💥UPSC 2027,2028 Mentorship (April Batch) + Access XFactor Notes & Microthemes PDF
Talk to mentor

Civilsdaily

Login

Search results for: “”

  • National Education Policy and current status of education

    The article contrasts the targets set in the National Education Polity with the present state of education in the country.

    Key recommendations

    • Redesigning the school curriculum to accommodate early childhood care and education.
    • Ensuring universal access to education.
    • Increasing gross enrolment in higher education to 50% by 2035.
    • Improving research in higher education institutes by setting up a Research Foundation.

    Let’s take stock of the current situation on the above-suggested parameters.

    1) Universal Access to Education

    • Despite the Right to Education Act-2009 retaining children remains a challenge for the schooling system.
    • As of 2015-16, Gross Enrolment Ratio was 56.2% at senior secondary level as compared to 99.2% at primary level.
    • Data for all groups indicates a decline in GER as we move from primary to senior secondary for all groups.
    • This decline is particularly high in case of Scheduled Tribes.

    NEP 2020 recommendations

    • The NEP recommends strengthening of existing schemes and policies which are targeted for such socio-economically disadvantaged groups.
    • Further, it recommends setting up special education zones in areas with a significant proportion of such disadvantaged groups.
    • A gender inclusion fund should also be setup to assist female and transgender students in getting access to education.

    2) GER to 50% in higher education

    • The NEP aims to increase the GER in higher education to 50% by 2035.  
    • As of 2018-19, the GER in higher education in the country stood at 26.3%.
    • The annual growth rate of GER in higher education in the last few years has been around 2%.

    NEP 2020 recommendations

    • The NEP recommends increasing capacity of existing higher education institutes by restructuring and expanding existing institutes.
    • It recommends that all institutes should aim to be large multidisciplinary institutes, and there should be one such institution in or near every district by 2030.
    • Further, institutions should have the option to run open distance learning and online programmes to improve access to higher education.

    3) Restructuring of Higher Education Institutes

    • The NEP notes that the higher education ecosystem in the country is severely fragmented.
    • At present, there is complex nomenclature of higher education institutes (HEIs) in the country such as ‘deemed to be university’, ‘affiliating university’, ‘affiliating technical university’, ‘unitary university’.
    • These shall be replaced simply by ‘university’.

    NEP 2020 recommendations

    • The NEP recommends that all HEIs should be restructured into three categories:
    • 1)  research universities focusing equally on research and teaching.
    • 2)  teaching universities focusing primarily on teaching.
    • 3) degree-granting colleges primarily focused on undergraduate teaching.
    •  All such institutions will gradually move towards full autonomy – academic, administrative, and financial.

    4) National research foundation to boost research

    • The NEP states that investment on research and innovation in India, at only 0.69% of GDP, lags behind several other countries.
    • The total investment on R&D in India as a proportion of GDP has been stagnant at around 0.7% of GDP.
    • Of which 58% of expenditure was by government, and the remaining 42% was by private industry.

    NEP 2020 recommendation

    • To boost research, the NEP recommends setting up an independent National Research Foundation (NRF).
    • The Foundation will act as a liaison between researchers and relevant branches of government as well as industry.
    • Specialised institutions which currently fund research, such as the Department of Science and Technology, and the Indian Council of Medical Research, will continue to fund independent projects.
    • The Foundation will collaborate with such agencies to avoid duplication.

    5) Digital Education

    • The NEP states that alternative modes of quality education should be developed when in-person education is not possible.
    • But let’s look into the accessibility of such mode.
    • As of 2017-18, only 4.4% of rural households have access to a computer (excludes smartphones).
    • Nearly 15% have access to internet facility.  Amongst urban households, 42% have access to the internet.

    NEP 2020 recommendations

    • Several interventions are recommended-
    • (i) developing two-way audio and video interfaces for holding online classes.
    • (ii) use of other channels such as television, radio, mass media in multiple languages to ensure the reach of digital content where digital infrastructure is lacking.

