Bailout

A bailout is the financial rescue of a failing company, financial institution, or sovereign government by an external party — most commonly the government, central bank, or international institutions like the IMF — through direct capital injection, loan guarantees, asset purchases, or debt restructuring to prevent collapse. Bailouts are typically justified on systemic risk grounds — when the failure of one entity could trigger a cascade of failures across the financial system or economy, causing widespread economic damage far exceeding the cost of intervention. In India, notable government bailouts include the recapitalisation of public sector banks (PSBs) through the ₹2.11 lakh crore recapitalisation programme announced in 2017, the restructuring of IL&FS (a significant NBFC whose collapse in 2018 triggered a broader credit crisis), and the RBI-orchestrated resolution of Yes Bank (2020) and Lakshmi Vilas Bank (2020). Bailouts are controversial in both economic and political terms — supporters argue they prevent systemic crises and protect depositors and workers, while critics argue they create moral hazard by shielding investors and management from the consequences of poor risk management. For Indian equity investors, government bailout announcements for systemically important institutions are typically interpreted as credit-positive events that stabilise financial sector sentiment.