Definition
Twin Balance Sheet Problem
The twin balance sheet problem describes the simultaneous stress on over-leveraged corporate borrowers and the banks burdened with their bad loans.
The twin balance sheet problem refers to a situation where heavily indebted companies cannot service their loans while the banks that lent to them are saddled with mounting non-performing assets. The two reinforce each other, choking fresh investment and credit growth.
India tackled this through a mix of the IBBI-driven insolvency process to resolve stressed firms, asset-quality reviews to recognise bad loans, and bank recapitalisation. The episode reshaped credit culture and underscored the link between corporate and banking health.
Related terms
- Reserve Bank of India (RBI)The RBI is India's central bank and monetary authority, responsible for issuing currency, setting policy rates, regulating banks and managing the government's debt.
- IBBIIBBI is the Insolvency and Bankruptcy Board of India, the regulator that oversees the insolvency resolution ecosystem under the Insolvency and Bankruptcy Code.
- Bank RecapitalisationBank recapitalisation is the infusion of fresh capital into public sector banks, often by the government, to shore up their balance sheets and lending capacity.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.