    6) Increasing public spending on education to 6% of GDP

    • Public spending of 6% of GDP was first made by the National Policy on Education 1968 and reiterated by the 1986 Policy.
    • NEP 2020 reaffirms the recommendation of increasing public spending on education to 6% of GDP.
    •  In 2017-18, the public spending on education-includes spending by centre and states-was budgeted at 4.43% of GDP.
    •  In 2020-21, states in India have allocated 15.7% of their budgeted expenditure towards education.
    • States such as Delhi, Rajasthan, and Maharashtra have allocated more than 18% of their expenditure on Education for the year 2020-21.
    • On the other hand, Telangana (7.4%), Andhra Pradesh (12.1%) and Punjab (12.3%) lack in spending on education, as compared to the average of states.

    Consider the question “Examine the provision with regard to increasing research in the country in the National Education Policy 2020.”

    Conclusion

    The National Education Policy is an ambitious document with the potential to transform. What is required is the zeal to implement and assess the progress by analysing the outcomes.

    Source-

    https://www.prsindia.org/theprsblog/national-education-policy-recommendations-and-current-scenario

  • Draft Defence Production and Export Promotion Policy 2020

    India is one of the largest importers of defence equipment. This should have naturally made India a manufacturing hub of the defence equipment. But this is not the case. This article deals with this issue. 

    Context

    Following China’s stance of open belligerence towards India, making war preparedness a top priority. It is against this backdrop, the Defence Production and Export Promotion Policy 2020 was unveiled.

    Key features

    • It aims for domestic output worth ₹1.75 trillion of aerospace and defence goods and services by 2025.
    • Of which exports is aimed at ₹35,000 crore.
    • It has various strategic initiatives that would aid the indigenous development of modern weaponry from hypersonic missiles and ace sensors to stealth submarines and fly-by-wire fighter jets.

    Why India lacks indigenous capacity

    • If India’s dependence on foreign suppliers of armaments was not for lack of trying.
    • Our Defence Research and Development Organisation (DRDO) exists for this very purpose.
    • DRDO scientists claim success in several projects, including the Tejas design.
    • But decisions on procurements for our armed forces are made through a complex process—involving service chiefs, technocrats and politicians—that ends up favouring foreign purchases.
    • This is this convenient, as off-the-shelf wares are readily available abroad.
    • The finer details of defence deals are usually confidential, after all, and the payments huge.
    • By one estimate, India was the world’s third largest military spender in 2019, with a bill of over $71 billion, after the US and China.

    Issues and Challenges in partnership with private players

    • So far, efforts to get our private sector into the act have not fared too well, despite all our schemes to attract them.
    • Long-drawn out acquisition processes may partly be to blame for this.
    • Companies are apprehensive of investment without an assurance of a ready market.
    • But by the time their prototypes are tested and approved for induction by our forces, they risk being outmoded by advances made abroad.
    • In the US, spin-offs from defence research have been behind many technological innovations of everyday utility.
    • So, the knowledge acquired in defence research has the potential to benefit the other sectors as well.

    Consider the question “Being one of the top importers of defence equipment India is well placed to enhance its domestic manufacturing capacity of defence equipment. Yet, India lacks it after repeated attempts to achieve it. Examine the reasons for this and suggest measures to overcome this anomaly.” 

    Conclusion

    If a big push for “made in India” defence systems calls an entire ecosystem of experiments, ideas and technical wizardry into being, it could help our economy leap ahead too.

  • Reforms driven agenda for the modernisation of railways

    Adoption of the PPP model by the Indian Railways will help it get rid of the many issues it suffers from. This article analyses the two initiative by the railways in this regard and spells out their advantages and challenges.

    Significance of railways

    • Its route spans about 68000 km.
    • It employs over 1.2 mn people and generates approximately Rs 2 lakh cr annually.
    • So, a major contributor to jobs, GDP, and mobility.
    • Efficient and optimal use of the railways could further add up to 1% to GDP.

