The recent passing away of Richard Slayman, the first recipient of a modified pig kidney transplant, has drawn attention to xenotransplantation—an innovative medical procedure with the potential to revolutionise organ transplantation.
What is Xenotransplantation?
It involves transplanting live cells, tissues, or organs from nonhuman animal sources into human recipients.
It seeks to address the critical gap between organ demand and supply.
Xenotransplantation, pioneered in the 1980s with heart transplants, has emerged as a promising solution to alleviate the organ shortage crisis, particularly prevalent in kidney transplantation.
Examples:
Chimpanzee-to-Human Transplants: In the 1960s, there were attempts at chimpanzee-to-human kidney transplants, heart transplants, and liver transplants.
Pig-to-Human Heart Transplant: In 2022, a groundbreaking milestone was achieved with the first successful transplantation of a pig heart into a human with end-stage heart disease
Procedural Details
Xenotransplantation involves genetic modifications to animal organs, like 69 CRISPR-Cas9 edits to a pig kidney, removing pig genes and adding human genes for compatibility.
Why is the Pig a Preferred Source?
Anatomical Resemblance: Pigs are favoured for xenotransplantation due to their physiological similarities to humans, facilitating successful integration. Pig organs, like heart valves, have been used in human medicine for over 50 years.
Breeding Advantages: Extensive pig farming ensures a readily available and cost-effective supply of organs, with diverse breeds offering size-matching opportunities.
Challenges associated
The main challenge is preventing organ rejection. Innovative methods, such as embedding the pig’s thymus gland under the kidney’s outer layer, help manage immune responses.
There are also significant concerns regarding potential infections from both recognised and unrecognised infectious agents that could affect not only the recipient but also the wider population.
Retroviruses present in the animal organs pose a risk of cross-species infection, which could remain latent and cause diseases years after the transplantation.
PYQ:
[2017] With reference to agriculture in India, how can the technique of ‘genome sequencing’, often seen in the news, be used in the immediate future?
Genome sequencing can be used to identify genetic markers for disease resistance and drought tolerance in various crop plants.
This technique helps in reducing the time required to develop new varieties of crop plants.
It can be used to decipher the host-pathogen relationships in crops.
Select the correct answer using the code given below:
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
India has moved up to the 39th position in the World Economic Forum’s latest “Travel & Tourism Development Index (TTDI) 2024, a significant climb from 54th in 2021.
The United States tops the index, followed by Spain, Japan, France, and Australia.
Pakistan is ranked 101st.
India’s Performance and Ranking
Price Competitiveness: India is ranked 18th in terms of price competitiveness.
Transport Infrastructure: It stands at 26th for air transport and 25th for ground and port infrastructure.
Resource Ranking: India is 6th in natural resources, 9th in cultural resources, and 9th in non-leisure resources.
TTDI Score Change: India’s overall TTDI score decreased by 2.1% compared to its 2019 level.
Decline in Sustainability Performance: India has seen a decline in sustainability performance relative to 2019 but still performs well due to the prevalence of sustainable long stays among inbound visitors.
About Travel & Tourism Development Index (TTDI)
The TTDI was compiled in collaboration with the World Economic Forum (WEF) and the University of Surrey in the United Kingdom (UK).
TTDI 2024 is the second edition, evolved from the Travel & Tourism Competitiveness Index (TTCI) series, a flagship index of WEF that has been in production since 2007.
TTDI 2024 covered 119 countries’ travel and tourism sectors across various factors and policies.
Founded in 1971 by Swiss-German economist Klaus Schwab in Geneva, Switzerland.
Purpose
To bring together public and private sector leaders to address global political, social, and economic issues.
Membership
Introduced in 1975, membership includes the world’s top 1,000 companies.
Scope Expansion
Initially focused on European firms catching up with US management practices, expanded to encompass broader economic and social issues.
Birth of the G20
The concept of the G20, focusing on global finance and comprising 20 countries, emerged from discussions at the WEF in 1998.
