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Right to privacy as Right to life 

Right to privacy as Right to life 


It is important for the courts to examine disability as a ground for the grant of bail


  • In the Supreme Court’s right to privacy judgment (Justice K.S. Puttaswamy v. Union of India), Justice D.Y.Chandrachud held “Life and personal liberty are inalienable to human existence. The human element in the life of the individual is integrally founded on the sanctity of life.
  • The court observed that a constitutional democracy can survive when citizens have an undiluted assurance that the rule of law will protect their rights and liberties against any invasion by the state and those judicial remedies to those deprived of these most precious rights.

Violation of right to life

  • In 2014, Delhi University professor G.N. Saibaba was arrested under the Unlawful Activities (Prevention) Act .
  • In March 2017, he was convicted by the Gadchiroli session court to life imprisonment for alleged offences under the same act.
  • The grounds of his conviction are debatable, the immediate concern is regarding the question of miscarriage of justice.
  • He was suffered from severe disabilities and multiple related health conditions .
  • Placing him in solitary confinement with no support violates his right to life, bodily integrity and autonomy under Article 21 of the Constitution, although his conviction only impose restraints on personal liberty.
  • Prisoners in jail may be deprived of personal liberty according to procedure established by law, but that does not include a derogation of their right to dignity.
  • The privacy Bench reiterated the words of Justice Krishna Iyer in the Prem Shankar Shukla case: “The guarantee of human dignity, which forms part of our constitutional culture, and the positive provisions of Articles 14, 19 and 21 spring into action when we realise that to manacle man is more than to mortify him; it is to dehumanise him and, therefore, to violate his very personhood, too often using the mask of ‘dangerousness’ and security…” and that the right to life cannot be restricted to mere “animal existence”.

Life, liberty and freedom

  • The Supreme Court holds unequivocally that in adopting the Constitution, the people of India do not surrender the most precious aspects of the human persona — namely life, liberty and freedom — to the state on whose mercy these rights would depend.
  • Each of these aspects — life, liberty and freedom — must be considered together and/or severally as the case may be.
  • Where there is a sentence on personal liberty, the citizen does not surrender his life to the mercy of the state.

Entitled to bail

  • In the light of the decision of the Supreme Court on the right to privacy, particularly its comments on the Suresh Kumar Koushal judgment on Section 377 of the Indian Penal Code and the habeas corpus case, one cannot help but hope that the Nagpur High Court, in considering Mr. Saibaba’s appeal against his conviction, similarly examines the judgment and deliberates on the relationship between fact, law, popular rhetoric and proportionality therein.
  • The court examines disability as a ground for the grant of bail, as distinct from “medical grounds”.

Rights of Persons with Disabilities Act, 2013:

  • According to the Rights of Persons with Disabilities Act, 2013, “respect for inherent dignity, individual autonomy and independence of persons” and “accessibility”.
  • Section 2(s) of the Act defines a person with disability as “a person with long term physical, mental, intellectual or sensory impairment which, in interaction with barriers, hinders his full and effective participation in society equally with others.”
  • In conditions of custody, such persons must be protected from any hindrance to the exercise of bodily integrity and autonomy with dignity — this lies at the core of his right to privacy.
  • Unavailability of such a guarantee within custodial facilities entitles the prisoner with disabilities to bail.

Right to privacy:

  • The right to privacy judgment asserts privacy “as an integral part of the right to human dignity is comprehended within the protection of life as well.
  • It is necessary for every court to develop a sensibility towards and understanding of what constitutes human dignity and protection of life for persons located differently in social order.

What are the various features of Right to Privacy?

  • Privacy is a constitutionally protected right emerging primarily from the guarantee of life and liberty in Article 21 of the Constitution.
  • It includes the preservation of personal intimacies, sanctity of family life, marriage, procreation, the home and sexual orientation.
  • Privacy connotes a right to be left alone. It safeguards individual autonomy and recognizes one’s ability to control vital aspects of his/her life.
  • Privacy is not an absolute right, but any invasion must be based on legality, need and proportionality.
  • Informational privacy is a facet of this right. Dangers to this can originate from both state and non-state actors.