    Adopting PPP model

    • The time has come to modernise the Indian Railways, make it world-class, and a key driver of the country’s growth.
    • To do so, India must involve the best resources via PPP to bring in the latest technology, leading practices, and efficiencies.
    • PPP has been actively deployed as a mechanism in Europe and Japan.

    Two initiatives of Indian Railways involving PPP model

    1. Operation of trains on selected route

    • Indian Railways’ proposal features a list of 109 pairs of routes through 151 trains to private operators.
    • Proposed routes include Delhi–Mumbai, Delhi–Chennai, Mumbai–Chennai, and others.
    • PPP operators are expected to finance, procure, operate, and maintain the allocated trains.
    •  The concession period will be for 35 years.

    Advantages

    • The initiative will bring in cutting-edge, technologically advanced rolling stock, shorter journey times, enhanced job growth, better safety, and best-in-class service standards.
    • It will bridge the demand-and-supply deficit for passengers.
    • The PPP investment is expected to be in the range of Rs 30,000 cr—in a Make in India–led growth strategy.
    • Encouraging domestic manufacturing of rolling stock, these projects will also create direct and indirect employment.

    2. Redevelopment of railway stations

    • Initially, 50 stations will be bid out and funded through land monetisation as well as user charges.
    • The modernisation and redevelopment of stations will be conducted primarily through Indian Railway Stations Development Corporation Limited, Rail Land Development Authority and other central government entities.
    • The PPP basis is under the Design, Build, Finance, Operate and Transfer model.
    • It entails utilising the potential of real estate for excess land and air space in and around the stations for development through PPP.
    • The 50 big stations have been planned to be bid out through the PPP route aimed at bringing in investments exceeding Rs 50,000–60,000 crores.

    Challenges involved in the adoption of PPP model

    • One of the primary challenges will be independence of adjudication in disputes.
    • Other issues will be the pricing strategy to remain competitive yet stay profitable, given the competition through air, road, and to some extent, water transport.
    • An independent regulator could go a long way towards allaying concerns of equitable treatment of PPP operators and ought to be considered strongly.

    Consider the question “Examine the opportunities and challenges in the adoption PPP model by the Indian Railways.”

    Conclusion

    The introduction of PPP in Railways is a welcome step and can lead to the kind of reforms that can help transform India and make it a global leader.

    Source

    https://www.financialexpress.com/infrastructure/railways/reforms-driven-agenda-why-its-time-to-modernise-the-indian-railways-make-it-world-class/2044774/

  • Back in news: Financial Action Task Force (FATF)

    Ahead of the crucial FATF meetings in October, Indian agencies plan to highlight its inaction in the Pulwama, 26/11 Mumbai attack and Daniel Pearl murder cases.

    Practice question for mains:

    Q.What is FATF? Discuss its role in combating global financial crimes and terror financing.

    What is the FATF?

    • FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
    • The FATF Secretariat is housed at the OECD headquarters in Paris.
    • It holds three Plenary meetings in the course of each of its 12-month rotating presidencies.

    Why is Pakistan under its scanner?

    • Pakistan has been under the FATF’s scanner since June 2018, when it was put on the Grey List for terror financing and money laundering risks.
    • FATF and its partners such as the Asia Pacific Group (APG) are reviewing Pakistan’s processes, systems, and weaknesses on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.
    • In June 2018, Pakistan gave a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime, and to address its strategic counter-terrorism financing-related deficiencies.
    • Pakistan and the FATF then agreed on the monitoring of 27 indicators under a 10-point action plan, with specific deadlines.
    • The understanding was that the successful implementation of the action plan, and its physical verification by the APG, would lead the FATF to move Pakistan out of the Grey List.
    • However, Islamabad managed to satisfy the global watchdog over just five of them.

  • What is Pyrolysis?

    Plastic from used personal protective equipment (PPE) can be transformed into renewable liquid fuels using chemical a process called pyrolysis, says a new study.