Key Reports Published
Global Competitiveness Report
Global Risks Report
Global Gender Gap Report
Global Human Capital Report
Global Information Technology Report
Future of Jobs Report
Global Enabling Trade Report
Trick: Reports beginning with the name ‘Global’.
World level recovery in travel and tourism:
Sector Recovery: International tourist arrivals and the sector’s contribution to global GDP are expected to return to pre-pandemic levels in 2024.
Regional Recovery: West Asia exceeded its 2019 tourist arrival levels by 20%, while Europe, Africa, and the Americas are recovering robustly, each reaching about 90% of their 2019 levels.
PYQ:
[2019] The Global Competitiveness Report is published by the:
(a) International Monetary Fund
(b) United Nations Conference on Trade and Development
(c) World Economic Forum
(d) World Bank
Practice MCQ:
The Travel & Tourism Development Index (TTDI) is released by:
A recent study conducted by the “Department of Aquatic Biology and Fisheries”, University of Kerala, has revealed alarming levels of microplastic pollution in Ashtamudi Lake, a Ramsar wetland in Kollam district.
Back2Basics:Microplastics
Microplastics are small plastic particles that are less than 5 millimetres (0.2 inches) in size.
They are a type of plastic pollution that originates from the fragmentation of larger plastic debris, as well as from the direct release of small plastic particles in various products and activities.
Types of Microplastics:
About Ashtamudi Lake
Ashtamudi Lake is located in the Kollam district of Kerala.
The lake is also called the “gateway to the backwaters of Kerala”.
Historical Background: The importance of Ashtamudi Kayal dates back to the times of the Romans and Phoenicians in the 14th century.
It is a brackish water lake, meaning it contains a mix of freshwater and saltwater. It covers an area of approximately 61 square kilometres (23.5 square miles).
Kallada River is a major river discharging into the Ashtamudi Lake.
The name “Ashtamudi” translates to “eight coned” in Malayalam, referring to the lakes eight prominent arms or channels.
The lake is surrounded by lush vegetation, including mangrove forests, coconut groves, and palm trees.
Ashtamudi Lake is an integral part of the Kollam-Kottapuram Waterway, which connects the Kerala backwaters to the Arabian Sea.
Notable Islands: Chavara, Munroe
PYQ:
[2022] Consider the following pairs:
Wetland : Lake Location
1. Hokera Wetland : Punjab
2. Renuka Wetland : Himachal Pradesh
3. Rudrasagar Lake : Tripura
4. Sasthamkotta Lake : Tamil Nadu
How many pairs given above are correctly matched?
(a) Only one pair
(b) Only two pairs
(c) Only three pairs
(d) All four pairs
[2019] Why is there a great concern about the ‘microbeads’ that are released into the environment?
(a) They are considered harmful to marine ecosystems.
(b) They are considered to cause skin cancer in children.
(c) They are small enough to be absorbed by crop plants in irrigated fields.
(d) They are often found to be used as food adulterants.
The UN Convention to Combat Desertification (UNCCD) recently published the “Global Land Outlook Thematic Report” on Rangelands and Pastoralists, revealing that up to 50% of Rangelands are degraded.
About UNCCD:
UNCCD adopted in 1994 (effectively from 1996), is a legally binding agreement that aims to protect and restore land and combat desertification and drought.
It is one of the three Rio Conventions (the other two being – the Convention on Biological Diversity (UNCBD) and United Nations Framework Convention on Climate Change (UNFCCC)).
What is the Rangeland?
Rangeland, is any extensive area of land that is occupied by native herbaceous or shrubby vegetation which is grazed by domestic or wild herbivores.
It may include tallgrass prairies, steppes (shortgrass prairies), desert shrublands, shrub woodlands, savannas, chaparrals, and tundras.
These lands constitute 54% of all land cover, account for 1/6th of global food production, and represent nearly 1/3rd of the planet’s carbon reservoir.
World areas that are most acutely affected by Rangeland Degradation:
Central Asia, China, Mongolia: The replacement of government management with privatization and agricultural industrialization led to the abandonment of herders and reliance on insufficient natural resources, causing degradation.
