This presentation will give information about weak and twin balance sheet of company. What twin balance sheet is and any balance sheet is called weak balance sheet.

1. WEAKER CORPORATE BALANCE
SHEETS IN INDIA AND IT’S
IMPLICATIONS ON BANK
PREPARED BY :
APURV RASTOGI (15)
ANKIT BOUNTIYAL (24)
MOHIT KUMAR (57)
DEVYANI SINHA (37)
TARU SRIVASTAVA (50)
4/22/2017 Bhavan’s Usha and Lakshmi Mittal Institute
of Management
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2. CONTENTS
• Economic Development- Role of Bank Credit .
• Credit Growth And It’s Importance.
• Non- Performing / Productive assets.
• Tracking NPA’S.
• Current status of NPA’S.
• Restructured Portfolio.
• Risk To Banking Sector.
• Twin Balance-Sheet.
• Data Till Date.
• Reasons.
• Indian Characteristics .
• Relaxation To Indian Corporates.
• Implications.
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3. ECONOMIC DEVELOPEMENT – ROLE OF
BANK CREDIT
• The growth of the banking industry is closely linked with the growth
of the overall economy.
• This will be backed by the stellar growth in infrastructure, industry,
services and agriculture
• The year-wise growth rates of GDP of the country and Banks’ credit
are furnished in Table
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Table - 1
GDP Vs. Credit Growth (%)
Year GDP Credit
2004-05
7.0 30.9
2005-06
9.5 30.8
2006-07
9.6 28.1
2007-08
9.3 22.3
2008-09
6.7 17.5
2009-10
8.4 16.9
2010-11
8.4 21.5
2011-12
6.5 17.0
2012-13
4.8 15.1

5. CREDIT - GROWTH
• The strong credit growth is the synonymous with
improvement in asset quality.
• The declining credit growth in the system is an
indication for asset deterioration and likely to
add impaired assets further
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6. NON-PERFORMING ASSETS (NPA)
• An asset is classified as Non Performing Assets (NPA), if due in the
form of principal and interest are not paid by the borrower for a
period of 90 days.
• then the bank will have to treat all the credit facilities granted to that
borrower as non-performing without having any regard to the fact
that there may still exists certain credit facilities having performing
status.
• High level of NPAs not only affects core performance area of the
banking system but also raises corporate governance issues
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EEP PRESENTATION,PGDM BATCH 16-18
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Table 2 - Evolution of NPAs
Year
Gross
NPA (%)
Net
NPA (%)
2006-07 2.5 1.0
2007-08 2.3 1.0
2008-09 2.3 1.1
2009-10 2.4 1.1
2010-11 2.4 1.0
2011-12 2.9 1.3
2012-13 3.4 1.4
Source: RBI Reports

8. TRACKING NPA’S
• Non- performing or non productive assets is a loan or advance for
which the principal or interest payment remained overdue for a
period of 90 days.
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9. CURRENT STATUS OF NPA’S
• The Gross NPA ratio of the banks has witnessed sharp increase
from 2.90% as on 31st March 2012 to 3.40% as at end of March
2013.
• Similarly, the Net NPA ratio has gone up from 1.30% to 1.40%
during the same period.
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Table 3 - Sectoral NPA as on 31st March 2013
No Sector Percent
1 Agriculture 4.7
2 Construction 4.0
3 Cement 2.7
4 Infrastructure 1.5
5 Iron & Steel 4.0
6 Engineering 3.7
7 Automobile 1.8
Source: Financial Stability Report June`13

11. RESTRUCTURED PORTFOLIO
• To support the ailing sectors, banks are undertaking restructuring of
advances through relief measures.
• Reduction of interest rate, extension of repayment schedule etc., to
make them viable and bring back to normalcy.
• Restructuring would normally involve modification of sanction terms,
which would generally include alteration of repayment
period/installment/rate of interest/sacrifice
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Table 4 – Restructured Advances of all SCBs
Year
Amount
(` lakh crore)
% Restructured standard advances
to Gross advances
2009 0.75 2.73
2010 1.36 4.23
2011 1.38 3.45
2012 2.18 4.68
2013 3.58 5.70
Source: Economic Times dated 31.10.12 & Financial
Stability Report June`13

