Twin balance sheet problem holding up growth in banking sector: CEA Subramanian

The “twin balance sheet problem” is holding up growth in the banking sector, Chief Economic Adviser Arvind Subramanian said on Saturday.

“In India, what is holding up bank growth is twin balance sheet problem,” he said. To address the problem, “I think four ‘Rs’ are the answers. They are Recognition, Resolution, Recapitalisation and Reforms,” he said at the Annual Convention 2018 of Madras Management Association, here.

“Recognition” is identifying the stressed assets and non-performing assets in banks,” he said. “In ‘Resolution’, I think the major government move on the financial point of view was to pass the bankruptcy code by the government and RBI is using it,” he said.

He said during the current financial year, Rs 2.11 lakh crore was given as recapitalisation in banks.

On Reforms, he said, there must be scrutiny, monitoring and disciplined deployment of recapitalisation made in banks.

“This must be ensured only through private participation in public sector banks”, he said.

“The recent episode involving major public sector banks going into trouble makes everyone to think and seriously consider private sector participation in public sector banks is necessary,” he said.

Stating that the country’s economy was growing fast, he said, India was yet underperforming.

“The bankruptcy code would take six months for the RBI to implement. And the RBI recently passed a series of regulations following the scandals and scams that affected the functioning of the banks,” he said.

Public sector Bank of Baroda has closed down its South Africa operations and very recently Punjab National Bank is “facing problems,” he said.