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January 2020

Capital Markets: Challenges and Developments

[op-ed of the day] Revisiting the NBFC Crisis


From UPSC perspective, the following things are important :

Prelims level : Types of NBFC.

Mains level : Paper 3- NBFC crisis.


While India was trying to deal with the problems arising out of the large NPA accumulated by the commercial banks, the Indian financial sector was dealt with another blow in the form of the NBFC crisis.

Effects of IL&FS and DHFL collapse:

  • Balance sheets affected: The collapse of these two big entities affected the balance sheets of banks and mutual fund companies.
  • Credit crunch: It also resulted in a credit crunch that dampened demand and pushed a slowing economy towards recession.
  • Tarnished image of NBFCs: Being leaders in the industry, their failure has tarnished the image of the NBFC sector as a whole.

Types of NBFCs and their numbers

  • Total number: As of September 2019 there were a total 9,642 NBFCs in India.
  • Deposit-taking NBFC (NBFCs-D): Only 82 of India’s NBFCs were deposit-taking institutions (NBFCs-D) permitted to mobilise and hold deposits.
  • Non-deposit taking NBFCs (NBFCs-ND): The rest of the NBFCs which are not deposit-taking, are categorised as non-deposit taking NBFCs.
    • They did not have access to the savings of ordinary households.
    • For this reason, the majority of these institutions were not considered to be entities that needed strict regulation
  • Systematically important (NBFCs-ND-SI): Of a large number of non-deposit taking NBFCs (NBFCs-ND), only 274 were identified as being systematically important (NBFCs-ND-SI), by virtue of having an asset size of ₹500 crores or more.

Significance of NBFCs as expressed by assets holdings

  • A significant player in the financial markets: As at the end of March 2019, these two sets-NBFCs-D and NBFC-ND-SI- held assets that amounted to almost a fifth of that held by the scheduled commercial banks.
    • This made them significant players in the web of credit, as well as large enough as a group to affect the health of the financial sector.
  • Non-deposit taking NBFCs must rely on resources garnered from the “market,” including the banking system, besides the market for bonds, debentures, and short-term paper.
  • Extension of financial entities: Individual investors would only be marginally involved in direct investment in these instruments.
    • So, the NBFCs are essentially extensions of the activity of other financial entities such as banks, insurance companies, and mutual funds.

Concentrated lending by NBFCs

  • Industry getting lion’s share: Industry accounted for the biggest chunk of lending, amounting to 57% of gross advances in September 2019.
    • Much of this lending to industry went to the infrastructural sector.
  • At second place-retail sector: A second major target for lending by the NBFCs was the retail sector, with retail loans accounting for 20% of gross advances.
    • Within the retail sector, vehicle/auto loans accounted for as much as 44% of loans.

What went wrong?

