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September 2019

Banking Sector Reforms

[op-ed snap] A big bank theory that won’t suffice


From UPSC perspective, the following things are important :

Prelims level : Bank merger

Mains level : Bank mergers in the background of growth slowdown


India’s GDP growth slumped for the fifth straight quarter to 5%, a six-year low. 


  1. India is faced with job losses, the absence of fresh employment opportunities, farm crisis, a severe investment drought, and the financial sector’s myriad malaises. 
  2. This has resulted in sluggish aggregate demand and slowing growth.
  3. The government announced four mergers among public sector banks (PSBs). It involves 10 banks and reduces the total number of state-owned banks to 12.

Problem with the move

  1. Will it reverse the slowdown? 
  2. At this time, lenders have become lending-averse and bankers are wary of witch-hunts over commercial judgment calls.
  3. Mergers of this scale are likely to focus on institutional and professional energies on executing these unifications successfully.
  4. It could detract attention from the critical task at hand of identifying unmet credit needs and keeping India’s loan pipelines humming. 
  5. In terms of the other governance reforms announced for PSBs, the government did not distance itself from the appointment of chairpersons and managing directors.
  6. Of the three PSBs based in Kolkata, two—Allahabad Bank and United Bank of India—will lose their identities and be subsumed into other larger banks, leaving the city as the home base of only one PSB (UCO Bank) and the private lender (Bandhan Bank). 
  7. The government has not provided a rationale, or eligibility criteria, for its selection of PSBs.
  8. At a strategic level, the merger will partially ease pressure on government finances from the over-sized bank recapitalization bill.
  9. It is unlikely to set a credit supply rolling. The government allocated a mere ₹70,000 crore in this year’s budget.


The mergers are unlikely to generate any immediate benefits for the economy in the absence of appropriate government spending.



Merger of Banks: Need & Challenges

Climate Change Impact on India and World – International Reports, Key Observations, etc.

[op-ed snap] A polar region we must keep on the radar in a multipolar world


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Arctic - climate change - geopolitics


Recent offer by the US president to buy Greenland is indicative of the emerging geopolitics of the Arctic region. Climate change and China are fast destabilizing the status quo and throwing up political, security, legal, and environmental challenges. Autonomous vehicles and robots can populate uninhabitable regions and the next few decades could see the Arctic emerge as a hotspot of great power competition.


  1. Rising global temperatures are causing the frozen Arctic ocean to melt, opening up new sea routes and opportunities to extract hydrocarbons and minerals from the seabed and the newly exposed land surfaces. 
  2. Countries of the Arctic are trying to take advantage of these opportunities. 
  3. China declared itself a “near Arctic” country and is making determined efforts to extend its footprint in the polar region. Chinese firms have tried to purchase large tracts of land in Iceland, Norway and Denmark. 
  4. There are concerns that Chinese investments in Greenland’s natural resource economy might persuade the local population to secede from Denmark, creating a Laos-like Chinese satellite state between North America and Europe. 

History of superpower behavior

  1. In the 19th century, the US acquired Louisiana, Florida, Alaska and parts of Arizona and New Mexico through purchases. 
  2. China drew dashed lines on a map around the South China Sea it coveted and claimed that it had always belonged to Beijing. 
  3. Russia annexed Crimea by sending unmarked, masked troops to just take over the place.

Arctic politics

  1. How should the region be shared among the eight Arctic countries – Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the US as there are overlapping territorial claims among them. 
  2. Should these countries be allowed to assert territorial claims at all? They have formed the Arctic Council to institutionalize their self-assigned rights, but many in China, the European Union, India are against conceding sovereignty to the Arctic countries. 
  3. Russia, Canada and Denmark are all claimants to the ownership of the Arctic pole.
  4. Russia is both building up its military capabilities in the region and promoting the Northern Sea Route (NSR) as a new artery of global shipping. It  recently announced that it will impose rules on commercial and naval vessels using the route. 
  5. Both China and the US will contest Russia’s jurisdiction on this water. 
  6. China’s position in the Arctic is all for freedom of navigation, while its position over the South China Sea is denial of freedom to other countries.
  7. China has declared that it wants to be a polar great power. To be considered a polar great power, it must have high levels of polar scientific capacity,scientific research funding, presence in the polar regions, economic, military, political, and diplomatic capacity and international engagement in polar governance.
  8. Russia is keen for India to get involved in the Russian Far East and the Arctic. It liberalized visa procedures to enter Vladivostok, invited Prime Minister as the chief guest at this week’s Eastern Economic Forum.

