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Today’s Talk on Editorials November 9, 2017

 

Banking on Legislation- The Hindu

Background: The advances given by banks are called assets, which generate income via interests and instalments. If the instalment is not paid until the due date, it is called a bad loan. If it extends beyond 90 days, it is termed NPA. The ratio of NPAs to total advances given by a bank is a commonly used indicator reflecting the health of the banking system. As of  2016, the total amount of Gross Non-Performing Assets (NPAs) for public and private sector banks is around Rs. 6 lakh crore.

To resolve the problem of NPA and stimulate economic growth, government announced plans to inject Rs 2.11 lakh crore of equity in PSU banks ( Rs 1.35 lakh crore through recapitalisation bonds, Rs 18,000 crore from budgetary resources and Rs 58,000 crore to be raised by banks from the market).

Governments legal code to recover from NPA include Insolvency and Bankruptcy code. The resolution process has brought limited gain to banks as the recovery rate from defaulting companies is merely 15-20% of the original amount lent. RBIs contribution does not help either. No attempt is made by  RBI to issue guidance to PSBs to blacklist these entities from getting further loans or prevent their management from retaining a majority equity stake.

According to the Financial Stability Board (FSB) Peer Review Report August 2016, 63% of the financial investments ordinary Indians make are within the banking system; PSBs account for 63% of the market share while private banks control 18%. These investments are at risk due to the shaky financial condition of banks.

Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 aim to tackle the NPA covers bankruptcy of businesses such as banks and insurance. IT introduces the provision for “bail-in”, whose purpose is to provide capital to absorb the losses of a bank and ensure its survival. bail-in empowers proposed Resolution Corporation to change the form of an existing liability to another security. With a ‘bail-in’, the bank can refuse repayment of a customer’s money or instead issues securities such as preference shares. Only money owed to depositors that cannot be bailed-in is the amount covered by deposit insurance.

Bail in clause would mean that money is no longer safe in a bank. A bank customer cannot be treated on a par with an unsecured creditor of a regular business. The government must take a stand to amend bail in the clause to empower the customers.

Growth minus development- Indian Express

Background: India ranked 100th position among 119 countries on Global Hunger Index (GHI) 2017 report released by Washington-based International Food Policy ReseaResearch Institute (IFPRI). This year India slipped by three positions as compared to 97th rank in 2016 GHI. Also with regard to gender gap published by World Economic Forum, India ranks at 108 overall while in South Asia, India ranks 3rd, well behind Bangladesh, which despite being a poorer country, has a rank of 47 and also behind Maldives (106).

Among some relief was India’s improvement in ease of doing business ranking released by World Bank where India improved to 100th rank from 130 last year. Purchasing Managers’ Index also improved. Yet it is not a guarantee that outcome improves because of growth in PMI.

However, considering the social development in perspective it is holding a worrisome trend. Women constitute about 49% of India’s population. Yet they have about 27% wage gap in offices according to Global Gender Gap report. As per the GHI, Forty percent of the world’s hungry and malnourished children are in India. The gender disparity and the hunger numbers are closely interlinked. Weak mothers will give birth to weak children. The baby will not get enough nourishment in the womb. Again, in the early years of childhood, the limits to which he or she will grow are being set. This worryingly puts society into a vicious cycle of poverty, hunger and low social development.

The link between the gender gap and malnutrition is much too obvious to ignore. So let’s get back to the three rankings of last week: Ease of doing business is good while gender gap and hunger are not so. Policy-wise adaptations are necessary to shift from growth to development. We have to transform the governance procedures, energise various sections of the society and clean India from corruption to achieve the dream of ‘New India’