Note4Students
From UPSC perspective, the following things are important :
Prelims level: CRAR
Mains level: Paper 3- Recapitalisation of PSBs
The article suggest the approach to deal with the problems banking in India faces.
Banking sector under stress
- Along with the other sectors, pandemic dealt a severe blow to the banking sector.
- Stress tests reported in the Financial Stability Report (FSR) indicate that the low ratio of capital to risk-adjusted-assets (CRAR) is likely to decline further.
- To revive the economy and resume sustained high growth, bold structural reforms will have to be combined with strong fiscal and monetary measures.
Declining credit growth: monetary challenge
- India’s credit-to-gross domestic product ratio is around 51%.
- 51% not too low compared to other countries at comparable levels of per capita income.
- However, the worry is that credit growth is declining rapidly.
- It is mainly attributable to rising risk aversion among lenders, reflecting the high and rising level of NPAs.
- Risk aversion spiked during the economic contraction.
Rising NPA of Public Sector Banks
- The FSR stress tests now indicate that the gross NPA ratio is likely to go up to as much as 13.5% by September 2021 in the report’s baseline case and 14.8% in the ‘severe stress’ case.
- Within the banking sector, conditions are much worse in public sector banks (PSBs) compared to private banks (PBs) or foreign banks (FBs).
- The gross NPA figure is forecast to rise to 16.2% for PSBs as compared to 7.9% and 5.4% for PBs and FBs in the baseline case.
- Clearly, high NPAs are primarily a problem for PSBs, which still account for 60% of India’s total bank credit.
Expanding banking sector: bypass PSBs and give a big push to private banking
- The recent report on Ownership and Corporate Structure for Indian Private Sector Banks submitted by an RBI internal working group (IWG) espouses this approach.
- The IWG’s main recommendation is to enable large corporations and industrial houses to acquire banking licences.
- The proposal has been strongly opposed by former governors and deputy governors of RBI, several former chief economic advisers, a former finance secretary, and, most significantly, all save one of the many experts the IWG consulted.
Four issues with the push to private banking
- 1) With an industry CRAR of only 12%, the proposed raising of the promoter share cap to 26% could potentially leverage the promoter’s investment by 32 times.
- The very high risk appetite generated by such leveraging would subject depositors to a high level of systemic risk, given the limited deposit insurance provided in India.
- 2) Excessive risk appetite would lead to imprudent lending, especially connected lending to group companies. Conglomerates always find ways around regulatory restrictions against such connected lending.
- 3) Three, a conglomerate’s bank would have access to insider information on borrower companies that compete with its group companies.
- 4) Conglomerate banks would lead to massive concentration of economic power and political influence against not just competing companies, but even the regulator.
Way forward
- A safer and cleaner option would be to help the country’s banking sector grow through simultaneous privatization and recapitalization of PSBs.
- However, these options do not change the ownership and governance structure of PSBs, which is what primarily is to blame for their poor performance.
- A better option is for PSBs to recapitalize themselves by raising fresh equity.
- It would be more prudent financially and also more acceptable politically to test this approach with one or two small PSBs.
Conclusion
Government should try to adopt the approach which reduces the risks associated with giving push to private players in the banking sector while making the PSBs more efficient.
Back2Basics: CRAR-Capital to risk-adjusted-assets
- The CRAR is the capital needed for a bank measured in terms of the assets (mostly loans) disbursed by the banks.
- Higher the assets, higher should be the capital by the bank.
- A notable feature of CRAR is that it measures capital adequacy in terms of the riskiness of the assets or loans given.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Working of HAM
Mains level: Paper 3- Hybrid Annuity Model and risks involved
The article explains the working of Hybrid Annuity Model in the road construction and the risks involved in the model.
Investment in road sector
- The central government has set a target of increasing the investment in infrastructure to over Rs 111 lakh crore over the period FY20-FY25.
- Within the transportation segment, projects worth Rs 36.7 lakh crore, constituting 55% of transportation infra, are for the road sector.
- The large investments planned in the road sector signifies its importance—it has a multiplier effect on the economy and provides large employment opportunities.
Models for the road sector
- Out of HAM (Hybrid Annuity Model) and BOT (Build, Operate and Transfer)—toll developers prefer the relatively lower risk HAM model.
- This is due to its various positives like lower equity requirements, provision for mobilisation advances, better right of way availability, inflation-linked adjustments for bid project cost, termination payments during the construction period and de-linking construction and operations.