North Africa and the Near East: Climate change is pushing pastoralists into poverty and degrading rangelands.
Sahel and West Africa: Conflict, power imbalances, and border issues have disrupted livestock mobility, leading to degradation.
South America: Climate change, deforestation from industrial agriculture, and land use conversion are primary drivers of degradation.
East Africa: Migration and forced displacement due to competing land uses are evicting pastoralists, causing degradation.
North America: Degradation of ancient grasslands and dry rangelands threatens biodiversity in ecosystems like tall-grass prairies and southern deserts.
Europe: Policies favoring industrial farming over pastoralism and misguided incentives are causing the abandonment and degradation of rangelands.
South Africa and Australia: Afforestation, mining, and land conversion are causing degradation and loss of rangelands.
How does it impact the Food chain?
Over two billion people, including small-scale herders, ranchers, and farmers, depend on healthy rangelands for their livelihoods, underscoring the critical link between rangeland health and food chain cycle.
Up to 50% of rangelands are degraded due to various factors including overuse, misuse, climate change, and biodiversity loss, posing a severe threat to food security.
The Economic significance of Rangelands:
Livestock Grazing and Agriculture: Rangelands are crucial for livestock production, providing natural forage for cattle, sheep, goats, and other herbivores. This grazing land supports the meat and dairy industries, which are vital to the global food supply and rural economies.
Eco-tourism and hunting: These areas support a wide range of wildlife, contributing to biodiversity and offering opportunities for eco-tourism and hunting, both of which generate significant income for local economies.
Ecosystem Services: Rangelands provide vital services like water filtration, carbon storage, and soil preservation, yielding economic advantages through climate regulation and conservation.
Income and employment opportunities: Harvesting these resources provides income and employment opportunities for rural populations. The economic contributions made by different countries are as follows:
Ethiopia: Livestock production from rangelands accounts for 19% of the country’s GDP.
India: Livestock from rangelands contributes 4% to the national GDP.
Brazil: As a major beef producer, Brazil generates one-third of its agribusiness GDP from cattle livestock, producing 16% of the world’s beef.
What is the innovative approach presented by the UNCCD Report?
The past estimates by UNCCD of degraded rangeland of roughly 25% are significantly underestimated, where the actual loss of rangeland’s health and productivity was potentially reaching up to 50%.
Conceptual Approach: The report outlines a new conceptual approach designed to help policymakers stabilize, restore, and manage rangelands more effectively.
This new approach is supported by detailed case studies from nearly every world region, which provide important lessons from both the successes and failures in rangeland management.
Core Recommendation – Protect Pastoralism: The report emphasizes the importance of protecting pastoralism a traditional, mobile way of life based on pasture-based livestock production as a key strategy for sustainable rangeland management.
Conclusion: Many countries like the U.S. and Canada makingare trying to reintroduce bison, an animal with significant cultural importance to indigenous peoples. This initiative aims to promote rangeland health and enhance food security.
Mains PYQ:
Q The process of desertification does not have climate boundaries. Justify with examples.(UPSC IAS/2020)
The price fluctuations and Inflation trends in recent market underscore the necessity for Targeted Policy Interventions and a comprehensive grasp of Agricultural Supply Chains.
The Significance of Vegetable Triumvirate (trio):
Tomato, Onion, and Potato (TOP) aren’t just statistical entities but essential ingredients in Indian cuisine, forming the backbone of many dishes.
These vegetables represent more than just a portion of the CPI basket; they embody cultural and dietary preferences deeply ingrained in Indian culinary traditions.
Volatility and its role in shaping Inflation trends by TOP vegetables:
Vegetable prices in India rose by approximately 15% year-on-year, indicating significant inflation in this category.
Highly Volatile: There was notable volatility in vegetable prices, with a sharp decrease of 0.7% in June followed by a substantial increase of 37.4% in July.
High Contribution to Inflation: Despite vegetables weighing only 6% in the total CPI basket, their contribution to inflation was about 30% in Feb/March 2024.