    Try this PYQ:

    Q.In the context of which one of the following are the terms ‘pyrolysis and plasma gasification’ mentioned? (CSP 2019)

    (a) Extraction of rare earth elements

    (b) Natural gas extraction technologies

    (c) Hydrogen fuel-based automobiles

    (d) Waste-to-energy technologies

    What is Pyrolysis?

    • Pyrolysis is the thermal decomposition of materials at elevated temperatures in an inert atmosphere.
    • It involves a change in chemical composition. The word is coined from the Greek-derived elements pyro “fire” and lysis “separating”.
    • It is most commonly used in the treatment of organic materials. It is one of the processes involved in charring wood.
    • It is considered as the first step in the processes of gasification or combustion.

    How does it work?

    • In general, pyrolysis of organic substances produces volatile products and leaves a solid residue enriched in carbon, char.
    • Extreme pyrolysis, which leaves mostly carbon as the residue, is called carbonization.
    • The process is used heavily in the chemical industry, for example, to produce ethylene, many forms of carbon, and other chemicals from petroleum, coal, and even wood, to produce coke from coal.

    Applications

    • Aspirational applications of pyrolysis would convert biomass into syngas and biochar, waste plastics back into usable oil, or waste into safely disposable substances.

    Limitations and Concerns

    • The technology requires drying of soil prior to treatment.
    • Limited performance data are available for systems treating hazardous wastes containing polychlorinated biphenyls (PCBs), dioxins, and other organics.
    • There is concern that systems that destroy chlorinated organic molecules by heat have the potential to create products of incomplete combustion, including dioxins and furans.
    • These compounds are extremely toxic in the parts per trillion range.
    • The molten salt is usually recycled in the reactor chamber. However, depending on the waste treated (especially inorganics) and the amount of ash, spent molten salt may be hazardous and require special care in disposal.
    • Pyrolysis is not effective in either destroying or physically separating inorganics from the contaminated medium.
    • Volatile metals may be removed as a result of the higher temperatures associated with the process, but they are not destroyed.
    • When the off-gases are cooled, liquids condense, producing an oil/tar residue and contaminated water.
    • These oils and tars may be hazardous wastes, requiring proper treatment, storage, and disposal.

  • Higher Education Financing Agency (HEFA)

    The JNU has got approval for a fund from the Higher Education Funding Agency (HEFA) for the construction of new infrastructure.

    Try this PYQ:

    What is the aim of the programme ‘Unnat Bharat Abhiyan’? (CSP 2017)

    (a) Achieving 100% literacy by promoting collaboration between voluntary organizations and government’s education system and local communities.

    (b) Connecting institutions of higher education with local communities to address development challenges through appropriate technologies.

    (c) Strengthening India’s scientific research institutions in order to make India a scientific and technological power.

    (d) Developing human capital by allocating special funds for health care and education of rural and urban poor, and organizing skill development programmes and vocational training for them.

    About HEFA

    • HEFA is a joint venture company of Canara Bank and Ministry of Human Resource Development.
    • It provides financial assistance for the creation of educational infrastructure and R&D in India’s premier educational institutions.
    • All the Centrally Funded Higher Educational Institutions will be eligible to join as members of the HEFA.
    • For joining as members, the educational institution must agree to escrow a specific amount from their internal accruals for a period of 10 years to the HEFA.

    Funding pattern of HEFA

    • HEFA will have an authorized capital of 2,000 crore rupees and the government equity would be 1,000 crore
    • It also mobilizes CSR funds from Corporates/PSUs which will, in turn, be released for promoting research and innovation in these institutions on a grant basis.
    • The principal portion of the loan will be repaid through the ‘internal accruals’ of the institutions earned through the fee receipts, research earnings etc.

  • Species in news: Indian Peafowl

    This newscard is an excerpt from the original article published in the D2E.

