November 3, 2017

Rational behind bank recapitalisation

Arvind Subramanian, the chief economic adviser to the government, delivered a speech at the Shri Guru Tegh Bahadur Khalsa College where he explained the rationale behind bank recapitalization.

Below is an extract from his speech.

The Twin Balance Sheet (TBS) challenge 

Two aspects: a) Over indebtedness in the corporate sector which makes them unable and unwilling to borrow, depressing the demand for spending and investment; b) Stressed bank balance sheets especially in public sector banks (PSBs) that make them unwilling and unable to supply credit to finance spending by the corporate and household sectors.

This clogs the economy, depriving it of demand and the lubrication that oils and feeds that demand.

Countries that experience the TBS witness prolonged and weak growth. Growth only revives if the TBS challenge is swiftly and decisively addressed.

What the TBS challenge requires


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