system is stressed. It had already been stressed for some years.

"I think that through recapitalisation and other measures, we really need to ensure that the banking system gets strong enough to be able to begin the process of lending."

The primary role of the banks is to raise deposits and lend, he told PTI on the sidelines of an event here.

"In the larger interest of the country, from the growth point of view, we need to overcome the current problem as quickly as possible and let the banking system move on to be able to provide larger amount of credit," Rangarajan said.

Last month, the PNB had said it detected fraudulent transactions worth about Rs 127 billion at one of its branches in Mumbai.

The transactions were allegedly carried out by diamond jeweller Nirav Modi by acquiring fraudulent letters of undertaking (LoUs) from the lender's Brady House branch in Mumbai to secure overseas credit from other Indian lenders.

The CBI has so far arrested over a dozen people, including former and current officials of PNB and companies related to diamond traders Nirav Modi and Mehul Choksi.