Right to privacy is an absolute right or not?

  • The court ruled that Privacy is not an absolute right.
  • The government can introduced a law which “intrudes” into privacy for public and legitimate state reasons.
  • But an individual can challenge this law in any of the constitutional courts of the land for violation of his/her fundamental right to privacy.
  • There are many grounds on which government can impose restrictions.

What are the various grounds on which restrictions can be imposed?

  • The right to privacy can be restricted by procedure established by law and this procedure would have to be just, fair and reasonable.
  • Reasonable restrictions can be imposed on the right to privacy on the following grounds:
  • Interest of the sovereignty and integrity of India.
  • The security of the State.
  • Friendly relations with foreign State.
  • Public order, decency or morality.
  • In relation to contempt of court, defamation or incitement to an offence; (Article 19(2) of the Constitution of India, 1950).
  • The right to privacy can be restricted if there is an important countervailing interest which is superior to it.
  • The right to privacy can be restricted if there is a compelling state interest to be served.
  • The protection available under the right to privacy may not be available to a person who voluntarily introduces him- or herself into controversy.

What are the constitutional provisions dealing with privacy?

Article 21

  • The Constitution of India does not specifically guarantee a “right to privacy”
  • However, Article 21 of the Constitution of India states that “No person shall be deprived of his life or personal liberty except according to procedure established by law”.
  • Article 21 interprets that the term ‘life’ includes all those aspects of life which go to make a man’s life meaningful, complete and worth living.           
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Delhi LG thinks he is the viceroy 

Delhi LG thinks he is the viceroy 


  • AAP government in Delhi submitted their take in the court that the Lieutenant Governor (LG) of Delhi is not a “Viceroy” but simply an agent of the President whose powers depend on the pleasure of the President.
  • The court observed that the LG cannot intervene in the day-to-day functioning of the democratically elected government.
  • Senior advocate P. Chidambaram pointed out that the decision to have an elected government in the National Capital was made because the people had found it necessary.
  • The 69th Constitutional Amendment, introducing an elected government to the National Capital, was passed by a special majority of the people’s representatives because they felt that there was something deficient in the Constitution.

Role of LG

  • The LG should conduct his constitutional duties as intended by Parliament in the 69th Constitutional Amendment.
  • The LG should not act in a way to defeat the objective of the Constitutional provision of Article 239AA of harmonious governance and, most importantly, citizenry’s trust. The LG cannot replace the administration.
  • LG can intervene and disagree if policies of the Delhi government amount to manifest transgression.

What was the controversy?

  • As per the observation, LG is bound to pass the difference of opinions between the LG and the Delhi Council of Ministers to the President for early resolution.
  • The Kejriwal government wants the Supreme Court to lay down the law on whether the LG can unilaterally administer the National Capital without being bound by the “aid and advice” of the elected government.
  • The Delhi High Court had originally said that LG has special powers greater than the President, greater than other Governors of States.

What are constitutional provisions?

  • The 69th Amendment of the Constitution in 1992 gave the National Capital of Delhi special status with its own democratically elected government and legislative assembly.
  • Sub-section (4) of Article 239AA mandates that a Council of Ministers shall aid and advice the LG in his functions regarding laws made by the Legislative Assembly.

What is the current controversy?

  • The focus of the current controversy is a proviso to Article 239AA (4), which mandates that in case of a difference of opinion between the LG and the Council of Ministers, the former has to refer the issue to the President.
  • As the decision is pending before the President, the LG, if the matter is urgent, can use his discretion to take immediate action.
  • The Constitution Bench, led by Chief Justice Dipak Misra, prima facie said that the Delhi government’s ability to “aid and advice” the LG is limited to subjects other than public order, police and land in the National Capital.
  • It said that the proviso to Article 239AA (4), on plain reading, seems to give primacy to the LG.
  • The LG is entitled to take a different view and is not bound by the aid and advice of the Delhi Cabinet.
  • The allegation is that the LG has misused the discretion in this proviso to block governance.

Is LG a supreme law?

There are total six grounds that determine LG as a suprema lex (supreme law).