Indian position

  1. So far, Indian involvement in the Arctic has centred around scientific and environmental studies, mostly in partnership with Norway. 
  2. Indian and Russian energy companies have signed agreements worth billions of dollars on exploration and joint production. 
  3. Conditions are favourable for private Indian investors to go beyond these and explore the Siberia and further North.

Banking Sector Reforms

Explained: Mergers of public sector banks


From UPSC perspective, the following things are important :

Prelims level : Read the attached story

Mains level : Merger of PSBs and various prospects associated

  • The Centre announced a mega amalgamation plan, the third in a row, that merged ten public sector banks into four larger entities.
  • With these series of mergers, the number of state-owned banks is down to 12 from 27.

About the merger

  • There are four new sets of mergers — Punjab National Bank, Oriental Bank of Commerce and United Bank of India to merge to form the country’s second-largest lender.
  • Canara Bank and Syndicate Bank to amalgamate; Union Bank of India to acquire Andhra Bank and Corporation Bank; and Indian Bank to merge with Allahabad Bank.
  • The biggest merger out of the four was Oriental Bank of Commerce and United Bank merging into Punjab National Bank to create a second largest state-owned bank with Rs 17.95 lakh crore business and 11,437 branches.
  • These three banks are technologically compatible as they use Finacle Core Banking Solution (CBS) platform.
  • The merger of Syndicate Bank with Canara Bank will create the fourth largest public sector bank with Rs 15.20 lakh crore business and a branch network of 10,324 branches.
  • Andhra Bank and Corporation Bank’s merger with Union Bank of India will create India’s fifth largest public sector bank with Rs 14.59 lakh crore business and 9,609 branches.
  • The merger of Allahabad Bank with Indian Bank will create the seventh largest public sector bank with Rs 8.08 lakh crore business with strong branch networks in the south, north and east of the country.

Why merge PSBs?

  • According to the government, banks have been merged on the basis of likely operating efficiencies, better usage of equity and their technological platform.
  • But the move marks a departure from the plan to privatize some of the banks or bringing in a strategic investors to usher in reform in the sector.
  • The government, after consultations, decided that amalgamation is the “best route” to achieve banking sector scale and to support the target of achieving a $5 trillion economic size for India in five years.
  • The amalgamations will help banks to meaningfully scale up operations but will not lead to any immediate improvement in their credit metrics.

Logic behind the move

  • For years, expert committees starting from the M Narasimham Committee have recommended that India should have fewer but bigger and better-managed banks to ensure optimal use of capital, efficiency, wider reach and greater profitability.
  • The logic is that rather than having several of its own banks competing for the same pie (in terms of deposits or loans) in the same narrow geographies, leading to each one incurring costs, it would make sense to have large-sized banks.
  • This may be true especially in India’s bigger cities and towns.
  • It has also been argued that such an entity will then be able to respond better to emerging market trends or shifts and compete more with private banks.
  • The proposed big banks would be able to compete globally and improve their operational efficiency once they lower their cost of lending and improve lending.
  • But none of India’s banks including the largest, SBI, figures in the list of the top 50 global banks. So that may be a long way away.

How does it help the government?

  • For over decades starting from 1992, the government as the biggest shareholder of over 25 banks had to provide capital for them.
  • To grow and lend more, the banks often need a higher amount of capital to set aside also for loans that could go bad.
  • With the government not willing to lower its equity holdings and with a large slice of the capital being set aside to cover for bad loans, the burden of infusing capital rests on the majority shareholder.
  • This means marking a large amount of money almost every year during the last few years in the Budget for capital infusion at many banks at a time when there is a huge demand for social sector.
  • By reducing the number of banks to a manageable count, the government hopes that the demands for such capital infusion will be lower progressively with increased efficiencies and with more well capitalised banks.
  • It will also help that the government can focus now on fewer banks than in the past.

