(FE)
The government announced a major initiative to address the challenges of stressed assets and weak banking balance sheets. This follows on some earlier actions to address the indebtedness problem in the corporate sector. Together, these can be expected to have a significant impact on the economy, boosting credit, growth, and employment. In the Economic Survey of 2014-15, we first identified the Twin Balance Sheet (TBS) challenge afflicting the Indian economy. TBS clogs the economy, depriving it of demand and the lubrication that oils and feeds that demand. Resolving the TBS challenge comprehensively requires 4 Rs: recognition, recapitalisation, resolution, and reform. Banks must value their assets as far as possible close to true value (recognition) as RBI has been emphasising; once they do so, their capital position must be safeguarded via infusions of equity (recapitalisation) as the banks have been demanding; the underlying stressed assets in the corporate sector must be sold or rehabilitated (resolution) as the government has been desiring; and future incentives for the private sector and corporates must be set right (reform) to avoid a repetition of the problem, as everyone has been clamouring.