13. RISK TO BANKING SECTOR
• Risks to India's banking sector have risen in the last 3 years, given a
deterioration in asset quality and lack lustre corporate profit growth,
therefore leading to a problem of twin balance –sheet aka balance
sheet syndrome .
• It is likely to mean that an increase in the level of bad loans held
particularly by state-run banks over the next year, even under the
"normal" circumstances considered in the report, as debt owed by
India's largest borrowers sours i.e., corporates further.
• About 85 corporates holding Rs4 trillion worth of debt are highly
unlikely to recover in the short term as they not only sit on a massive
pile of debt that they cannot service but also have a large number of
non-productive assets
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14. TWIN BALANCE – SHEET EFFECT
• Balance sheets of both public sector banks (PSBs) and some corporate
houses are in terrible shape and it has been seen as a major obstacle
to investment and reviving growth. The problems faced by the Public
Sector Banks are linked directly to that of the corporate sector.
• During the boom years, some companies borrowed a lot of money from
banks to invest in infrastructure and commodity- related businesses,
such as steel, power, infrastructure etc. But now, due to slump in both
these sectors, the corporate profits have hit lows.
• To put it in other way public sector banks are burdened with the high
non-performing assets (NPAs) while some of the corporate houses are
also under stress due to sluggish global demand. This has been named
as the Twin Balance Sheet Syndrome.
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15. DATA TILL DATE
• Given the debt binge, two out of every 10 firms are now in deep
trouble and require several years to clear the debt .
• A study of balance sheets shows that the top 500 corporate
borrowers sit on a debt pile of Rs30.2 trillion and hold assets worth
Rs57.2 trillion.
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16. REASONS
• Weak profitability and high burden of debt for the private sector as
weak profitability and over-indebtedness discourages investment by
corporate in India.
• Stalled projects and inadequate bankruptcy procedures. Failed PPP
models have contributed to losses of the private sector.
• Many PSBs have financed several infrastructure projects and stalled
infrastructure projects have resulted in large volume of stressed
assets in banks.
• The PSBs are now not ready to give loans to the business sector
fearing penal action for managers in the context of rising NPAs. It
further stalls projects by the corporate.
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17. REASONS
• During FY 2015-16 Companies balance - sheets were weak mainly
due to depressed demands and the US Federal Reserve interest
rate hike and China's slowdown.
• During FY 16-17 the demonetization of high-value notes has hit
demand across the economy and analysts expect at least two
quarters to go until conditions normalize. These companies will soon
find themselves in a tough spot.
• One of the main reasons is the increase in the percent of NPA’S i.e.
non performing/productive assets.
• Five sectors - mining, iron and steel, textiles, infrastructure and aviation
- accounted for 24.2 percent of advances from India's banks, but 53
percent of stressed debt, the report said.
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18. INDIAN -CHARACTERSTICS
• What distinguished India from other countries was the consequence of
TBS. Even as Indian balance sheets have suffered structural damage
on the order of what has occurred in crisis cases, the impact on growth
has been quite modest. TBS did not lead to economic stagnation, as
occurred in the U.S. and Europe.
• Reason was , the strategy , as the saying goes, to “give time to time”,
meaning to allow time for the corporate wounds to heal.
• That is, companies sought financial accommodation from their
creditors, asking for principal payments to be postponed, on the
grounds that if the projects were given sufficient time they would
eventually prove viable.
• Initially , this request seemed reasonable. For a start, the “giving time
to time” strategy had worked well in the previous business cycle, during
the early 2000s.
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19. WHY CORPORATES ARE GIVEN LAX
IN POLICIES ?
• The company financials of the 10 most severely debt-stressed
corporate groups over the past three years, namely Lanco, Jaypee,
GMR, Videocon, GVK, Essar, Adani, Reliance ADAG, JSW and
Vedanta.
• The picture that emerges is one of a toxic nexus of unscrupulous
businessmen, negligent and corrupt bankers, complicit auditors .
• The penal provisions of the Insolvency and Bankruptcy Code
introduced need to be further strengthened in that direction.
• The focus of legislative changes should be on dismantling the edifice of
parasitic, crony capitalism rather than on enhancing the supposed
‘ease’ of doing business.
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20. IMPLICATIONS ON BANKS
• Banks fail to make profit cause of poor NPA’S and cannot serve interest to
depositors and meet their expenses. Ultimately are incurring losses and
their are bank failures.
• A Lehmann Bro’s like situation would be seen soon.
• Low rate of interest on deposits i.e. on saving accounts.
• Bad bank loans undermine India’s growth hopes.
• Due to low rate of interest on savings and deposits , depositors will
withdrew money from banks thereby creating a shortage of money supply
and funds flow end result would be inflation which will paralyze the
economic growth.
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EEP PRESENTATION,PGDM BATCH
16-18
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21. CURRENT PLETHORA
• Although, the current scene is that the GNPA’S & NPA’S are
improving but they still need a very strict monitoring.
• Improved NPA’S and balance sheets were the result of strong
actions taken by current government and ex RBI governor Raghu
Ram Rajan.
• Creation of ARC’S I.E ASSET MANAGEMENT COMPANIES helped
in improving the aforesaid situation.
• In addition the option of RETAIL LENDING as exercised by majority
banks proved a life jacket against the souring NPA’S and balance
sheets.
• various amendments in indian laws such as Indian Solvency And
Bankruptcy code etc proved a medicine against a syndrome.
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22. THANK YOU
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