This term has recently got attention as it was used by the Finance Minister during her recent speech at Punjab and Sind Bank.
This term originated during the year 2000 when the economy was in uptrend and industry at large borrowed huge funds to expand their business at lower rates of interest. However, when the industry was faced with Global economic slowdown in the year 2008 , The businesses were unable to serve loan due to decrease in profitability and increase in EMIs due to increase in rates of interest of loans availed. As a result, NPAs of banks shoot up and it adversely affected profitability of banks too.
This resulted into the twin balance sheet problem, due to deterioration of Profitability , cash flows and margins in books of both Industry and Banks. That is, Balance sheets of both the industry and banks were affected badly.
This brings our attention to the fact that if Businesses undertake liability during good times (boon) , they should try to restrict borrowings to the extent that they can repay even when the time is not right and the same fact should be taken into consideration at credit appraisal stage in banks too.
During her recent speech at PSB, Finance Minister acknowledged that the economy at present is benefitting from the Twin Balance Sheet Advantage (a situation opposite to twin balance sheet problem) due to increasing Financial Health of both banks and the Industry at large.
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