Twin balance sheet advantage, says FM Nirmala Sitharaman

economictimes.indiatimes.com:

twin balance sheet advantage that’s benefiting the economy, having rebounded from a twin balance sheet problem in 2014, said finance minister Nirmala Sitharaman. On assuming power then, the government realised banks were going through a crisis, she said at an event on Saturday. The government’s 4R strategy helped them turn around.

“As a result (of various initiatives of the government), I'm glad to say the problems of twin balance sheets have gone away,” she said, recalling the Reserve Bank of India biannual Financial Stability Report released June 28 that said India now enjoys a twin balance sheet advantage. The twin balance sheet problem refers to heavily indebted corporates dragging down banks into non-performing assets (NPAs) and losses. The 4R strategy is recognition, recapitalisation, resolution and reform.

It called on banks to value assets as close to their true value as possible (recognition). They were strengthened through equity infusion (recapitalisation). Their NPAs were sold or rehabilitated (resolution) and the sector went through reforms to avoid repetition.

Public sector banks reported a cumulative Rs 1.04 lakh crore net profit in FY23, tripling from Rs 36,270 crore in FY14. Gross non-performing assets (GNPA) ratio of scheduled commercial banks dropped to 3.96% at the end of FY23, from 6.04% a year earlier. Rating agency Crisil projects this to drop to a decadal low of 3.8% by the end of FY24.