Bank Cleanups, Capitalization, and Lending: Evidence from India

Chopra, Y and Subramanian, K and Tantri, P L (2020) Bank Cleanups, Capitalization, and Lending: Evidence from India. The Review of Financial Studies, 34 (9). pp. 4132-4176. ISSN 0893-9454

Full text not available from this repository. (Request a copy)


We examine the Indian bank asset quality review, which doubled the declared loan delinquency rate. Relative economic stability during the exercise and the absence of a capital backstop together make it unique. We find that the expected reduction in information asymmetry does not automatically lead to the recapitalization of banks by markets. The consequent undercapitalization leads to underinvestment and risk-shifting through zombie lending. The impact flows to the real economy through borrowers, including shadow banks, and adversely impacts growth. These findings show that bank cleanup exercises not accompanied by policies aimed at recapitalization may be insufficient even during normal times.

Item Type: Article
Subjects: Finance
Date Deposited: 09 May 2021 04:42
Last Modified: 12 Jul 2023 18:26

Actions (login required)

View Item
View Item