The finance ministry officials and the bankers will have a meeting to talk about the lending reforms drafted to prevent bad loan crisis after the $32 billion bailout of state-run banks that has been disclosed by the government recently.
After the announcement of capital injection in the previous month, the policymakers and the bankers fear that India would throw all the good cash after bad, and this can be reduced if the lending rules are reinforced and the government reforms need to protect banks from the political pressure.
"After bailing out the banks with taxpayer money, the government wants to ensure that such a problem doesn't happen again," said a senior finance ministry official having direct knowledge of the matter, who refused to share details.
The Finance Minister Arun Jaitley has affirmed that the recapitalisation will not only go along with bank reforms but will also take steps to merge weak banks with stronger rivals. According to bankers, one of the biggest issues is government's reticence in dealing political interference in lending.
India is close to $147 billion pile of unpleasant loans backed by powerful and politically provided to businesses which are defaulting on loans. One of the high-profile cases of conspiracy and fraud in relation to loans by the owner of Kingfisher Airlines is one of the best examples.
"There's a risk of a rise in stressed assets unless bank corporate governance improves," said N. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a think-tank funded by the finance ministry.
A spokesman for the finance ministry mentioned that, there is a bulk of bad loans made by the corporate defaults which is developing stress in loans worth about 4 trillion rupees extended to more than 70 million small enterprises under the Modi’s programme to generate jobs from the last 3 years.
"We are scared about these risky loans, 50 percent of which may become stressed assets soon," said D. Franco, a manager at State Bank of India's branch in Chennai and general secretary of the All India Bank Officers' Confederation.