- These HAM features have garnered a favourable response and mix of HAM awards has increased from 10% in FY16 to 48% in H1FY2021.
How HAM works and risks involved
- During the operations period for a HAM project, the recovery from authority is in the form of fixed annuity payments along with interest on balance accumulated annuity payments (calculated @300 bps over prevailing bank rate)
- The only major risk for HAM is the prevailing low bank rates adversely affecting the overall project viability and returns.
- Such interest receipts account for around 45% of total inflows.
- Low bank rate would thus reduce the overall inflows for a HAM project, thereby adversely affecting its debt coverage metrics and returns to the investors.
- The second problem is related to delayed and inadequate interest rate transmission—there is a transmission lag for the project loan (linked to MCLR of banks).
Changes in model concession agreement
- As per revised concession agreement dated November 10, 2020, interest rate on annuities will be equal to the average MCLR of top 5 scheduled commercial banks plus 1.25% instead of bank rate.
- With the average MCLR replacing the bank rate, there will be a natural hedge between the annuity inflows and interest costs,
- This will reduce the interest rate risks to a large extent, and that too without any delay.
- The other major revision is the grant payment from the authority which will now be paid in 10 instalments instead of five.
- The other major revision is the grant payment from the authority which will now be paid in 10 instalments instead of five.
- Thus, the spacing between the payment milestones is reduced.
- This will improve the cash conversion cycle for the contractors executing the HAM projects as their payments are back to back in nature.
- However, these changes will be applicable for new awards, and the fate of the existing HAM projects is hanging in the balance.
Conclusion
With improved attractiveness, HAM is expected to remain the mainstay for public-private partnership projects in the road sector.
Source:-
https://www.financialexpress.com/opinion/hamsome-gains/2171329/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Global perception of India's image
A UK think-tank ‘Royal Institute of International Affairs’ has listed India in ‘Difficult 4’; clubs India with China, Saudi Arabia, and Turkey.
This newscard helps analyse the Western esp. that of the EU’s perception of India and its global image under the present regime.
What is the news?
- A report called ‘Global Britain, Global Broker’ has warned the UK government to consider India as more of a rival that a cooperative partner.
- It accepts the fact that India is set to be the largest country in the world by population very soon and will have the third-largest economy and defence budget at some point in this decade.
- But it cautions that gaining direct national benefit from the relationship, whether economically or diplomatically, will be difficult for the UK government.
- The report also accepts India’s importance to the UK as being “inescapable”.
The ‘Difficult Four’
- Clubbing India with China, Saudi Arabia and Turkey as the “difficult four”, the report says the Johnson government should be more realistic about developing deeper ties with India.
- They may be important to the UK’s commercial interests, but they will be rivals or, at best, awkward counterparts on many of its global goals, the report warns.
- India is now classed as a country, destined to count among the UK’s “rivals” or “awkward counterparts” as it pursues its global goals.
India has had bitter (colonial) past
- The think-tank strikes a note of caution over the two countries’ shared colonial history proving a stumbling block to the promise of a deeper relationship.
- India has a long and consistent record of resisting being corralled into a ‘Western’ camp.
- As a result, India is always on the list of countries with which a new UK government commits to engage.
- But it should be obvious by now that the idea of a deeper relationship with India always promises more than it can deliver.
- The legacy of British colonial rule consistently curdles the relationship.
Indian flaws
- The report points to India’s “complex, fragmented domestic politics”, which make it one of the countries resistant to open trade and foreign investment.
- It highlights concerns raised by domestic groups as well as the UN over a “crackdown on human rights activists and civil society groups” not being actively challenged by the judiciary.
- It raises concern over India’s pursuance of extreme right-winged policies. Indian domestic politics also has entered a more ethnic-nationalist phase, the report argues.
- Against this backdrop, the report reflects on the prospect of including India within any new Democratic 10 or D10 coalition of 10 leading democracies.
Try this question from 2019 CS Mains:
Q.What are the challenges to our cultural practices in the name of secularism? (150W)
UK’s resentment
- In a critique of India’s diplomatic behaviour, the report points out that despite border clashes with China, “India did not join the group of countries that criticized China at the UN in July 2019 over HR violations in Xinjiang.
- India has also been muted in its criticism of the passage of the new national security law in Hong Kong.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sect 497 of IPC
Mains level: Adultery Laws and the associated gender bias
The Supreme Court has admitted a petition filed by the Ministry of Defence (MoD) seeking to exempt armed forces personnel from the ambit of a Constitution Bench judgment of 2018 that decriminalized adultery.