  • Firstly, that Delhi is still a Union Territory.
  • Secondly, Parliament makes the law for Delhi under Article 246 (4) of the Constitution.
  • Thirdly, Article 239AA has brought in no change to Delhi’s status as a Union Territory simpliciter.
  • Fourthly, the proviso gives him the power of defiance.
  • Fifthly, LG has to concur to every decision made by the Delhi government.
  • Sixthly, LG can take independent decisions.

What are the allegations?

  • In his day-long submissions before the Bench, Mr. Subramanium said situation of governance in Delhi has come to such a turn that department Ministers are unable to get an opinion from their secretaries and civil servants on issues of governance.
  • Mr. Subramanium argued that the “extraordinary discretion” of the LG is confined to special circumstances and not in everything.
  • Mr. Subramanium said the Delhi High Court was in error when it bought the Centre’s argument that Delhi was like any other Union Territory governed by parliamentary laws under Article 246 (4) and there was no need to give the Delhi government any elbow room.
  • Mr. Subramanium evoked Article 73 of the Constitution to note that Article 246 (4) was subject to the provisions of Article 239AA.

Functions of Lieutenant Governor

  • Like Governor, Lt. Governor acts as the titular head of the UT whereas the real power is exercised by the chief minister (CM) and his council of ministers.
  • In the Articles 239 and 239AA of the Constitution of India, the functions, powers and duties of the Lt. Governor are defined clearly. He is a representative of the President and acts on the aid and recommendation of the council of ministers.
  • The provisions of Article 239B apply in relation to the National Capital Territory of Delhi, as they apply in relation to the UTs of Andaman and Nicobar Islands and Puducherry.

Role of Lt. Governor in Delhi

  • The Sec. 41 of the GNCT (Government of National Capital Territory) of Delhi Act, 1991 clarifies that the Lieutenant Governor shall act in his discretion during a matter that falls outside the range of the powers conferred on the Legislative Assembly.
  • If the Lt. Governor is under any law required to act in his discretion, his decision on that case will be final. In respect of matters regarding Police, Public Order and Land, the Lt. Governor exercises his authority to the extent delegated to him by the President. He exercises his authority with the help of Policei Commissioner of Delhi and Vice Chairperson, Delhi Development Authority (DDA) who have their independent administrative setups.
  • Lt. Governor is Ex-officio Chairman of DDA, however he exercises his executive functions through Appellate Authority under various Acts/Rules/Regulations as applicable in Delhi.
  • In  the  case of difference  of  opinion  between  the Lieutenant  Governor  and his Ministers on any matter, the Lt. Governor  can refer  it  to  the President  for decision  and  act according  to decision  given on that by the President.
  • The post of Lt. Governor was first established in September 1966 after the Delhi Administration Act, 1966 came into effect. At the commencement of the primary session after each election to the Assembly and at the commencement of the first session of every year, the Lt. Governor addresses the House.

Discretionary Powers of Lt. Governor

  • The Lt. Governor uses his discretionary powers in certain situations. In the legislative assembly elections if no party secures a majority, the Lt. Governor has the authority to act on his own and ask the leader of the single largest party or the chosen leader of two or more parties to form the government.
  • In such case, Lt. Governor appoints that leader as the Chief Minister. If due to improper administration, the state machinery breaks down, the Lt. Governor can send a report to the President, recommending imposition of President’s Rule in the state.
  • Under President’s Rule, the Lt. Governor becomes full-fledged executive head of the government and has the power to appoint a group of advisors who act as council of ministers. The duration of President’s rule is also subject to discretion of the Lt. Governor.
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Capital crisis-On Air pollution 

Capital crisis-On Air pollution 


  • Most regions of north India in the grip of suffocating smog, and the State governments that can make it easier for millions to breathe are not act with any sense of urgency.