For example, Tomatoes having a weight of only 0.6% in the CPI basket, prices soared by 202% in July 2023, contributing to 18.1% of the total headline inflation.
The contribution of vegetables to headline inflation was 31.9%, with TOP (tomato, onion, and potato) contributing 17.2%, further highlighting their substantial impact on inflation trends.
Navigating Culinary and Economic Realities (Challenges):
Policy Challenges: The volatility in TOP prices underscores the need for effective policy interventions, including agricultural value chain reforms and improved storage facilities to stabilize prices and support farmers.
Farmers’ Plight: Farmers, who are often net buyers of these crops, bear the brunt of price fluctuations, necessitating measures like Minimum Support Prices to ensure their livelihoods are protected.
Government Response: Despite protests and demands from farmers, policy responses have been inconsistent, relying on short-term measures like export bans rather than addressing underlying structural issues in the agricultural sector.
Way forward:
Need for Value Chain Reforms: Implement reforms aimed at improving the efficiency and resilience of agricultural value chains for TOP vegetables.
Need Price Stabilization Mechanisms: Introduce mechanisms to stabilize prices of TOP vegetables, such as market interventions, buffer stocks, or price ceilings during periods of extreme volatility. This can help mitigate the impact of price fluctuations on consumers and farmers alike.
Minimum Support Prices (MSPs): Establish MSPs for TOP vegetables to provide farmers with a guaranteed floor price for their produce.
Mains PYQ:
Q Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.(UPSC IAS/2019)
Wildlife authorities in Himachal Pradesh’s Lahaul & Spiti district have initiated surveys to estimate the population of Blue Sheep (bharal) and Himalayan Ibex (Tangor), vital prey species for the iconic snow leopard.
This move aims to assess the region’s biodiversity and promote conservation efforts.
About the Species Mentioned
Bharal (Blue Sheep)
Himalayan Ibex (Tangor)
Scientific Name
Pseudois nayaur
Capra sibirica hemalayanus
Genus
Pseudois
Capra
Distribution
India, Bhutan, China (Gansu, Ningxia, Sichuan, Tibet, Inner Mongolia), Myanmar, Nepal, Pakistan
Himalayan region of India, Pakistan, Tibet, Nepal
Features
Slate grey coat with bluish shine
Horns grow upwards, curve out, and then towards the back
Large curved horns with notches on the front
Light brown to reddish-brown coat, white belly, black and white markings on legs
Thick, woolly coat in winter, shed in early summer
Behavior
Active throughout the day, alternating between feeding and resting on grassy mountain slopes
Usually found in small herds, sometimes around 50 together;
In response to the helicopter crash involving Iranian President Ebrahim Raisi, the European Union had activated its Copernicus Emergency Management Service (EMS) to aid in search and rescue efforts.
About the Copernicus Programme
This Programme was launched in 1998 by the European Union’s earth observation
Named for Copernicus, it uses satellites and ground systems for environmental data.
It is implemented by EU member states with support from entities like the European Space Agency (ESA) and the European Environment Agency (EEA).
Utility of GMES: Rapid Response Mapping Service
The Copernicus EMS offers rapid response mapping, a crucial component activated during emergencies like natural disasters or accidents.
How Rapid Mapping Works?
Rapid mapping involves acquiring, processing, and analyzing satellite images and relevant data to provide timely information.
It offers several products, including pre-event reference and post-event assessments like first estimates, delineation, and grading of the impacted area.
Application in the Iranian President’s Case
In the case of the Iranian President’s helicopter crash, the EU activated the rapid response mapping service to aid search and rescue operations.
This technology helps locate the crash site and assess the extent of the impact, facilitating swift response efforts.
PYQ:
[2018] With reference to the Indian Regional Navigation Satellite System (IRNSS), consider the following statements:
IRNSS has three satellites in geostationary and four satellites in geosynchronous orbits.
IRNSS covers entire India and about 5500 sq. km beyond its borders.
India will have its own satellite navigation system with full global coverage by the middle of 2021.
Which of the statements given above is/are correct?
