NARCL would work better with bank recapitalisation: ADB

IBC resolution slow and ‘skewed’, rising NPAs and low credit offtake deter private investments, ADB economists point out

The success of India’s latest gambit to clean up the banking system’s toxic assets through a ‘bad bank’ will hinge on several factors, and global evidence shows such initiatives worked better when accompanied by the recapitalisation of banks, the Asian Development Bank (ADB) said.

The bank has flagged that India’s resolution process under the Insolvency and Bankruptcy Code (IBC) remained ‘skewed’ and raised concerns about rising non-performing loans (NPLs) and low uptake of bank credit deterring private investments, in its Asian Development Outlook update last week.

While the IBC had led to a paradigm shift in the resolution process, quicker and more efficient resolutions are important for improving resource allocation in the economy, ADB’s Rana Hasan and Shalini Mittal said in response to queries from The Hindu. Mr. Hasan is the Bank’s regional economic adviser for South Asia and Ms. Mittal is an associate economic analyst.