  • Diversification by commercial banks: Following a surge in capital flows into India which began in 2004, banks were flush with liquidity.
    • Under pressure to lend and invest to cover the costs of capital and intermediation and earn a profit, banks were looking for new areas into which they could move
    • Increase in retail lending by banks: The pressure resulted in a significant increase in retail lending, with lending for housing, automobiles and consumer durables.
    • There was also a substantial increase in lending to the infrastructural sector and commercial real estate.
  • Why NBFCs flourished even in the face of competition by banks? What the growth of the NBFCs indicates is that banks were unable to exhaust the liquidity at their disposal.
    • Banks were also unable to satisfy the potential for lending to these sectors, providing a space for NBFCs to flourish.
  • The willingness of NBFCs suited the banks: The willingness of the NBFCs to enter these areas suited the banks in two ways.
    • First, it permitted the banks to use their liquidity even when they themselves were stretched and could not discover, scrutinise and monitor new borrowers.
    • Banks could lend to the NBFCs, which could then take on the tasks associated with expanding the universe of borrowers to match the increased access to liquid funds.
    • The second was that it helped the banks to move risks out of their own books.
  • Short term lending to NBFCs, and long-term lending by NBFCs: Banks accepts short term deposits, so there is limit in their ability to lend that short term deposits as a long term debt.
    • On the other hand, these were the sectors to which additional credit could be easily pushed.
    • Lending to NBFCs that in turn lent to these sectors, appeared to be a solution to the problem.
    • Bank lending to the NBFCs was short term, and the latter used these short-term funds to provide long-maturity loans
    • NBFCs expected that they would be able to roll over much of these loans so that they were not capital short.
    • Role of rating agencies: What they needed for the purpose were ratings that ranked their instruments as safe.
    • The ratings companies were more than willing to provide such ranks.
  • The two risks involved in this model: The NBFC-credit build-up was an edifice that was burdened with two kinds of risks.
    • First risk: A possible default on the part of borrowers.
    • The probability of which only increases as the universe of borrowers is expanded rapidly to exhaust the liquidity at hand.
    • The second risk: The second was the possibility that developments in the banking sector and other segments of the financial sector would reduce the appetite of these investors for the debentures, bonds and commercial paper issued by the NBFCs
    • Since the NBFCs banked on being able to roll-over short-term debt to sustain long-term lending.
    • A slowdown in or halt to the flow of funds would lead to a liquidity crunch that can damage the balance sheet of these institutions.
  • Which of the two risks is involved in the present crisis? The crisis that affected the NBFCs was a result of both kinds of setbacks.
    • First setback: Loans to areas like infrastructure, commercial real estate and housing went bad.
    • Second setback: With the non-performing assets problem in the commercial banking sector curtailing their access to bank lending.
  • Why the problem turned systemic? Given the importance of ratings and “image” in ensuring access to capital, some firms with the requisite image were able to mobilise large sums of capital and expand their business.
    • When entities like that go bust, the response of lenders and investors to the event tends to be drastic, with systemic effects on the sector as a whole.


The episode was a shadow banking crisis that has had far-reaching consequences for the economy as a whole. Therefore, its high time that measures are taken to avoid the occurrence of such a crisis in the future.

North-East India – Security and Developmental Issues

[op-ed snap] Naga peace plan lost in haze of optics, obstinacy


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2-Federal system.


The government-imposed deadline of October 31 for concluding talks with Naga groups has passed. And nothing concrete has come out of the Framework Agreement signed in 2015.

Events so far

  • Framework Agreement with Naga rebel leader Thuingaleng Muivah was signed in 2015.
    • The agreement expresses an intent to work towards the final agreement.
    • The progress on the said agreement has stalled since then.
  • Problem with the Framework Agreement: It was signed only with Muivah’s leading faction, National Socialist Council of Nagalim (Isak-Muivah), or NSCN (I-M).
    • Exclusion of major players: The agreement excluded half a dozen more groups, besides Naga citizenry in Nagaland and contiguous Naga homelands in the neighbouring states of Manipur, Arunachal Pradesh, and Assam.
    • This weakened the process.

Efforts made by the government

  • Appointment of an interlocutor: The government-appointed R.N. Ravi as the government’s interlocutor. That move signalled the seriousness from the government’s side.
  • Reach out toward the other players: The government reached out to Nagas across the board.
  • The government reached out to other rebel factions, much to the irritation of NSCN (I-M), and began peace talks with them in end-2017.
  • A breakaway faction of I-M’s arch enemies, NSCN’s Khaplang, joined the process in 2019.
  • Government-led outreach attempted to bring on board non-Naga people in Manipur, Arunachal Pradesh, and Assam.

What is offered in the process and related issues

  • Disarmament, rehabilitation, and assimilation: A talks with I-M spelt out disarmament, rehabilitation, and assimilation of cadres and leaders through induction in paramilitary forces and political structures
  • Expanded legislature: An expanded legislature in Nagaland, for inducting the rebels and more legislative representation and relative autonomy in Naga homelands outside Nagaland.
  • Disagreement over flang and the separate state-constitution: Other Naga rebel groups agreed to what was offered by the government.
  • I-M remained intransigent over the dual use of a Naga flag alongside the Indian flag, and its constitution—
  • This I-M-scripted constitution is regressive, offers far less than what Nagas enjoy under Indian constitutional provisions, and effectively proposes Muivah as the overarching figure of Naga politics, development and destiny.
  • Unacceptance by the other groups: This is evidently unacceptable to numerous Nagas—let alone non-Nagas—for whom Muivah, a Tangkhul Naga from Manipur’s Ukhrul region, remains a divisive figure.