Q. Personnels of the Indian Armed Forces constitute a ‘Distinct Class’.
Discuss this statement in context to the extension of IPC section 497 to the Armed forces.
What was the 2018 historic Judgment?
- The Supreme Court had struck down Section 497 of the Indian Penal Code, which criminalized adultery.
- It also declared Section 198 of the Criminal Procedure Code as unconstitutional, which deals with the procedure for filing a complaint about the offence of adultery.
Important observations of the judgment
- Section 497 was unconstitutional and is violative of Article 21 (Right to life and personal liberty) and Article 14 (Right to equality).
- The court observed that two individuals may part if one cheats, but to attach criminality to infidelity is going too far. How married couples deal with adultery is absolutely a matter of privacy.
- Besides, there is no data to back claims that abolition of adultery as a crime would result in “chaos in sexual morality” or an increase of divorce.
- Any provision of law affecting individual dignity and equality of women invites the wrath of the Constitution.
- It’s time to say that a husband is not the master of the wife. Legal sovereignty of one sex over other sex is wrong, ruled the court.
- Marriage does not mean ceding autonomy of one to the other. Ability to make sexual choices is essential to human liberty. Even within private zones, an individual should be allowed her choice.
What about Armed forces?
- The judgment of 2018 created “instability”. It allowed personnel charged with carrying on an adulterous or illicit relationship to take cover under the judgment.
- The bench had then referred the case to the CJI to pass appropriate orders to form a five-judge Bench to clarify the impact of the 2018 judgment on the armed forces.
- This case is now being under the observation of the apex court.
Govt. stance over this
- The MoD has sought for an exemption to this decriminalization in the petition.
- It said that there will always be a concern in the minds of the Army personnel who are operating far away from their families under challenging conditions about the family indulging in untoward activity.
- The petition goes on to say that personnel of the Army, Navy and the Air Force were a “distinct class”. They were governed by special legislation, the Army Act, the Navy Act and the Air Force Act.
- Adultery amounted to unbecoming conduct and a violation of discipline under these three Acts.
- Unlike Section 497, the provisions of the three Acts did not differentiate between a man and a woman if they were guilty of an offence.
Constitutional backing for an exception
- These special laws imposed restrictions on the fundamental rights of the personnel, who function in a peculiar situation requiring utmost discipline.
- The three laws were protected by Article 33 of the Constitution, which allowed the government to modify the fundamental rights of the armed forces personnel.
The core idea behind govt. proposition
- One has to remember that the armed forces exist in an environment wholly different and distinct from civilians. Honour is a sine qua non of the service.
- The provisions of the Acts should be allowed to continue to govern the personnel as a “distinct class”, irrespective of the 2018 judgment.
- This is because, the discipline necessary for the performance of duty, crucial for national safety, would break down.
- It said the court would not, at the time, have been appraised of the different circumstances under which the armed forces operated.
Back2Basics: Article 33 of the Indian Constitution
- It deals with the power of Parliament to modify the rights conferred by this Part III in their application etc.
- Parliament may, by law, determine to what extent any of the rights conferred by this Part shall, in their application to-
(a) the members of the Armed Forces; or
(b) the members of the Forces charged with the maintenance of public order; or
(c) persons employed in any bureau or other organisation established by the State for purposes of intelligence or counterintelligence; or
(d) persons employed in, or in connection with, the telecommunication systems set up for the purposes of any Force, bureau or organisation referred to in clauses (a) to (c), be restricted or abrogated so as to ensure the proper discharge of their duties and the maintenance of discipline among them
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Curiosity rover, Martian Day
Mains level: Quest for extraterrestrial life
The Mars rover ‘Curiosity’ has completed 3,000 Martian days.
Try this PYQ:
Q.Which region of Mars has a densely packed river deposit indicating this planet had water 3.5 billion years ago?
(a) Aeolis Dorsa
(b) Tharsis
(c) Olympus Mons
(d) Hellas
Curiosity Rover
- Curiosity is an SUV-sized Mars rover designed to explore the Gale crater on Mars as part of NASA’s Mars Science Laboratory (MSL) mission
- The main mission of Curiosity was “to search areas of Mars for past or present conditions favourable for life, and conditions capable of preserving a record of life.”
- It has a suite of instruments:
- A gas chromatograph, a mass spectrometer, a tunable laser spectrometer, X-ray diffraction, fluorescence instrument help study the rocks
- The Mars Hand Lens Imager (for close-up pictures) and a Mast Camera (to take photos of the surroundings)
- An instrument named ChemCam to vaporize thin layers of Martian rocks.
