ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Private Accumulation Rehabilitation Agency

The Economic Survey’s proposed treatment of the “festering twin balance sheet problem” is only a band-aid.

The “festering twin balance sheet (TBS) problem” is all about the worsening financial distress of “over-leveraged companies and bad-loan-encumbered banks.” With the public sector banks not able to adequately deal with the question of restructuring the bad loans concentrated in large companies, their non-performing assets continue to grow even as credit to the commercial sector and private investment falters. What is urgently needed, so the authors of the Economic Survey 2015–16 (ES) recommend, is a centralised Public Sector Asset Rehabilitation Agency (called PARA by its acronym) that must take on the largest and most difficult cases and make the “politically tough decisions to reduce debt.”

Around one-sixth of the gross advances of the public sector banks are “stressed”—they are either “non-performing” or “restructured” or written off. Most of the stressed advances are categorised as “non-performing assets.” The ES focuses on bank lending to a concentrated set of large companies that had launched new projects “worth lakhs of crores” in “infrastructure-related areas such as power generation, steel and telecoms” (one should also mention roads and highways, ports, and civil aviation), whose interest coverage ratios are less than one, that is, they have not been earning enough to pay the interest due on their loans from banks and external commercial borrowings. In the latter, namely, external commercial borrowings, the companies have been hit hard by the significant depreciation of the rupee which has pushed up their amortisation and interest payments in rupee terms. Additionally, the Reserve Bank of India’s (RBI) “inflation-targeting” monetary policy has also increased the overall interest burden.

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Updated On : 28th Aug, 2017
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