Under the PM-WANI scheme, India witnesses a swift rise in public Wi-Fi hotspots, reaching approximately 1,99,896 hotspots nationwide, according to government data.
What is the PM WANI Initiative?
PM Modi launched the Prime Minister Wi-Fi Access Network Interface (PM WANI) in December 2020.
It is an initiative under the Department of Telecommunications (DoT).
It takes forward the goal of the National Digital Communications Policy, 2018 (NDCP) of creating a robust digital communications infrastructure.
Objective: To democratize internet access, particularly in remote and underserved areas.
Implementation: Leverages Public Data Offices (PDOs) established in public spaces like railway stations, banks, post offices, and more. Users can access the internet via Wi-Fi at these locations without requiring a SIM card.
PM-WANI ecosystem consists of four parts:
Public Data Office (PDO): It establishes the Wi-Fi Hotspots and provides internet access to users
Public Data Office Aggregator (PDOA): It provides authorisation and accounting services to PDOs.
App Provider: It displays the available hotspots in the phone’s proximity.
Central Registry: This overseen by the Centre for Development of Telematics maintains details of App Providers, PDOs, and PDOAs.
How to Utilize PM WANI?
To access PM WANI services, users must install the Data PM WANI app on their smartphones.
Through the app, users can connect to nearby public Wi-Fi PDOs.
This application facilitates seamless connectivity to PM-WANI-compliant Wi-Fi hotspots, empowering users to access broadband services conveniently.
Data Plans Offered
PM WANI offers various data plans to suit different usage needs:
Rs 6 plan: 1GB data for 1 day
Rs 9 plan: 2GB data for 2 days
Rs 18 plan: 5GB data for 3 days
Rs 25 plan: 20GB data for 7 days
Rs 49 plan: 40GB data for 14 days
Rs 99 plan: 100GB data for 30 days
Role of Public Data Offices (PDOs)
The PM-WANI scheme includes a provision for establishing Public Data Offices (PDOs) by rural entrepreneurs in remote regions.
These PDOs procure internet bandwidth from telecom service providers or ISPs to offer Wi-Fi services at minimal charges.
This model enables individuals to access the internet even in areas with limited or no data connectivity.
PYQ:
[2018] Which of the following is/are the aim/aims of “Digital India” Plan of the Government of India?
Formation of India’s own Internet companies like China did.
Establish a policy framework to encourage overseas multinational corporations that collect Big Data to build their large data centres within our national geographical boundaries.
Connect many of our villages to the Internet and bring Wi-Fi to many of our school, public places and major tourists.
Select the correct answer using the codes given below:
Q) ‘Clean energy is the order of the day.’ Describe briefly India’s changing policy towards climate change in various international fora in the context of geopolitics. (UPSC CSE 2022)
Q) Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (UPSC CSE 2021)
Prelims: Consider the following statements: (UPSC CSE 2016) 1. The International Solar Alliance was launched at the United National Climate Change Conference in 2015. 2. The Alliance includes all the member countries of the United Nations. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
Note4Students:
Prelims: Climate change; Policies and Programs in India
Mains: Climate change policies in India;
Mentor comment: India, as one of the most vulnerable countries to climate change, faces significant challenges due to rising temperatures, changing weather patterns, and environmental degradation. The impact of climate change is evident in the reduction of monsoon duration and rainfall levels, melting Himalayan glaciers, and rising sea levels threatening coastal regions. These changes pose risks to agriculture, food security, water availability, and overall environmental sustainability in the country. This article presents the reasons behind the relative lack of political focus on climate change in India and the potential implications for the country’s future.
Let’s learn.
–
Why in the News?
Our Indian politics is overshadowed by merely immediate concerns and political agendas while leaving behind the major challenges like Climate Change and addressing its impacts.
This absence stands out even more when we consider the urgent need for sustainable development amidst worldwide environmental challenges.
