How Effective are bad Bank Resolutions? New Evidence from India (NARCL)

Non-performing assets have remained a persistent challenge for the Indian banking system, constraining credit growth and financial stability despite multiple recovery mechanisms. In response, the Government of India established the National Asset Reconstruction Company Limited (NARCL) as a government-backed bad bank to address large and legacy stressed assets. This study examines the effectiveness of bad bank resolutions in India by analysing NARCL’s institutional design and early performance. Using secondary data from regulatory reports and government disclosures, the paper evaluates pre-NARCL recovery channels and assesses the transfer of 22 large stressed assets to NARCL through a structured analytical framework. The findings indicate that while traditional mechanisms showed limited effectiveness, NARCL offers structural advantages in balance-sheet clean-up and coordinated resolution of complex NPAs, with recovery outcomes still evolving.