21.6           ndian      onom
     the crises have almost failed. Meanwhile, the debt-                  NPAs. If some private sector estimates are
     ridden big private sector companies came in news                     to be believed, the NPAs are considerably
     with their declining earnings. These corporate                       high (around 16 per cent).
     entities spread across infrastructure to steel to real
     estate have been causing the real problem of NPAs          the solution
     to the banks. It means the remedy does not lie in               The TBS has started showing off its negative
     only de-stressing the banks but similar remedy is          impacts on the economy—the private corporate
     needed in case of the corporate sector, too.               sector has been forced to curb its investments while
                                                                banks have been reducing their loan disbursals. To
     the Problem                                                sustain growth, these trends need to be reversed.
     Though, India has today one of the fastest growth          The only way to do so is by fixing the underlying
     rates in the world, for the past few years, certain        balance sheet problems. The Survey suggests
     financial issues have been worsening. In the               considering a different approach to address the
     aftermath of the global financial crisis (GFC) of          issue of TBS—setting up a centralised ‘public
     2007, India has been trying to come to grips with          sector asset rehabilitation agency’—the PARA. As
     the ‘twin balance sheet’ (TBS)3 problem—                   per it, the agency can take charge of the largest and
           (i) High NPAs of the PSBs; and                       most difficult cases, and make politically tough
         (ii) Highly stressed balance sheet of the              decisions to reduce debt.
                 private corporate sector.                           So far, the official strategy has been to solve
          India has taken several steps by now to recover       the TBS through a ‘decentralised approach’,
     and control the bad loans of the banks. But they           under which banks have been put in charge of
     have not been very effective and banks are even            the ‘restructuring’ decisions. Several such schemes
     today under high stress. On the other hand, India          have been put in place by the RBI. Most of the
     has been waiting for a recovery in the corporate           time, this is indeed the best strategy. But in the
     sector for their balance sheet to come in good             current circumstances, effectiveness has proved
     health but to no avail. Meanwhile, situation has           elusive as banks have simply been overwhelmed
     been worsening over the time:                              by the size of the problem. The time might have
                                                                come to try a ‘centralised approach’—the PARA
                The stressed corporate sector has been
                                                                (a detailed discussion has been given in the new
                forced to borrow more to continue
                                                                ‘Economic Survey 2016-17’). Some points are
                their operations, as their earnings have
                                                                given below in support of the PARA.
                been deteriorating. Since the GFC, till
                September 2016, the debts of the top 10         Banks plus companies: Normally, public discussion
                stressed corporate groups have multiplied       of the bad loan problem has been centred on bank
                five times, to more than Rs 7.5 lakh            capital, as if the main obstacle to resolving TBS
                crore. These companies have been facing         was finding the funds needed by the PSBs (we see
                difficulty in even servicing their loans.       Government recapitalising the banks since 2012-
                In the meanwhile, around 12 per cent of         13 itself). Even if this capital is mobilised (might
                the total loans of the PSBs turned out to be    be up to three per cent of GDP), it will help only
                                                                the banks to come out of red but not the stressed
        3.    The write-up is based primarily on the Economic   private corporate entities (which are behind this
              Survey 2016-17; articles and interviews of Arvind
              Subramanian, Chief Economic Advisor, Government   crisis). A sustainable remedy for these corporates
              of India and other official releases.             is also needed.