Current State of Climate Change in India
According to India’s first-ever Climate Change Assessment Report carried out in 2020, the country’s average temperature is expected to rise by 4.4°C by the end of 2100. A decline in monsoon rainfall since the 1950s has already been observed. A 2°C rise in global average temperatures will make India’s summer monsoon highly unpredictable. At 2.5°C warming, melting glaciers, and loss of snow cover are expected to threaten the stability and reliability of northern India’s glacier-fed rivers. Global sea level has risen about 8 inches in the last century, which is expected to nearly double in this century.
The Present Dilemma: Prioritization of Economic Growth
As a developing nation, India prioritizes economic growth and development as a means to alleviate poverty and improve the standard of living for its citizens.
This focus often leads to a trade-off between environmental protection and industrial expansion, with climate change considerations taking a lower priority in the political discourse.
Challenges associated with generating political will and public support for climate action:
Lack of Immediate Visibility: The effects of climate change are often gradually visible to the general public. This lack of immediate consequences makes it challenging for politicians to garner public support for climate action, as voters tend to prioritize issues that directly impact their daily lives.
Competing Priorities and Short-term Thinking: Indian politics is often characterized by a focus on short-term goals and immediate concerns, such as job creation, infrastructure development, and social welfare schemes. Climate change, with its long-term implications, struggles to gain traction in a political landscape dominated by these pressing issues.
Perceived Conflict with Development Agenda: Some politicians and policymakers view climate action as a hindrance to economic development, fearing that it may limit industrial growth and restrict access to energy resources. This perception creates a barrier to implementing comprehensive climate policies.
Lack of Awareness and Education: Despite growing global awareness of climate change, there is still a need for greater education and understanding of the issue among the general public and political leaders in India.
Government Policies to Address Climate ChangeInternational Solar Alliance (ISA):
India collaborates with solar energy-rich countries to promote solar energy utilization and reduce reliance on non-renewable energy sources. One Sun, One World, One Grid Project: This project seeks to provide energy (SDG 7 – affordable and clean energy) to around 140 countries through a common grid that transfers solar power. By promoting solar energy on a global scale, this initiative addresses energy challenges and supports sustainable development. Swachh Bharat Mission: It focuses on cleanliness and sanitation (SDG 6 – Clean Water and Sanitation) across urban and rural areas in India. By ensuring access to sanitation facilities and promoting cleanliness, this initiative contributes to environmental health and sustainability. COP26 Glasgow Summit Commitments: During the COP26 summit, India made significant commitments to combat climate change, including achieving net zero emissions by 2070, meeting 50% of energy requirements from renewable sources by 2030, reducing carbon emissions, increasing non-fossil energy capacity, and decreasing carbon intensity by 2030. (SDG 13 – mitigating climate change).The Climate Action Tracker gives India an overall rating of “Highly Insufficient” in its policies and actions tracking, based on 2030 projections. Recent Judicial Stance: M.K. Ranjitsinh and Others vs Union of India (March 2024): The Supreme Court of India ruled that the people of India have the right to be free from the adverse effects of climate change by drawing upon Article 21 and Article 14 of the Indian Constitution. Recent Legislations: Some important policies and laws covering the energy sector emerged, which included the National Electricity Plan 2023, the National Green Hydrogen Mission and the Energy Conservation (Amendment) Act, 2022.
The Way Forward: To elevate climate change as a priority in Indian politics, a multi-pronged approach is necessary:
Emphasizing the economic benefits of climate action: Highlighting the potential for green jobs, sustainable development, and long-term cost savings can help align climate action with economic interests.
Promoting public awareness and engagement: Investing in education campaigns and fostering grassroots movements can help raise awareness and generate public pressure for climate action.
Incorporating climate change into political manifestos: Encouraging political parties to include climate change as a key issue in their election manifestos can help mainstream the topic and ensure its prominence in the political discourse.
Fostering cross-party collaboration: Building consensus and cooperation across political parties on climate change can help ensure continuity and long-term commitment to climate action, regardless of which party is in power.
The RBI has issued draft regulations for a Harmonized Prudential Framework and revised DCCO criteria, to enhance the Regulatory Framework for long-term (infrastructure, non-infrastructure, and commercial real estate sectors) project financing.
