Balance Sheet Syndrome with Indian Characterstics

** These terms were given in Economic Survey **
What is it?
  • Too many non-performing loans in banks
  • Slow credit expansion
What is Twin Balance Sheet problem?
  • Bad bank balance sheet due to NPAs
  • Bad corporate balance sheet due to slow credit expansion
  • Slow credit leads to stalled projects which in turn leads to more NPAs and thus a vicious cycle has been created.
  • Corporate profits are low while debts are rising, forcing firms to cut investment to preserve cashflow
What is the solution to this issue?
Economic Survey has given 4Rs as a solution to this issue:
(1). Recognition: Banks must value their assets as far as possible close to true value (recognition) as the RBI has been emphasizing
(2). Recapitalisation: Once they do so, their capital position must be safeguarded via infusions of equity as the banks have been demanding
(3). Resolution: Underlying stressed assets in the corporate sector must be sold or rehabilitated as the government has been desiring
(4). Reform: Future incentives for the private sector and corporates must set right to avoid a repetition of the problem as everyone has been clamouring

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