Source: TH
Context: Finance Minister Nirmala Sitharaman stated that the Indian economy has overcome the twin-balance sheet problem and now enjoys a twin-balance sheet advantage.
What is the Twin-Balance Sheet problem?
The twin-balance sheet problem refers to a situation in which both banks and corporates face financial distress simultaneously. It occurs when banks have a high amount of non-performing assets (bad loans) (NPA of public sector banks reached almost 12% in 2016-17) on their balance sheets, and corporates have accumulated excessive debt, leading to a negative impact on the overall economy.
RBI’s recent Financial Stability Report states that both banking and corporate sector balance sheets have strengthened and India might be on the cusp of a twin balance sheet advantage.
- The gross NPA ratio fell to a 10-year low of 3.9%.
- The corporate balance sheet is also at its healthiest in 10 years.
- The profitability of public sector banks has tripled since 2014, reaching over ₹1 lakh crore in 2022-23.
Some of the initiatives taken by the government are:
- 4R strategy (recognizing, recapitalizing, resolving, and reforming);
- Central Repository of Information on Large Credits (CRILC) to enable banks to share information on large loans;
- Insolvency and Bankruptcy Code, 2016
- National Asset Reconstruction Company(NARCL) to handle bad debt