There is a need to reconcile the difference between the different groups and reach a proposed agreement as soon as possible for the welfare of the communities and the region as a whole.

Temple entry for women : Gender Equality v/s Religious Freedom

[op-ed snap] The warp and weft of religious liberty


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2- Indian Constitution's approach to secularism.


While extending the scope and extent of the freedom of religion, the SC would face the difficult question of balancing it with the other provisions and rights enshrined in the Constitution.

What the 9-Judge bench will deliberate on?

  • The establishment of the Bench emanated out of an order of reference made on review petitions filed against the Sabarimala judgment.
  • The scope and extent of religious liberty: It will answer a series of wide-ranging questions and expound the scope and extent of the Constitution’s religious liberty clauses.
  • It will also deliberate on cases including the practice of female genital mutilation and the rights of Parsi women to enter fire temples.

The question of balance

  • Within the Constitution of India, there are two impulses that may, at times, come into conflict with one another.
  • First impulse-Religious freedom: India is a pluralist and diverse nation, where groups and communities — whether religious or cultural — have always played an important role in society.
    • Religious freedom: Following up on this impulse, the Constitution recognises both the freedom of religion as an individual right (Article 25), as well as the right of religious denominations to manage their own affairs in matters of religion (Article 26).
  • The second impulse-Protection of an individual: The second impulse, recognises that while the community can be a source of solidarity at the best of times, it can also be a terrain of oppression and exclusion.
    • So, both Articles 25 and 26 are subject to public order, morality, and health.
    • Article 25 is also subject to other fundamental rights guaranteed by the Constitution, and to the state’s power to bring in social reform laws.

Finding the middle ground

  • The middle ground involves respecting and balancing the following-
    • The autonomy of communities: It involves respecting the autonomy of cultural and religious communities.
    • Individual rights: It involves ensuring that individual rights are not entirely sacrificed at the altar of the community.
  • Essential practice doctrine: Over the years, the Supreme Court has found the middle ground by carving out a jurisprudence that virtually allows it to sit in theological judgments.
    • What is constitutionally protected? It recognising that it is only those practices that are “essential” to religion that enjoys constitutional protection.
    • Any other ritual is seen as secular and amenable to the state’s interference.
    • This doctrine was used to rule, in 2004, that the performance of the Tandava dance was not an essential tenet of the religious faith of the Ananda Margis.
    • The SC said that the “essential religious practices” test is indeed the only way it can reconcile the two impulses.

Anti-exclusion principle

  • What are the options with the SC?
    • Continue with the “essential practice” doctrine: One option before the nine-judge Bench would simply be to affirm existing jurisprudence, as it stands.
    • Anti-exclusion principle: The second option would be to ask whether the effect of the disputed religious practice is to cause harm to individual rights.
    • The enquiry, thus, is not whether the practice is truly religious, but whether its effect is to subordinate, exclude, or otherwise send a signal that one set of members is entitled to lesser respect and concern than others.
    • In Sabrimala case — both the concurring opinion of Justice D.Y. Chandrachud and the dissenting opinion of Justice Indu Malhotra agreed that this ought to be the test.
  • Protection of dissenters
    • Top-down nature: Many religious communities, norms, and practices are shaped and imposed from above, by community leaders, and then enforced with the force of social sanction.
    • Dissenters are then faced with an impossible choice: Either comply with discriminatory practices or make a painful exit from the community.
    • Judicial intervention: It is here that the Constitution can help by ensuring that the oppressed and excluded among communities can call upon the Court for aid.


  • The nine-judge Bench will face a difficult and delicate task of constitutional interpretation. Much will ride upon its decision: the rights of women in particular and of many other vulnerable groups in general.
  • Also will depend on its decision the constitutional vision of ensuring a life of dignity and equality to all, both in the public sphere and in the sphere of community.

Citizenship and Related Issues

Explained: Doctrine of ‘Presumption of Constitutionality’


From UPSC perspective, the following things are important :

Prelims level : Doctrine of ‘Presumption of Constitutionality’

Mains level : Read the attached story

Recently the Supreme Court declined urgent hearing on a plea seeking to declare the CAA as constitutional and said that there was already a “presumption of constitutionality” to a law passed by Parliament.  CJI has said that the court’s role was to examine the validity, and not declare a law constitutional.