    Try this PYQ:

    Q.Which one of the following is the national aquatic animal of India? (CSP 2015)

    (a) Saltwater crocodile

    (b) Olive ridley turtle

    (c) Gangetic dolphin

    (d) Gharial

    Indian Peafowl

    • The Indian peafowl is a native of India and some parts of Pakistan and Sri Lanka.
    • The Arakan hills prevented their spread further east while the Himalayas and the Karakoram did so northwards.
    • As our national bird, the peacock has the utmost level of legal protection.

    Peacock vs. Peafowl

    • Only the males of the species are peacocks.
    • The females are properly called peahens, while young birds less than a year old are known as peachicks.
    • Collectively they are known as peafowl, regardless of age or gender.
    • Peacocks are male Indian peafowl (Pavo cristatus) belonging to the Phasianidae family

    Various protections

    • It comes under Section 51 (1-A) of Schedule I of the Wild (Life) (Protection) Act, 1972, with imprisonment that may be extended up to seven years, along with a fine that shall not be less than Rs 10,000.
    • Since 2014, Indian Peafowl has been protected under Appendix III of the CITES.
    • They are listed under the ‘Least Concern’ (LC) category of the IUCN Red Data List.

    Threats

    • Despite this, these birds experienced dwindling populations for many decades due to habitat loss, poaching and contamination of their food sources.
    • In 1991, the peafowl population census conducted by the WWF  revealed that 50 per cent of the species had declined, compared to their number at the time of independence.

  • [pib] Thenzawl Golf Resort Project

    Union Minister for Culture & Tourism has inaugurated the “Thenzawl Golf Resort” Project at Aizawl, Mizoram.

    Try this question for mains:

    Q. Swadesh Darshan Scheme is one of the most ambitious schemes to transform the tourism industry in India. Comment.

    Thenzawl Golf Resort Project

    • The Project is sanctioned under the Integrated Development of New Eco-Tourism under Swadesh Darshan- North East Circuit.
    • It is designed by Graham Cooke and Associates, one of top-ranked Canada based Golf Course architectural firm.
    • It is designed to have facilities of international standards.
    • The competitive advantage of Thenzawl Golf Course is that it will provide quality golfing experience and international facilities at a fair price.

    Back2Basics: Swadesh Darshan Scheme

    • Swadesh Darshan Scheme is one of the flagship schemes of the Ministry of Tourism, for development of thematic circuits in the country in a planned and prioritized manner.
    • The scheme was launched in 2014 -15 as a Central Sector Scheme.
    • It aims for integrated development of theme-based tourist circuits in the country.
    • Under the scheme, the identified thematic circuits for development are: North-East Circuit, Buddhist Circuit, Himalayan Circuit, Coastal Circuit, Krishna Circuit, Desert Circuit, Tribal Circuit, Eco Circuit, Wildlife Circuit, Rural Circuit, Spiritual Circuit, Ramayana Circuit, Heritage Circuit, Sufi Circuit, and Tirthankara Circuit.
    • “Development of North East Circuit: Imphal & Khongjom” is the first project implemented under the Scheme.

  • 5th August 2020| Daily Answer Writing Enhancement

    Important Announcement:  Topics to be covered on 6th August-

    GS-1 Political philosophies like communism, capitalism, socialism, etc.- their forms and effect on the society

    GS-4 Concept of public service; Philosophical basis of governance and probity.

    Question 1) 

    Discuss the causes of Russian revolution in comparison with French revolution. 10 marks

    Question 2)

    Finance Commission plays a crucial role in the federal structure of the country. Describe the procedure of its constitution and elucidate its functions. 10 marks

     

     

    Question 3)

    Examine the significance of the railways for India. Also, analyse the impact of the recent decision of the Indian Railways towards the privatisation. 10 marks

    Question 4)  

    The Citizens’ Charter is an ideal instrument of organizational transparency and accountability, but it has its own limitations. Identify the limitations and suggest measures for greater effectiveness of the Citizens’ Charter. 10 marks

     

     

    Reviews will be provided in a week. (In the order of submission- First come first serve basis). In case the answer is submitted late the review period may get extended to two weeks.