The looming health hazard

  • The air quality index touching extremely hazardous levels has turned into a public health emergency in the capital necessitating the closure of primary schools.
  • It is unethical for governments, through their indifference and inaction, to subject citizens to such toxic air, and cause extreme suffering especially among people with respiratory ailments and impaired lung function.
  • The smog that envelops the region is worsening by the burning of biomass in Punjab and Haryana, and the winter atmosphere is marked by weak aeration.
  • An analysis of local sources by IIT-Kanpur last year pointed to construction dust, vehicular pollution, and domestic and industrial emissions as other major factors.
  • These hazardous emissions have outweighed the benefits conferred by measures such as the ban on Deepavali crackers, and in the past, the shift to compressed natural gas for commercial vehicles and restricting car use to odd and even number plates on alternate days.
  • A comprehensive solution demands that the governments of Delhi, Punjab, Haryana and Uttar Pradesh, assisted by the Centre, address farm residue burning and construction dust.
  • The post-monsoon burning of rice and wheat residue releases maximum aerosols that contribute to the volume of PM2.5, which gets embedded in the lungs.
  • Automation of farm operations leaves root-bound crop waste after machine harvesting, running to millions of tonnes, requiring a solution of scale.
  • Sustainable residue removal is not solely achievable by the farmers alone, it requires help from the state machinery.

Emergency measures taken

  • The Environment Pollution and Prevention Control Authority (EPCA), which enforced Graded Response Action Plan (GRAP) two days before Diwali, has asked the Delhi government to put more emergency measures in place.
  • The SC-mandated body has suggested that parking fees be quadrupled.
  • A request to Delhi Metro to lower fares during non-peak hours for at least 10 days and introduce more coaches. More metros will be plying to help combat current situation.
  • The EPCA, though, wanted to enforce the odd-even policy if the city’s pollution levels aggravate. The SC-mandated body’s other proposals will require at least 16 authorities to work together. The EPCA and the Delhi government have not devised a coordination mechanism between these bodies. It remains to be seen if the city’s latest pollution crisis spurs them into action.

What possibly makes the air of the capital so polluted?

  • At least four major government studies over the past decade have reached varying conclusions on what makes Delhi’s air so foul.
  • 2007 report concluded that control on emissions of pollutants from vehicular traffic necessitates the control on the new registration of commercial diesel vehicles in Delhi.
  • 2008 report identified road dust as the biggest contributor (52.5%) to particulate matter in Delhi’s air, followed by industries (22.1%). It attributed only 6.6% of particulate emissions to vehicles.
  • 2011 report conclusion that road dust from paved and unpaved roads contributed the largest share to air pollution (55%), followed by residential sources (15%), transport and vehicular pollution (13%), industrial sources (12%), and power (5%).
  • 2016 report says that while underlining the role of road dust, also stressed on vehicular emissions moving vehicles, in fact, contributed to over half of Delhi’s air pollution.

How is air pollution measured in India?

  • Air pollution is measured by many parameters, like CO and PM2.5
  • India has come up with an Air Quality Index (AQI) to give an aggregate sense of the quality of air.
  • The formulation of the index was a continuation of the initiatives under Swachh Bharat Mission envisioned by the present Prime Minister of India.
  • There are six AQI categories, namely Good, Satisfactory, Moderately polluted, Poor, Very Poor, and Severe.
  • The proposed AQI will consider eight pollutants (PM10, PM2.5, NO2, SO2, CO, O3, NH3, and Pb) for which short-term (up to 24-hourly averaging period) National Ambient Air Quality Standards are prescribed.

What are the prime sources of air pollution in India?

Agricultural waste burning

  • The burning of agricultural waste in three neighbouring states is responsible for the rise in Air Pollution levels in Delhi.
  • Haryana, Punjab and Uttar Pradesh are claiming to have taken several measures to discourage straw and stubble burning, but farmers say they have not received any assistance from their respective governments on an alternate method to clear the fields after the harvest

Industrial chimney wastes:

  • There are a number of industries which are source of pollution.
  • The chief gases are SO2 and NO2.
  • There are many food and fertilizers industries which emit acid vapors in air.

Thermal power stations:

  • There are number of power stations and super thermal power stations in the country.
  • The National Thermal Power Corporation (NTPC) is setting up four mammoth coal- powered power stations to augment the energy generation.
  • The chief pollutants are fly ash, SO2 and other gases and hydrocarbons.