Doctrine of Presumption of Constitutionality

  • The term ‘presumption of constitutionality’ is a legal principle that is used by courts during statutory interpretation — the process by which courts interpret and apply a law passed by the legislature, such as Parliament.
  • In the 1992 Supreme Court case ‘ML Kamra v New India Assurance’, Justice K Ramaswamy said: “The court ought not to interpret the statutory provisions, unless compelled by their language, in such a manner as would involve its unconstitutionality.
  • The legislature of the rule making authority is presumed to enact a law which does not contravene or violate the constitutional provisions.
  • Therefore, there is a presumption in favour of constitutionality of a legislation or statutory rule unless ex facie it violates the fundamental rights guaranteed under Part III of the Constitution.
  • If the provisions of a law or the rule is construed in such a way as would make it consistent with the Constitution and another interpretation would render the provision or the rule unconstitutional, the Court would lean in favour of the former construction. ” (“ex facie” meaning ‘on the face’)

When does this apply?

  • It is a cardinal principle of construction that the Statute and the Rule or the Regulation must be held to be constitutionally valid unless and until it is established they violate any specific provision of the Constitution.
  • Further it is the duty of the Court to harmoniously construe different provisions of any Act or Rule or Regulation, if possible, and to sustain the same rather than striking down the provisions out right.
  • The presumption is not absolute, however, and does not stand when there is a gross violation of the Constitution.

Limitations to the doctrine

  • A three-judge Bench in ‘NDMC v State of Punjab’ (1996) spoke of the limitations to the doctrine.
  • The Bench observed that the Doctrine is not one of infinite application; it has recognised limitations.
  • The Court has consistently followed a policy of not putting an unnatural and forced meaning on the words that have been used by the legislature in the search for an interpretation which would save the statutory provisions.

Important Judgements In News

Private Property is a Human Right: Supreme Court


From UPSC perspective, the following things are important :

Prelims level : Right to Property

Mains level : Read the attached story

The right to property is a human right, the Supreme Court has recently ruled.

What did the court say?

  • A citizen’s right to own private property is a human right. The state cannot take possession of it without following due procedure and authority of law, the Supreme Court has held in a recent judgment.
  • The state cannot trespass into the private property of a citizen and then claim ownership of the land in the name of ‘adverse possession’.
  • Grabbing private land and then claiming it as its own makes the state an encroacher.
  • Article 300A required the state to follow due procedure and authority of law to deprive a person of his or her private property, the Supreme Court reminded the government.

Adverse possession

  • A welfare state cannot be permitted to take the plea of adverse possession, which allows a trespasser i.e. a person guilty of a tort, or even a crime, to gain legal title over such property for over 12 years.
  • The State cannot be permitted to perfect its title over the land by invoking the doctrine of adverse possession to grab the property of its own citizens.


Right to Property

  • The Constitution of India originally provided for the right to property under Articles 19 and 31.
  • Article 19 guaranteed to all citizens the right to acquire, hold and dispose of property.
  • Article 31 provided that “no person shall be deprived of his property save by authority of law.” It also provided that compensation would be paid to a person whose property has been taken for public purposes.
  • The 44th Amendment of 1978 removed the right to property from the list of fundamental rights.
  • A new provision, Article 300-A, was added to the constitution, which provided that “no person shall be deprived of his property save by authority of law”.

What if one is deprived of his/her properties?

  • Thus, if a legislator makes a law depriving a person of his property, there would be no obligation on the part of the state to pay anything as compensation.
  • The aggrieved person shall have no right to move the court under Article 32.
  • Thus, the right to property is no longer a fundamental right, though it is still a constitutional right. If the government appears to have acted unfairly, the action can be challenged in a court of law by aggrieved citizens.

International Space Agencies – Missions and Discoveries

Artemis Mission


From UPSC perspective, the following things are important :

Prelims level : Artemis Mission

Mains level : Manned mission on Moon

NASA wants to send the first woman and the next man to the Moon by the year 2024, which it plans on doing through the Artemis lunar exploration program. An Indian American astronaut named Raja Chari is set to accompany the crew in this mission.

