Does India Need a Bad Bank to Clean up the Bad Loan Mess?

Professor Acharya says a ‘bad bank solution’ is what India needs to stop the bad loan wound from festering further. (Photo: iStockPhoto)

In 2015, Viral Acharya, CV Starr professor of economics at the NYU Stern School of Business, co-authored a research paper that analysed “the precarious condition of public sector banks” in India. The paper found that “the onus of remedying this situation through radical reform lies primarily with the Government.”

In conclusion, the paper recommended a few fixes, mentioned here in brief:

• Recapitalisation, maybe via deep-discount rights issues
• Professionalising the process of board appointments
• Wean them off their funding advantage from government guarantees
• Privatise public sector banks or reallocate their assets

Since then the state of public sector banks has only worsened.

Read the full story on BloombergQuint.