Induction Motors mostly require Reactive power to produce magnetic filed. Reactive power is the part of input energy and it is consumed for creating and maintaining magnetic flux.However it leads to lower the power factor which is very low at no load or light loads.
Two thumb rules therefore are that unloaded motors should be switched off, and motors should not be oversized (since they will then be lightly loaded).In order to achieve the high power factor capacitors are connected across the induction motors to supply the reactive power.
Capcitor banks are connected locally to the loads so that the penalty for excessive reactive power demand imposed by utility companies can be avoided. This individual compensation is recommended where the motors KVA ratings are large.