How have previous bank mergers fared?

  • Last year, the government had merged Dena Bank and Vijaya Bank with Bank of Baroda, creating the third-largest bank by loans in the country.
  • The government said this merger has been “a good learning experience” as profitability and business of the merged entity has improved.
  • Earlier, the State Bank of India had acquired its associate banks.
  • Indian Overseas Bank, Uco Bank, Bank of Maharashtra and Punjab and Sind Bank, which have strong regional focus, will continue as separate entities.
  • The government said profitability of public sector banks has improved and total gross non-performing assets have come down to Rs 7.9 lakh crore at end-March 2019 from Rs 8.65 lakh crore at end-December 2018.

More thrust on RBI

  • The RBI keeps monitoring large institutions whose potential failure can impact other institutions or banks and the financial sector, and which could have a contagion effect and erode confidence in other banks.
  • A case in point is the recent instance of IL&FS Group, which defaulted on repayments hitting many lenders and investors.
  • The creation of more large-sized banks will mean the RBI will have to improve its supervisory and monitoring processes to address increased risks.

Will this help improve the performance metrics now?

  • While the announced consolidation of PSU banks is a credit positive as it enables the consolidated entities to meaningfully improve scale of operations and help their competitive position.
  • At the same time, there will not be any immediate improvement in their credit metrics as all of them have relatively weak solvency profiles.
  • While asserting that bank consolidation is a good move towards improving efficiency of the PSBs, he said “it is possible that the current mergers may face more friction than the last one with BoB, Dena and Vijaya.
  • In that case, a large, well-capitalised strong bank absorbed two much smaller entities.
  • In the present case, the mergers are mostly among larger banks, with absorbing bank not necessarily in strong health.
  • However, given the merged banks are on similar technology platform, the integration should be smoother.
  • Also it is likely that management attention and bandwidth of the entities being merged could get split impacting the loan growth and reduce focus on strengthening asset quality in the short term.

Black Money – Domestic and International Efforts

Automatic Exchange of Information (AEOI) Regime


From UPSC perspective, the following things are important :

Prelims level : Automatic Exchange of Information (AEOI) Regime

Mains level : Curbing black money

  • Banking details of Indians with accounts in Switzerland will be available to tax authorities as the automatic exchange of information regime kicks off between the two countries.
  • In 2016, India and Switzerland had signed an information-sharing deal on bank accounts, which was to come in effect from September 2019.
  • Both countries intend to start collecting data in accordance with the global AEOI standard in 2018 and to exchange it from 2019 onwards.

About AEOI

  • This automatic exchange of information (AEOI) is to be carried out under the Common Reporting Standard (CRS), the global reporting standard for such exchange of information.
  • It takes care of aspects such as confidentiality rules and data safeguards.
  • The CRS has been developed by the Organisation for Economic Cooperation and Development (OECD).
  • Under the agreement, India will not receive information on bank accounts prior to 2018.
  • Under the agreement both jurisdictions will inform each other of any relevant developments in respect to the implementation of the OECD Common Reporting Standard in their respective domestic laws.
  • Each jurisdiction confirms that it has informed the other jurisdiction about the modalities made available to persons making a voluntary disclosure of their financial assets.

Benefits of the regime

  • In 2018, data from Zurich-based Swiss National Bank (SNB) had shown that after declining for three years, money parked by Indians in Swiss Banks rose 50 per cent to CHF (Swiss Franc) 1.02 billion (Rs 7,000 crore) in 2017 over the previous year.
  • The step is likely to shed more light on the wealth Indians have stashed away in Swiss bank accounts, for so long governed by strict local rules of secrecy.
  • It is a significant step in the government’s fight against black money and the era of “Swiss bank secrecy” will finally be over.

Historical and Archaeological Findings in News

The legacy of Firoz Shah, 14th-century ruler who built Kotla in Delhi


From UPSC perspective, the following things are important :

Prelims level : Notable works by Firoz Shah Tughlaq

Mains level : Major happenings in his reign

  • Delhi’s Feroz Shah Kotla stadium is set to be renamed Arun Jaitley Stadium after the former Finance Minister.
  • The stadium took its name from a 14th century fortress Firoz Shah Tughlaq.

