PARALYSIS OF CORPORATE GOVERNANCE AND CREDIT CREATION -TWIN BALANCE SHEET CRISES

The dual balance sheet issue that the Indian economy is facing, which has simultaneously paralysed credit creation and corporate governance, was noted in the Economic Survey of India 2016–17. It has caused a dramatic increase in the amount of non-performing assets in the banking industry, particularly in Public industry Banks, and a persistent lack of credit discipline among companies. The paper addresses the Dual Balance Sheet Issue that the Indian Economy was facing, and it seeks to resolve it by utilising the ten-year-old "Blue Ocean Strategy" concept. Using the Blue Ocean Strategy, the paper discusses carving out a completely new market for itself. Its main goal is to resolve the Dual Balance Sheet Issue by doing away with the idea of competition.

INTRODUCTION:-

Blue Ocean strategy:

This marketing idea originated with a book authored in 2005 by INSEAD academics W. Chan Kim and Renée Mauborgne, who are also co-directors of the INSEAD Blue Ocean Strategy Institute. According to this tactic, businesses may thrive by establishing "blue oceans" of uncharted and distinctive market space, rendering all of the current rivalry meaningless, as opposed to "red oceans" where rivals battle for supremacy. The term "Red Ocean" describes a tactic where rivalry causes havoc in the marketplace, turning it all crimson.

Dual balance sheet crisis in Indian context: The dual balance sheet issue was initially identified as the main developing concern facing the Indian banking and corporate sectors in the Economic Survey of India 2016–17.

The term "Twin Balance Sheet Problem" (TBS) refers to the balance sheet issues that Indian banks and businesses have, which have created a vicious cycle of non-performing assets (NPA) crises. As a result, Twin Balance Sheet highlights two issues facing the Indian economy, namely:

Over-leveraged companies: Due to their excessive debt load, some businesses are unable to make loan interest payments. Note: Businesses that don't make enough money to cover their interest payments account for 40% of corporate debt. Technically speaking, this indicates that their interest coverage ratio is lower than 1.

Bad-loan-encumbered-banks: Non-Performing Assets (NPA) or bad assets for the banks make up 9% of the whole Indian banking sector. These banks are plagued by bad loans. For Public Sector Banks (PSBs), it can reach 12.1% since the businesses are in default on their principal and interest payments, which puts the banks in danger.

Therefore, the dual balance sheet issue is the outcome of the spillover effect of both the corporate and banking sectors. The corporate sector's poor performance has caused the banking sector to become less healthy, and as a result of rising non-performing assets (NPAs), the banking sector has become increasingly cautious when making loans, which has decreased the flow of credit to the cash-deficient sectors and created a cycle of defaults and crises. 

Cause of the Issue:

The following are the different causes of the issue:

i. The Over-leveraged Corporate, which has been impacted by the decreasing global demand and the economy.

ii. Banks' Corporate Debt Restructure Mechanism, which causes ever-greening and postpones solving the problem in favour of finding a temporary fix.

iii. The filthy and dishonest lending methods that Public Sector Banks in India adhere to, are marked by an increasing amount of political sway over credit evaluations.

iv. Insufficient cushion against losses.

v. The decline in credit discipline as a result of banks' lack of due diligence.

vi. Making loans to projects that were certain to fail. Because of this, the credit appraisal methods used for project funding were riddled with fraud and flaws.

vii. Failure to follow the text and spirit of the KYC rules.

viii. There are little signs of recovery and a double-dip recession caused by the global slump.

ix. The government's failure to provide incentives for corporate manufacturing and other sectors.

x. Rapidly increasing imports and a corresponding decline in worldwide demand. 

Though the more general ones have already been highlighted, many more aspects can be identified as the causes of the problem.

The Six Essential Elements of Blue Ocean Strategy

Rebuild the limits of the market. To reduce search risk, this approach focuses on identifying and methodically creating uncontested market space across a variety of industry domains. To create commercially significant blue oceans or uncontested market space, it exhorts businesses to look beyond the six traditional lines dividing competition. The six pathways concentrate on examining complementary products throughout the functional-emotional orientation of an industry, buyer groups, alternative industries, and even across time.

Prioritise the larger picture over the details. Worth The improvement process should prioritise innovation generation over instrumentalism. It offers an alternative to the current mechanical method of strategic planning, which is frequently condemned as a point-counting activity that prevents businesses from looking beyond their immediate improvements and prevents management from seeing the big picture. This principle is all about managing risk. This principle focuses on a thorough four-step planning process whereby you can build a strategy that creates and captures blue ocean opportunities. It does this by using a visualising approach that encourages managers to not become lost in the shorter tactics involving numbers and jargon, but rather to concentrate on the bigger picture.