    *In case your answer is not reviewed in a week, reply to your answer saying *NOT CHECKED*. If Parth Sir’s tag is available then tag him.

    For the philosophy of AWE and payment, check  here: Click2Join

  • NPA issue in India:Complete analysis

    The Financial Stability Report (FSR) released by RBI recently has once again underlined the vulnerability of the Indian public sector banks (PSBs). They have been under a severe balance sheet crisis even before the pandemic, and the crisis created by the pandemic, and the moratorium offered, will explode when the chickens come to roost.

    Current banking scenario in India

    According to the FSR

    • The gross non-performing assets would go up from 11.3% in March 2020 to 15.2% in March 2021, and to 16.3% under a very severe stress scenario. 
    • The CRAR is estimated to deteriorate from 14.6% in March to 13.3% in the baseline scenario, and to 11.8% under a very severe stress scenario. 
    • The volume of recapitalisation required is humongous.

    What is a Non-Performing Asset (NPA)?

    • You may note that for a bank, the loans given by the bank is considered as its assets. So if the principle or the interest or both the components of a loan is not being serviced to the lender (bank), then it would be considered as a Non-Performing Asset (NPA).
    • Any asset which stops giving returns to its investors for a specified period of time is known as Non-Performing Asset (NPA).
    • Generally, that specified period of time is 90 days in most of the countries and across the various lending institutions. However, it is not a thumb rule and it may vary with the terms and conditions agreed upon by the financial institution and the borrower.

    Reasons for rise in NPA in India

    • Historical factors -Between early 2000’s and 2008 Indian economy were in the boom phase. During this period Banks especially Public sector banks lent extensively to corporate. However, the profits of most of the corporate dwindled due to slowdown in the global economy, the ban in mining projects, and delay in environmental related permits affecting power, iron and steel sector, volatility in prices of raw material and the shortage in availability of. This has affected their ability to pay back loans and is the most important reason behind increase in NPA of public sector banks.
    • Relaxed lending norms : One of the main reasons of rising NPA is the relaxed lending norms especially for corporate honchos when their financial status and credit rating is not analyzed properly. Also, to face competition banks are hugely selling unsecured loans which attributes to the level of NPAs.
    • Lack of contigency planning: Banks did not conducted adequate contingency planning, especially for mitigating project risk. They did not factor eventualities like failure of gas projects to ensure supply of gas or failure of land acquisition process for highways.
    • Restructuring of loan facility was extended to companies that were facing larger problems of over-leverage& inadequate profitability. This problem was more in the Public sector banks.
    • Unforseen economic shocks like Demonetization and Covid 19

    What is the impact of NPAs?

    • Lenders suffer a lowering of profit margins.
    • Stress in banking sector causes less money available to fund other projects, therefore, negative impact on the larger national economy.
    • Higher interest rates by the banks to maintain the profit margin.
    • Redirecting funds from the good projects to the bad ones.
    • As investments got stuck, it may result in it may result in unemployment.
    • In the case of public sector banks, the bad health of banks means a bad return for a shareholder which means that the government of India gets less money as a dividend. Therefore it may impact easy deployment of money for social and infrastructure development and results in social and political cost.
    • Investors do not get rightful returns.
    • Balance sheet syndrome of Indian characteristics that is both the banks and the corporate sector have stressed balance sheet and causes halting of the investment-led development process.
    • NPAs related cases add more pressure to already pending cases with the judiciary.

    What are the various steps taken to tackle NPAs?

    1.Corporate Debt Restructuring – 2005

    It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.

    2.5:25 rule – 2014

    • Also known as, Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries.
    • It was proposed to maintain the cash flow of such companies since the project timeline is long and they do not get the money back into their books for a long time, therefore, the requirement of loans at every 5-7 years and thus refinancing for long term projects.