Firoz Shah Tughlaq

  • Firoz Shah was a Turk ruler of the Tughlaq Dynasty, who reigned over the Sultanate of Delhi from 1351 to 1388.
  • He worked to improve the infrastructure of the empire building canals, rest-houses and hospitals, creating and refurbishing reservoirs and digging wells.
  • He founded several cities around Delhi, including Jaunpur, Firozpur, Hissar, Firozabad, Fatehabad.
  • He imposed Jizya tax on all non-Muslims and did not even exempt Brahmins and beggers as done by his predecessors.
  • He tried to ban practices that the orthodox theologians considered un-Islamic.

Notable works

  • He built Feroz Shah Kotla (kotla means fortress), peppered Delhi with gardens, constructed canals, hunting lodges, and repaired Qutub Minar, Hauz Khas (royal tank) and Surajkund (lake of the Sun).
  • Firoz Shah was the first ruler to build a fortress next to river Yamuna which was a quite an urban sprawl.
  • Emperor Ashoka’s pillar, erected near Ambala in 250 BC, was transported to Delhi and placed in Firozabad. Spear writes.
  • Firoz Shah did public construction activity on a massive scale. Welfare projects such as gardens, serai (inn), water supply were his priority.
  • By improving sources of water supply and irrigation facilities in Delhi and surrounding areas, he helped bring down the price of food grains too.
  • It’s a known fact that Haryana’s irrigation systems go back to his era.
  • The British called him the ‘father of the irrigation department’ because of the many gardens and canals that he built.

Repairing older structures

  • Apart from indulging in building his own structures, Firoz Shah “felt a sense of responsibility” towards old structures that needed repair, among which Qutub Minar, Huaz Khas and Surajkund stand out.
  • In his reign, an earthquake damaged the two top storeys of Qutub Minar. He repaired the Minar and added a little pavilion at the top.
  • In the late 18th century, however, during another round of repair, an engineer called Major Smith replaced it with his own pavilion.
  • Firoz Shah also repaired Hauz Khas, the royal tank built during Alauddin Khalji’s reign in the late 13th century.

History- Important places, persons in news

The Munich Agreement


From UPSC perspective, the following things are important :

Prelims level : Munich Agreement

Mains level : WW2 and its onset

Beginning of WW II

  • On this day 80 years ago — September 1, 1939 — German troops marched into Poland, triggering the beginning of World War II, the deadliest military conflict in the history of mankind.
  • Great Britain and France, which had assured help to Poland, declared war on Germany and its allies two days later, on September 3.
  • The beginning of the War exposed to the world the folly of the Munich Agreement that was signed less than a year previously — a deal that has been seen as a disastrous act of appeasement of Adolf Hitler’s Nazi regime.
  • This event is marked as historical evidence that expansionist totalitarianism cannot be dealt with through placation.

The Sudeten crisis

  • Hitler had threatened to bring war to Europe unless the German-majority areas in the north, south, and west of Czechoslovakia were surrendered to Germany.
  • The German-speaking people living in the area referred to in German had found themselves part of the new country that was created after the German-dominated Austro-Hungarian Empire collapsed at the end of WW I in 1918.
  • The annexation of Sudetenland, home to over three million Sudeten Germans, was part of Hitler’s plan to create a “Greater Germany”.
  • Following the Munich Agreement, German troops occupied these areas between October 1 and October 10, 1938.

The Munich Agreement

  • The Agreement was signed among Germany, France, Italy, and Great Britain on September 29-30, 1938.
  • Hitler’s appeasement in an attempt to keep the peace in Europe was strongly supported by Great Britain’s Prime Minister at the time, Neville Chamberlain.
  • After coming back from Munich, Chamberlain waved the piece of paper signed by Hitler and called it a declaration of “peace with honour”.
  • In return for European peace, the Sudetenland region was permitted to be annexed by the Germans.

What changed with the treaty?

