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CA Foundation · Business Economics · Indian Economy

Which of the following is a characteristic of the 'twin balance sheet' problem that affected the Indian economy in the mid-2010s?

The twin balance sheet problem means overleveraged corporate balance sheets together with banks burdened by high non-performing assets. Firms could not repay loans and banks could not lend freely, which depressed investment and credit growth. It is not about balance of payments or fiscal surpluses.

  1. AStressed bank balance sheets with high NPAs combined with over-leveraged corporate balance sheetsCorrect
  2. BA surplus in both the current and capital accounts of the balance of payments
  3. CSimultaneous fiscal and revenue surpluses of the Union Government
  4. DHigh household savings combined with low government borrowing

Explanation

The twin balance sheet problem refers to over-indebted corporates unable to service debt and public sector banks burdened with rising non-performing assets. This depressed investment and credit growth. The other options describe unrelated external or fiscal conditions.

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