MUMBAI: The government will have to choose between putting more money into public sector banks or making some ‘strategic’ decisions for these lenders besieged by rising bad loans and shrinking capital, Uday Kotak , vice chairman of Kotak Mahindra Bank, said 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 his letter to shareholders.Total stressed loans in the Indian banking system currently stand at more than Rs 12 lakh crore. Stressed loans include loans that have been restructured and those that have turned bad. Bad loans in the banking sector crossed Rs 7 lakh crore in the quarter ended March 2017 largely from sectors linked to infrastructure and metals like steel and power.Private sector banks like Kotak Mahindra have very few infrastructure loans and depend on retail banking and working capital loans to make their money and are better placed. But public sector dominates Indian banking.“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.In March, the RBI issued a new prompt corrective action (PCA) framework which will tighten restrictions on banks raising capital, dividend payments and branch expansion if they slipped on the four parameters of asset quality, capital adequacy, return on assets and core capital.An April, ICRA report said a total of 16 public sector banks out of 21 and two out of 16 private banks will require corrective actions based on these measurements. Kotak said that the errors of commission in the banking industry are significantly more expensive than errors of omission.“At the same time, while we have relaxed entry norms in many areas of financial services, including banking, we need to give more thought to mortality and exits in this sector with potential systemic risks,” he said.