Artemis Mission

  • In 2011, NASA began the ARTEMIS (Acceleration, Reconnection, Turbulence, and Electrodynamics of the Moon’s Interaction with the Sun) mission using a pair of repurposed spacecraft and in 2012 the Gravity Recovery and Interior Laboratory (GRAIL) spacecraft studied the Moon’s gravity.
  • For the program, NASA’s new rocket called the Space Launch System (SLS) will send astronauts aboard the Orion spacecraft a quarter of a million miles away from Earth to the lunar orbit.
  • The astronauts going for the Artemis program will wear newly designed spacesuits, called Exploration Extravehicular Mobility Unit, or xEMU.
  • These spacesuits feature advanced mobility and communications and interchangeable parts that can be configured for spacewalks in microgravity or on a planetary surface.

Coastal Zones Management and Regulations

Coastal Regulation Zone (CRZ) Rules


From UPSC perspective, the following things are important :

Prelims level : CRZ norms

Mains level : Coastal conservation in India

Few illegal apartment complexes in Maradu, Kerala, were razed as ordered by the Supreme Court for breaching Coastal Regulation Zone (CRZ) norms. The court had called the illegal constructions a “colossal loss” to the environment.

What are CRZ norms?

  • In India, the CRZ Rules govern human and industrial activity close to the coastline, in order to protect the fragile ecosystems near the sea.
  • They restrict certain kinds of activities — like large constructions, setting up of new industries, storage or disposal of hazardous material, mining, reclamation and bunding — within a certain distance from the coastline.
  • After the passing of the Environment Protection Act in 1986, CRZ Rules were first framed in 1991.
  • After these were found to be restrictive, the Centre notified new Rules in 2011, which also included exemptions for the construction of the Navi Mumbai airport and for projects of the Department of Atomic Energy.
  • In 2018, fresh Rules were issued, which aimed to remove certain restrictions on building, streamlined the clearance process, and aimed to encourage tourism in coastal areas.
  • While the CRZ Rules are made by the Union environment ministry, implementation is to be ensured by state governments through their Coastal Zone Management Authorities.

Where do they apply?

  • In all Rules, the regulation zone has been defined as the area up to 500 m from the high-tide line.
  • The restrictions depend on criteria such as the population of the area, the ecological sensitivity, the distance from the shore, and whether the area had been designated as a natural park or wildlife zone.
  • The latest Rules have a no-development zone of 20 m for all islands close to the mainland coast, and for all backwater islands in the mainland.


Coastal Regulation Zone: How rules for building along coast have evolved

Wildlife Conservation Efforts

Kaziranga National Park


From UPSC perspective, the following things are important :

Prelims level : Major species found in Kaziranga NP

Mains level : NA

Kaziranga, home of the world’s most one-horned rhinos, has 96 species of wetland birds — one of the highest for wildlife preserves in India.

Kaziranga National Park

  • It is a protected area in the northeast state of Assam.
  • Spread across the floodplains of the Brahmaputra River, its forests, wetlands and grasslands are home to tigers, elephants and the world’s largest population of Indian one-horned rhinoceroses.
  • Much of the focus of conservation efforts in Kaziranga are focused on the ‘big four’ species— rhino, elephant, Royal Bengal tiger and Asiatic water buffalo.
  • The 2018 census had yielded 2,413 rhinos and approximately 1,100 elephants.
  • The tiger census of 2014 said Kaziranga had an estimated 103 tigers, the third highest population of the striped cat in India after Jim Corbett National Park (215) in Uttarakhand and Bandipur National Park (120) in Karnataka.
  • Kaziranga is also home to nine of the 14 species of primates found in the Indian subcontinent.

Port Infrastructure and Shipping Industry – Sagarmala Project, SDC, CEZ, etc.

Places in news: Kolkata Port


From UPSC perspective, the following things are important :

Prelims level : Kolkata Port

Mains level : Ports in India

PM Modi has renamed the Kolkata Port Trust after Dr Syama Prasad Mookerjee, at an event to mark its 150th anniversary.