  • The Agreement, signed after Hitler met Chamberlain and French PM along with Italy’s Mussolini in Munich, allowed for the cessation to Germany of Sudetenland.
  • The German occupation was to be done in four stages from October 1-10, 1938.
  • The cessation in some places was subject to a plebiscite.
  • The Czechoslovak government was supposed to release from their military and police forces within four weeks of the signing of the Agreement, any Sudeten Germans who wished to be released, and all Sudeten German prisoners.
  • Six months after the Munich Agreement was signed, Hitler went back on his commitments and invaded the whole of Czechoslovakia. War was on its way.

Police Reforms – SC directives, NPC, other committees reports

Interpol Red Notice


From UPSC perspective, the following things are important :

Prelims level : Interpol, Red notice

Mains level : INTERPOL and its mandate

  • Union Home Minister has conveyed to Interpol Secretary-General that India would like the international police agency to expedite its process of publishing Red Notices (RNs).
  • As many as 18 requests for RNs from India are pending with Interpol, including against famous fugitives hiding abroad.

Red Notices (RNs)

  • Criminals or suspects often flee to other countries to evade facing justice. An RN alerts police forces across the world about fugitives who are wanted internationally.
  • Interpol describes an RN as “a request to law enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action”.
  • RNs contain information that helps identify wanted persons, such as their names, dates of birth, nationality, and physical attributes such as the colour of their hair and eyes.
  • It also includes pictures and biometric data such as fingerprints, if they are available.

Not a warrant of arrest

  • The Interpol itself does not want individuals; they are wanted by a country or an international tribunal.
  • Also, an RN is an international wanted persons’ notice; it is not an international arrest warrant.
  • Which means that the Interpol cannot compel the law enforcement authorities in any country to arrest the subject of an RN.
  • It is up to individual member countries to decide what legal value to give to an RN, and the authority of their national law enforcement officers to make arrests.

Why RN?

  • RNs mention the crime(s) they are wanted for.
  • An RN is published by Interpol at the request of a member country.
  • The fugitives may be wanted for prosecution or to serve a sentence.
  • The country issuing the request need not be the home country of the fugitive; Interpol acts on the request of a country where the alleged crime has been committed.
  • In cases where the help of the public is needed to locate an individual, or if those individuals pose a threat to public safety, a public extract of the RN is published on the Interpol’s website.

Importance of RNs

  • RNs are issued to simultaneously alert police in all member countries about internationally wanted fugitives.
  • An RN can help bring a fugitive to justice, sometimes many years after the crime was committed.
  • However, because an RN is not an arrest warrant, action against a fugitive frequently rests on the diplomatic clout that the country making the request has with the country where the fugitive is located.
  • Nations with a big international profile, and economic or political heft, are often more successful than the rest.

Checks and balances

  • The Interpol says that an RN must comply with its constitution and rules.
  • It says that “every Red Notice request is checked by a specialised task force to ensure it is compliant with (Interpol) rules”.
  • The Interpol argues that an RN is issued only after a competent court has taken cognizance of a chargesheet against the fugitive.
  • In the case of Nirav Modi, the CBI filed a chargesheet in May 2018, and Interpol issued an RN in July that year.
  • However, in the case of Choksi, India has been frustrated: while the chargesheet was filed in June 2018, the RN is yet to be issued.



  • The International Criminal Police Organization (INTERPOL) is an international organization that facilitates worldwide police cooperation and crime control.
  • Headquartered in Lyon, France, it was founded in 1923 as the International Criminal Police Commission (ICPC).
  • NTERPOL provides investigative support, expertise, and training to law enforcement worldwide in battling three major areas of transnational crime: terrorism, cybercrime, and organized crime.
  • Its broad mandate covers virtually every kind of crime, including crimes against humanity, child pornography, drug trafficking and production, political corruption, copyright infringement, and white-collar crime.
  • The agency also helps coordinate cooperation among the world’s law enforcement institutions through criminal databases and communications networks.
  • India accepted Interpol membership in June 1956.

Climate Change Impact on India and World – International Reports, Key Observations, etc.

[op-ed snap] A new ethics for a sustainable planet


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Climate change - land degradation


Brazil’s Amazon forests are ablaze with dozens of fires mostly set intentionally by loggers and others seeking greater access to forest land. They are paving the way for a global climate catastrophe. 