    3.Joint Lenders Forum – 2014

    • It was created by the inclusion of all PSBs whose loans have become stressed. It is present so as to avoid loans to the same individual or company from different banks.
    • It is formulated to prevent instances where one person takes a loan from one bank to give a loan of the other bank.

    4.Mission Indradhanush – 2015

    The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort undertaken since banking nationalization in the year 1970 to revamp the Public Sector Banks (PSBs) and improve their overall performance by ABCDEFG.

    • A-Appointments: Based upon global best practices and as per the guidelines in the companies act, separate post of Chairman and Managing Director and the CEO will get the designation of MD & CEO and there would be another person who would be appointed as non-Executive Chairman of PSBs.
    • B-Bank Board Bureau: The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for the appointment of Whole-time Directors as well as non-Executive Chairman of PSBs
    • C-Capitalization: As per finance ministry, the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore out of which 70000 crores will be provided by the GOI and the rest PSBs will have to raise from the market.
    Financial Year Total Amount
    FY15-16 25,000 Crore
    FY16-17 25,000 Crore
    FY17-18 10,000 Crore
    FY18-19 10,000 Crore
    Total 70,000 Crore
    • D-DEstressing: PSBs and strengthening risk control measures and NPAs disclosure.
    • E-Employment: GOI has said there will be no interference from Government and Banks are encouraged to take independent decisions keeping in mind the commercial the organizational interests.
    • F-Framework of Accountability: New KPI(key performance indicators) which would be linked with performance and also the consideration of ESOPs for top management PSBs.
    • G-Governance Reforms: For Example, Gyan Sangam, a conclave of PSBs and financial institutions. Bank board Bureau for transparent and meritorious appointments in PSBs.

    5.Strategic debt restructuring (SDR) – 2015

    • Under this scheme banks who have given loans to a corporate borrower gets the right to convert the complete or part of their loans into equity shares in the loan taken company. Its basic purpose is to ensure that more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities for initiating a change of ownership in appropriate cases.

    6.Asset Quality Review – 2015

    • Classify stressed assets and provision for them so as to secure the future of the banks and further early identification of the assets and prevent them from becoming stressed by appropriate action.

    7.Sustainable structuring of stressed assets (S4A) – 2016

    • It has been formulated as an optional framework for the resolution of largely stressed accounts. 
    • It involves the determination of sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.

    8.Insolvency and Bankruptcy code Act-2016

    • It has been formulated to tackle the Chakravyuha Challenge (Economic Survey) of the exit problem in India.
    • The aim of this law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner and for maximization of value of assets of such persons and matters connected therewith or incidental thereto.

    9.Pubic ARC vs. Private ARC – 2017

    • This debate is recently in the news which is about the idea of a Public Asset Reconstruction Companies (ARC) fully funded and administered by the government as mooted by this year’s Economic Survey Vs. the private ARC as advocated by the deputy governor of RBI Mr. Viral Acharya.
    • Economic survey calls it as PARA (Public Asset Rehabilitation Agency) and the recommendation is based on a similar agency being used during the East Asian crisis of 1997 which was a success.

    10.Bad Banks – 2017

    • Economic survey 16-17, also talks about the formation of a bad bank which will take all the stressed loans and it will tackle it according to flexible rules and mechanism. It will ease the balance sheet of PSBs giving them the space to fund new projects and continue the funding of development projects.

    11.Prompt corrective action

    • PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
    • The RBI introduced the PCA framework in 2002 as a structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
    • It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.

    12.RBI’s revised stressed asset resolution norms

    • The RBI in June 2019 released a revised set of norms on stressed asset resolution which are substantially less stringent from the previous one.

