Which one of the following is correct with reference to the term "twin-balance sheet problem" in the context of an economy? |ForumIAS

Q. Which one of the following is correct with reference to the term “twin-balance sheet problem” in the context of an economy?

[A] It refers to a high budget deficit and trade deficit simultaneously.

[B] It highlights the interconnectedness of the financial health of banks and corporations.

[C] It describes a situation where economic growth is stagnant despite high inflation.

[D] It signifies the widening gap between rich and poor in a society.

Answer: B

Notes:

Explanation – The term “twin-balance sheet problem” is often used to describe the interlinked financial health of banks and corporations in an economy. When corporations struggle with high debt levels and low profits, they may default on loan repayments to banks, leading to an increase in non-performing assets (NPAs) for the banking sector. This, in turn, affects the banks’ lending capacity, limiting credit availability for businesses and impacting economic growth.

Source: Forum IAS

The Last Webinar on Mains 2024 | Session by Mr. Ayush Sinha