- Radiation Assessment Detector to study the radiation environment at the surface of Mars
- Rover Environmental Monitoring Station to measure atmospheric pressure, temperature, humidity, winds, plus ultraviolet radiation levels
- Dynamic Albedo of Neutrons instrument to measure subsurface hydrogen
Back2Basics: Martian Day/ Sol
- Coincidentally, the duration of a Martian day aka ‘Sol’ is within a few per cent of that of an Earth day, which has led to the use of analogous time units.
- A sol is slightly longer than an Earth day. It is approximately 24 hours, 39 minutes, 35 seconds long.
- A Martian year is approximately 668 sols, equivalent to approximately 687 Earth days.
- Mars has an axial tilt and a rotation period similar to those of Earth.
- Thus, it experiences seasons of spring, summer, autumn and winter much like Earth.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sulawesi Cave Paintings
Mains level: Not Much
A team of archaeologists in Indonesia has discovered what may be the world’s oldest known cave painting dating back to more than 45,000 years.
Try this PYQ:
Q.There are only two known examples of cave paintings of the Gupta period in ancient India. One of these is paintings of Ajanta caves. Where is the other surviving example of Gupta paintings?
(a) Bagh caves
(b) Ellora caves
(c) Lomas Rishi cave
(d) Nasik caves
Sulawesi Cave Paintings
- The cave painting depicts a wild boar endemic to the Sulawesi island of Indonesia, where the painting was found.
- The central Indonesian island, which occupies an area of over 174,000 sq. km, is situated between Asia and Australia.
- It has a long history of human occupation.
Significance of the painting
- The archaeologists’ note that the dated painting of the Sulawesi warty pig seems to be the world’s oldest surviving representational image of an animal.
- The painting was made using red ochre pigment and depicts a pig with a short crest of upright hairs and a pair of horn-like facial warts in front of the eyes.
- These pigs have been hunted by humans for tens of thousands of years and are the most commonly depicted animal in the ice age rock art of the island.
- It suggests that they have long been used as food and form a “focus of creative thinking and artistic expression” for people of that time.
Must read:
Chapter 1 | Stone Age – Paleolithic, Mesolithic and Neolithic
How did the archaeologists date it?
- The painting was first discovered in 2017 as part of surveys the team was carrying out with the Indonesian authorities.
- For these painting archaeologists used a method called U-series isotope analysis, which uses calcium carbonate deposits that form naturally on the cave wall surface to determine its age.
- They used a calcium carbonate deposit, also referred to as “cave popcorn” that had formed on the rear foot of one of the pig figures.
- They were able to figure out a minimum age for the painting at around 45,500 years, which means the painting was made before this.
Sulawesi: Oldest human habitat
Try memorizing these Islands of the Indo-Pacific in their East-West alternations.
- Sulawesi island contains some of the oldest directly dated rock art in the world and also some of the oldest evidence for the presence of hominins beyond the southeastern limits of the Ice Age Asian continent.
- Hominins include modern humans, extinct human species and our immediate ancestors.
- Homo sapiens are the first modern humans who evolved from their hominid predecessors between 200,000-300,000 years ago.
- It is estimated that these modern humans started migrating outside of Africa some 70,000-100,000 years ago.
- Even so, it is not yet clear as to when modern humans first colonised Sulawesi.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Kashmiri papier-mache
Mains level: NA
This newscard is an excerpt of the original article published in The Hindu.
Tap to know about other Geographical Indicators in news.
Kashmiri papier-mache
- It is a handicraft of Kashmir that was brought by Muslims saint Mir Sayyid Ali Hamadani from Persia in the 14th century to medieval India.
- It is based primarily on paper pulp, and is a richly decorated, colourful artefact; generally in the form of vases, bowls, or cups (with and without metal rims), boxes, trays, bases of lamps, and many other small objects.
- These are made in homes, and workshops, in Srinagar, and other parts of the Kashmir Valley, and are marketed primarily within India, although there is a significant international market.
- The product is protected under the Geographic Indication Act 1999 and was registered by the Controller General of Patents Designs and Trademarks.
Back2Basics: Geographical Indication (GI)
- The World Intellectual Property Organisation defines a GI as “a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin”.
- GIs are typically used for agricultural products, foodstuffs, handicrafts, industrial products, wines and spirit drinks.
- Internationally, GIs are covered as an element of intellectual property rights under the Paris Convention for the Protection of Industrial Property.
- They have also covered under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
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