RBI’s purpose behind this is to regulate and supervise payment and settlement systems in the country, ensuring safe, secure, and efficient mechanisms for financial transactions.
What is the Date of Commencement of Commercial Operations (DCCO)?
The DCCO is a critical milestone for project loans, indicating the start of revenue-generating activities for the project.
Banks maintain the DCCO for project loans for several key reasons:
Asset classification: The DCCO is crucial for determining the asset classification of a project loan. If the project fails to commence commercial operations by the stipulated DCCO, the loan may be classified as a Non-performing asset (NPA).
Restructuring: The DCCO is used as a reference point for allowing the restructuring of project loans without treating it as an NPA. RBI guidelines permit banks to extend the DCCO by up to 1 year for commercial real estate projects and up to 2 years for infrastructure projects, without downgrading the asset classification, provided certain conditions are met.
Viability assessment: When extending the DCCO, banks must satisfy themselves about the viability of the project and the restructuring plan.
Provisioning: If a loan remains in the pre-commencement of the commercial operations phase for an extended period, banks may need to make higher provisions, considering the risk involved.
Monitoring and control: Maintaining a clear DCCO allows banks to monitor the project’s progress and take timely action if there are delays or cost overruns. This helps in managing the bank’s exposure and mitigating risks.
Key Highlights of the Proposed New Framework:
Income Recognition and Asset Classification: The draft framework outlines guidelines for Income Recognition, Asset Classification, and Provisioning of Advances for Projects Under Implementation (IRACP-PUIMP).
It emphasizes the importance of monitoring stress in projects and initiating resolution plans proactively.
Increase in general provisioning at the construction stage from 0.4% to 5% on all existing and fresh exposures, phased over three years (2% for FY25, 3.5% for FY26, and 5% for FY27).
Restructuring Norms: The RBI has prescribed norms for restructuring exposure in projects due to changes in the DCCO.
Lenders are required to have a board-approved policy for resolving stress in projects, triggered by a credit event during the construction phase.
Provisioning can be reduced to 2.5% and 1% at the operational phase if certain conditions are met.
Consortium Arrangements: In projects financed under consortium arrangements, specific exposure limits have been set based on the aggregate exposure of lenders.
Individual lenders must maintain a Minimum Exposure Percentage to ensure a balanced risk-sharing mechanism.
Financial Closure and Repayment Structure: The framework mandates that financial closure must be achieved before the disbursement of funds.
It discourages moratoriums on repayments beyond the DCCO period and sets guidelines for the repayment tenor not exceeding 85% of the economic life of the project.
Projects must demonstrate a positive net operating cash flow to cover all repayment obligations and a reduction in total long-term debt by at least 20%.
Net Present Value (NPV) Requirement: A positive NPV is a prerequisite for any project financed by lenders. The RBI stresses the importance of reevaluating the project NPV annually to ensure financial viability and address credit impairment risks.
Guidelines for a standby credit facility to fund cost overruns due to delays, with incremental funding of 10% of the original project cost.
ICRA Observations:
ICRA set up in 1991 is an independent and professional investment Information and Credit Rating Agency. It observed the proposed new framework could have the following implications:
Profitability Impact: Higher provisioning requirements for projects under implementation could impact the profitability of Non-banking Financial Companies and Infrastructure Financing Companies. The impact will be spread over 3 years.
Funding Costs: Estimated increase in funding costs by 20-40 basis points as lenders build additional risk premiums.
Major banks like SBI, Union Bank of India, and Bank of Baroda do not foresee significant impacts, although the pricing of loans may need adjustments.
Way Forward:
Enhanced Monitoring and Compliance: Implement robust monitoring mechanisms to ensure compliance with the new regulations. Regularly review and update the prudential framework to adapt to evolving market conditions.
Capacity Building: Train bank staff and stakeholders on the new regulatory requirements and best practices for project financing.
Prelims PYQ:
Q The Reserve Bank of India regulates the commercial banks in matters of: (UPSC CSE 2013)
liquidity of assets
branch expansion
merger of banks
winding-up of banks
Select the correct answer using the codes given below.