    About the February 2018 RBI circular

    • Through a notification issued on Feb 12, 2018 the RBI laid down a revised framework for the resolution of stressed assets, which replaced all its earlier instructions on the subject.
    • Banks were required to immediately start working on a resolution plan for accounts over Rs 2,000 crore, which was to be finalised within 180 days.
    • In the case of non-implementation, lenders were required to file an insolvency application.
    • RBI termed it necessary to substitute the existing guidelines with a harmonized and simplified generic framework for resolution of stressed assets.
    • Also, banks have to recognise loans as non-performing even if the repayment was delayed by just one day.
    • Not adhering to the timelines in the circular would attract stringent supervisory and enforcement actions.

    What did the revised framework replace?

    • The circular went into effect on the same day that it was issued, and all existing schemes for stressed asset resolution were withdrawn with immediate effect.
    • The circular was ostensibly intended to stop the “evergreening” of bad loans the practice of banks providing fresh loans to enable timely repayment by borrowers on existing loans.
    • The RBI warned banks that not adhering to the timelines laid down in the circular, or attempting to evergreen stressed accounts, would attract stringent supervisory and enforcement actions.

    New circular of the RBI

    • The new framework gives lenders a breather from the one-day default rule whereby they had to draw up a resolution plan (RP) for implementation within 180 days of the first default.
    • It gives lenders (scheduled commercial banks, all-India financial institutions and small finance banks) 30 days to review the borrower account on default.
    • During this review period, lenders may decide on the resolution strategy, including the nature of the RP and the approach for its implementation.
    • Lenders may also choose to initiate legal proceedings for insolvency or recovery.
    • The new circular is also applicable to small finance banks and systemically important non-deposit taking non-banking financial companies (NBFCs) and deposit-taking NBFCs.
    • In cases where the RP is to be implemented, all lenders have to enter into an intercreditor agreement (ICA)for the resolution of stressed assets during the review period to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender.
    • Under the ICA, any decision agreed to by the lenders representing 75 per cent of total outstanding credit facilities by value and 60 per cent by number will be binding upon all the lenders. In particular, the RPs will provide for payment which will not be less than the liquidation value due to the dissenting lenders.
    • In cases where the aggregate exposure of a borrower to lenders (scheduled commercial banks, all-India financial institutions and small finance banks) is ₹2,000 crore and above, the RP has to be implemented within 180 days from the end of the review period, and the reference date has been set as June 7, 2019.
    • In the case of borrowers in the ₹1,500 crore and above but less than ₹2,000 crore category, January 1, 2020 has been set as the reference date for implementing the RP. In the less than ₹1,500 crore category, the RBI will announce the reference date in due course.

     What if the Resolution Plan is delayed?

    • There is a disincentive for banks if they delay implementing a viable resolution plan.
    • In case the plan is not implemented within 180 days from the end of the review period, banks have to make additional provision of 20% and another 15% if the plan is not implemented within 365 days from the start of the review period.
    • The additional provisions would be reversed if resolution is pursued under Insolvency and Bankruptcy Code (IBC).

    Further reforms needed

    • Banks have to accept losses on loans (or ‘haircuts’).
    • They should be able to do so without any fear of harassment by the investigative agencies.
    • The Indian Banks’ Association has set up a six-member panel to oversee resolution plans of lead lenders. To expedite resolution, more such panels may be required.
    • An alternative is to set up a Loan Resolution Authority, if necessary through an Act of Parliament.
    • Also, the government must infuse at one go whatever additional capital is needed to recapitalise banks — providing such capital in multiple instalments is not helpful
    • The quality of lending by PSB must be improved in future so that the same problem does not arise again.
    • To provide Public sector banks with greater autonomy the shareholding of the government can be reduced to less than 50 percent or 33 percent.
    • A second requirement is that public sector banks should become board-managed institutions, with the board responsible for all appointments, including that of the chief executive officer (CEO). If the shares of the government are actually transferred to a holding company, then decisions regarding appointments could be taken by the board of the new company on the recommendation of the board of the bank.
    • The objective of creating a genuinely commercial environment in which public sector banks can function and managements are made accountable can only be achieved if the government is willing to step back from exercising direct control. 

More posts