Climate Change

  1. Energy and transport are mainly responsible for the accumulation of greenhouse gases (GHGs) in the atmosphere.
  2. Changes in land use patterns also have made significant contributions. 
  3. Deforestation, industrial agricultural systems and desertification are major drivers of climate change. 
  4. Agriculture, forestry and other land use activities accounted for a little less than a quarter (23%) of the total net anthropogenic emissions of GHGs between 2007-2016.
  5. The Intergovernmental Panel on Climate Change (IPCC) recently brought out a special report on Climate Change and Land that covers desertification, land degradation, sustainable land management, food security and greenhouse gas fluxes in terrestrial ecosystems. It makes it clear that unless land is managed in a sustainable manner, the chances for humanity to survive climate change will become smaller.

Examples of Climate Change

  1. Many cities in Europe and elsewhere have seen high temperatures never before experienced. 
  2. Heat waves have also accelerated melting of glaciers in Greenland at a rate that was not anticipated by scientific models until much later this century.
  3. The burning of the world’s largest forest reserves as witnessed in Amazon recently.

Problems in tackling climate change action

  1. The USA has withdrawn from the Paris Climate Agreement stating that it is against the national interests of the U.S.

Importance of Land Management

  1. Land is part and parcel of people’s lives. It provides food, water, livelihoods, biodiversity and a range of other benefits from its ecosystems. 
  2. Decades of poor land management in the agricultural system destroyed farm systems
    • soils have become depleted with heavy use of chemicals
    • farms have few or no friendly insects
    • monoculture has led to a reduction in the use of indigenous crop varieties with useful characteristics
    • groundwater is depleted
    • polluted farm runoff is contributing to contaminated water bodies while destroying biodiversity

Efficient land management

  1. Implementing more sustainable agricultural practices: 
    • reducing chemical input drastically
    • food production through natural methods of agroecology to reduce emissions and enhance resilience to warming
    • avoiding conversion of grassland to cropland
    • bringing equitable management of water in agriculture
    • crop diversification
    • agroforestry 
    • investment in local and indigenous seed varieties that can withstand higher temperatures
    • practices that increase soil carbon and reduce salinisation
  1. Sustainable food systems reduce food waste, which is estimated to be a quarter of the food produced. 
  2. It also necessitates eating locally grown food and cutting meat consumption. 
  3. It is important to put an end to deforestation, conserve mangroves, peatland, and other wetlands.

Examples of change

To address the transnational challenges of climate change and land, the narrow lens of nationalism is not serving us. La Via Campesina, The Transition Network, and Ecoregionalism are civil society movements in that direction. Fridays for Future and Fossil Fuel Divestment are part of such evolving sensibilities. 


Land use policy should incorporate better access to markets for small and marginal farmers, empower women farmers, expand agricultural services and strengthen land tenure systems. 

In the Great Transition Initiative, Paul Raskin has said that seeing our place as part of the web of life, instead of at its center, requires a Copernican shift in world views.

Railway Reforms

India’s longest electrified railway tunnel between Cherlopalli and Rapuru (AP)


From UPSC perspective, the following things are important :

Prelims level : About the tunnel

Mains level : Not Much

  • Vice President inaugurated the country’s longest electrified rail tunnel between Cherlopalli and Rapuru and the electrified railway line between Venkatachalam and Obulavaripalli.

About the tunnel

  • The 6.7-km-long tunnel is an “engineering marvel” and said it would provide viable rail connectivity between the Krishnapatnam Port and the hinterland for the seamless movement of freight.
  • It also reduces the distance for trains coming from Guntakal Division to Krishnapatnam by 72 km and eases traffic density in the Obulavaripalli-Renigunta-Gudur section.
  • This newly commissioned line of 112 km reduces the travel time to five hours as compared to the 10 hrs earlier for a goods train from Krishnapatnam Port to Obulavaripalli.
  • Besides facilitating operation of freight trains the new line would also provide the shortest path on the Chennai-Howrah and Chennai-Mumbai rail routes.
  • It would also ease congestion of both passenger and freight-carrying trains in the Vijayawada-Gudur-Renigunta-Guntakal sections.