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.