Economy / Banking System In India / Twin Balance Sheet (TBS) Challenge..
Twin Balance Sheet (TBS) Challenge..
The Twin Balance Sheet (TBS) challenge in India refers to a situation where both companies and banks are burdened with financial distress, leading to a complex and interconnected problem. The root of the issue lies in overborrowing by companies, which, unable to generate expected returns on investments, struggle to repay loans. This, in turn, results in banks accumulating non-performing assets (NPAs) as the loans extended to these distressed companies turn bad.
Key Points:
- Companies Overborrowing and Distress:
- Companies borrowed extensively for investments that did not yield anticipated returns.
- The inability of these companies to repay their loans has led to financial distress.
- Banks Mired in NPAs:
- Banks, having extended loans to these distressed companies, find themselves dealing with a significant volume of NPAs.
- Impact on Balance Sheets:
- The balance sheets of both borrowing companies and lending banks are under pressure due to the TBS challenge.
- Impact on Private Investment and Growth:
- The TBS challenge is a critical issue as it hampers private investment in the country.
- The overall economic growth across sectors is adversely affected by this challenge.
- Government Measures:
- The government has introduced several measures to address the TBS challenge, including the implementation of the Insolvency and Bankruptcy Code (IBC), recapitalization of banks, and other reforms.
- Persistent Challenge:
- Despite government interventions, the TBS challenge persists, highlighting its complexity and the need for comprehensive solutions.
- Economic Survey 2016-2017 Recommendation:
- The Economic Survey 2016-2017 proposed a dedicated body, referred to as the Public Sector Asset Reconstruction Company (PARA).
- PARA would function as a special purpose vehicle with the specific task of acquiring the most significant and complex NPAs and subsequently disposing of them.
Recommendation Rationale:
- Establishing PARA aims to concentrate efforts on addressing the most challenging and complex NPAs.
- The dedicated focus on handling large NPAs is expected to expedite the resolution process and mitigate the TBS challenge more effectively.
The TBS challenge represents a significant obstacle to India's economic health, and addressing it requires sustained efforts, innovative solutions, and collaborative action between the public and private sectors.
