Reviving lending or safeguarding stability: what purpose did recapitalization serve?

Saibal Ghosh

Macroeconomics and Finance in Emerging Market Economies, 2025, vol. 18, issue 2, 420-440

Abstract: Two cardinal objectives of recapitalization are promoting bank lending and ensuring systemic stability. Whether the Indian experience ensured that one or both these objectives are addressed remains an open question. To examine this, we utilize data on Indian state-owned banks for 2009–2020. The findings reveal that although recapitalization led to a decline in bank lending, there was an improvement in systemic stability. Robustness tests reveal that these findings differ across bank size and quality of loan book. The price impact of such recapitalization is an increase in borrowing costs, which banks compensate for by modestly increasing lending rates.

Date: 2025
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DOI: 10.1080/17520843.2022.2154010

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