History of Kolkata’s port

  • In the early 16th century, the Portuguese first used the present location of the port to anchor their ships, since they found the upper reaches of the Hooghly river beyond Kolkata, unsafe for navigation.
  • Job Charnock, an employee and administrator of the East India Company, is believed to have founded a trading post at the site in 1690.
  • Since the area was situated on the river with jungle on three sides, it was considered safe from enemy invasion.
  • After the abolition of slavery in the British Empire in 1833, this port was used to ship lakhs of Indians as ‘indentured labourers’ to far-flung territories throughout the Empire.
  • During World War II, the port was bombed by Japanese forces.

Its administration

  • As Kolkata grew in size and importance, merchants in the city demanded the setting up of a port trust in 1863.
  • The colonial government formed a River Trust in 1866, but it soon failed, and administration was again taken up by the government.
  • Finally, in 1870, the Calcutta Port Act (Act V of 1870) was passed, creating the offices of Calcutta Port Commissioners.
  • In 1869 and 1870, eight jetties were built on the Strand. A wet dock was set up at Khidirpur in 1892. The Khidirpur Dock II was completed in 1902.
  • As cargo traffic at the port grew, so did the requirement of more kerosene, leading to the building of a petroleum wharf at Budge Budge in 1896.
  • In 1925, the Garden Reach jetty was added to accommodate greater cargo traffic. A new dock, named King George’s Dock, was commissioned in 1928 (it was renamed Netaji Subhash Dock in 1973).
  • In 1975, the Commissioners of the port ceased to control it after the Major Port Trusts Act, 1963, came into force.


  • After Independence, the Kolkata Port lost its preeminent position in cargo traffic to ports at Mumbai, Kandla, Chennai, and Visakhapatnam.
  • The Kolkata port is the only riverine port on R. Hooghly in the country, situated 203 km from the sea.
  • The Farakka Barrage, built in 1975, reduced some of the port’s woes as Ganga waters were diverted into the Bhagirathi-Hooghly system.

History- Important places, persons in news

Person in news: Swami Vivekananda


From UPSC perspective, the following things are important :

Prelims level : Swami Vivekananda

Mains level : Swami Vivekananda and his philosophy

January 12 is the birth anniversary of Swami Vivekananda, the famous spiritual leader and intellectual from the late 19th century. In his honour, the government of India in 1984 declared his birthday as National Youth Day.

Swami Vivekananda early life

  • Vivekananda was born in Kolkata on January 12, 1863, as Narendra Nath Datta.
  • From an early age, he nurtured an interest in Western philosophy, history, and theology, and went on to meet the religious leader Ramakrishna Paramhansa, who later became his Guru.
  • He remained devoted to Ramakrishna until the latter’s death in 1886.
  • In 1893, he took the name ‘Vivekananda’ after Maharaja Ajit Singh of the Khetri State requested him to do so, changing from ‘Sachidananda’ that he used before.
  • After Ramakrishna’s death, Vivekananda toured across India, and set after educating the masses about ways to improve their economic condition as well as imparting spiritual knowledge.

The Chicago address

  • Vivekananda is especially remembered around the world for his speech at the Parliament of the World’s Religions in Chicago in 1893.
  • The speech covered topics including universal acceptance, tolerance and religion, and got him a standing ovation.
  • He began delivering lectures at various places in the US and UK, and became popular as the ‘messenger of Indian wisdom to the Western world’.

Return to India

  • After coming back to India, he formed the Ramakrishna Mission in 1897 “to set in motion a machinery which will bring noblest ideas to the doorstep of even the poorest and the meanest.”
  • In 1899, he established the Belur Math, which became his permanent abode.

His legacy

  • Through his speeches and lectures, Vivekananda worked to disseminate his religious thought.
  • He preached ‘neo-Vedanta’, an interpretation of Hinduism through a Western lens, and believed in combining spirituality with material progress.
  • ‘Raja Yoga’, ‘Jnana Yoga’, ‘Karma Yoga’ are some of the books he wrote.
  • An important religious reformer in India, Swami Vivekananda is known to have introduced the Hindu philosophies of Yoga and Vedanta to the West.
  • Subhas Chandra Bose had called Vivekananda the “maker of modern India.”