Go above what is currently needed. To generate the largest market of new demand, managers should challenge the customary practice of striving for finer segmentation to better suit current client preferences. Reaching beyond current demand frequently leads to target markets that are smaller and smaller. This strategy should prioritise commonality over client distinctiveness. This concept outlines how to maximise the size of the separately created "blue ocean," which is where new demand is being unlocked and scale risk is minimised, by focusing on the strong commonalities among non-customers rather than the differences that divide customers.

Make sure the strategic sequence is correct. This principle lays out a methodical process that businesses should adhere to to guarantee that the business model they develop can generate and sustain profitable development. The businesses must manage the business model risk by adhering to the standards of usefulness, price, cost, and adoption in that order, and their blue ocean idea will be a commercially successful one. The Blue Ocean Strategy's core execution risks are covered by the final two principles.

Overcome key organisational hurdles. The managers are supposed to work on strategies to mobilise organisational resources to overcome the key organisational hurdles that are holding back the implementation of a blue ocean strategy. This principle works on dealing with organisational risk. It lays out how leaders and managers alike can work on the cognitive, resource, motivational, and political hurdles despite limited time and resources in executing the blue ocean strategy.

Incorporate strategy into implementation. When strategy and execution are integrated, motivated employees can implement the blue ocean approach consistently throughout the entire organisation. This principle introduces the concept of fair process, as defined by Kim and Mauborgne. The risk associated with managing people's attitudes and behaviours is addressed by the Blue Ocean Strategy. It breaks with the existing quo and requires a fair procedure for both the creation and implementation of strategies. 

How the Blue Ocean Strategy can help in problem-solving:

There was fierce competition between Indian banks in the years between 2004 and 2009 when the country's economy was thriving and expanding thanks to strong external industry and rising worldwide demand. The NPA was not at all a problem, and the lenders were very proactive. A small minority of banks, including those in the public sector, supported borrower-based lending and neglected credit caution. Many PSBs lowered their margin requirements, and significant progress was achieved in the acquisition of both large and small corporations. Our banking sector reached its current state with more non-performing assets (NPAs) and financial indiscipline, which resulted in the dual balance sheet issue, because of a sort of red ocean strategy that dominated the industry and caused a great deal of bloodshed in the financial market. 

However, the following are some ways that the blue ocean strategy can assist in resolving the dual balance sheet issue:

1) PSBs no longer prioritise marketing. They ought to establish their market. Several emerging, more recent sectors are yet unexplored and rarely have access to financing. Manufacturing, for instance, is still in its infancy. The banks can locate their investment opportunities.

2) There is still more to be done to transform North Eastern India into our nation's manufacturing hub and development engine. Banks ought to concentrate more on this region of the nation.

3) Thanks to government initiatives and programs like Made in India, Startup India, and Stand Up India, MSME growth has accelerated. In the MSME sector, where unorganised lending still dominates a sizable portion of the market, credit availability is still low. For the banks, this might be a new Blue Ocean.

4) Customised goods and services are preferred over standardised ones in the post-crisis global economic order. Establishing a specialised market for their goods and services should be another priority for the corporation.

5) The banks ought to redraw their borders rather than sever ties with one another in the face of competition. They ought to concentrate on their financial plan. For instance, MSME lending has received a lot of attention from HDFC Bank, which has a Net NPA of less than 1%. In the home loan industry, HDFC Ltd. also commands a market share of more than 60%.

6) It's critical to go beyond the current market; corporations should identify their untapped market. For instance, much of Latin America and Africa is still unexplored. 

In conclusion, Indian banks' long-standing Red Ocean Strategy is to blame for the paralysing banking industry and numerous banking frauds. Increasing non-performing assets (NPAs), clients fleeing to other countries for wholesale loans, and corporate nonpayment of interest and principal are all plaguing banks at the moment. Currently, the only way to solve the issue is through the Blue Ocean Strategy, which requires banks to create their niche market. They will need to consider the bigger picture and work toward achieving sustainable banking's long-term objectives. They must search beyond the current market. They will need to incorporate strategy into their work.

The solution to the problem of excessive corporate debt is found in the Blue Ocean Strategy, and the way to distribute risk is to diversify into the more recent blue market