  • The Toxic vehicular exhausts are a source of considerable air pollution
  • In all the major cities of the country about 800 to 1000 tonnes of pollutants are being emitted into the air daily, of which 50% come from automobile exhausts.
  • The exhaust produces many air pollutants including un-burnt hydrocarbons, CO, NOx and lead oxides.

What are the laws relating to air pollution in India?

  • The Government of India under Article 253 of the Constitution of India enacted the Air Act, 1981 (“Air Act”) for the prevention, control and abatement of air pollution and further to implement the provisions of the Air Act
  • The Air Act consists of fifty four (54) Sections divided into seven (7) chapters.
  • Air pollution, according to the Air Act means the presence of any “air pollutant” in the atmosphere.
  • The Air Act confers the regulatory power to the Central Pollution Control Board (“CPCB”) and the State Pollution Control Board (“SPCB”) to prevent and control the air pollution.

Power of State Governments

Section 19 (1) of the Air Act

  • The State Governments has the power to declare any area as air pollution control area after consultation with the SPCB

Section 20 of the Air Act

  • The State Government also has the power to instruct the authority in charge of the Motor Vehicles Act, 1939 to adhere to the standards for emission of air pollutants from automobiles which are stipulated by the SBCB
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Telengana leads state wise ease of doing bussiness 

Telengana leads state wise ease of doing bussiness 


  • Telangana is currently atop the yearly state-wise ranking on assessment of implementation of the ‘Business Reforms Action Plan’ (BRAP) in 2017.
  • The final ranking is likely to be released in January, 2018.

What is Business Reforms Action Plan?

  • The complexity of regulatory processes and the difficulty in compliance has been cited as an impediment to the economic development.
  • Government of India (GoI) has taken up a series of measures to simplify and rationalize the regulatory processes and introduction of information technology as enabler to make governance more efficient and effective.
  • A 98-Point Action Plan for improving the regulatory framework for business as part of easing the doing business in the country was shared and finalized at National Workshop of ‘Make in India’ held on 29thDecember 2014.
  • “Assessment of State Implementation of Business Reforms” was released in September 2015 capturing the findings after taking the stock of reforms implemented by States between the period 1st January 2015 to 30th June 2015.

Which are the top ranking states?

  • Telangana was the joint topper with Andhra Pradesh, in the ranking last year. However, Andhra Pradesh (score of 18.01%) is currently ranked 14th.
  • Gujarat, ranked third last year, is now number eight with a score of 41.94%
  • Telangana (with an implementation score of 61.83%) is followed by Haryana (54.03%), Odisha (45.70%), Chhattisgarh (45.43%), and West Bengal (44.35%) completing the top five.

Can the rankings change with time?

  • The ranking is dynamic and till they are frozen, these positions could change due to intense competition between States.
  • This year’s assessment includes 372 reforms, up from 340 last year.

What are the areas of assessment?

  • The broad areas of assessment this year include
  • Paper-less courts
  • Online single window system
  • Online tax payment
  • Contract enforcement
  • Availability and allotment,
  • Obtaining electricity and water connection
  • Enablers for transparency, tax, labour regulation
  • Construction permits
  • Environmental registration commercial dispute resolution
  • Online systems for property registration

How has India fared so far in the World Bank Group’s Doing Business report?

  • This year’s report from the World Bank has been titled Reforming to Create Jobs.
  • The report ranks India at 100 among 190 countries. Last year, India was ranked 130.
  • India’s upward jump in ranking is based on the underlying improvement in the distance to frontier (DTF) score– an absolute measure of progress towards the best practice-in the report.

What is Ease of Doing Business Index?

  • The Ease of doing business index is an index released by the World Bank Group in its Doing business report.
  • Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • New Zealand has topped the Ease of Doing Business rankings in 2017.
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Informal is normal 

Informal is normal 


  • After a year of demonetisation in India it is time that the informal sector is given the much need attention.
  • It is to be understood that both the formal and informal sector move in parallel lines for the betterment of the country’s economy.

What is  the meaning of demonetization?

  • Demonetization is the act of stripping a currency unit of its status as legal tender.

It occurs whenever there is a change of national currency.

  • Demonetization is necessary whenever there is a change of national currency.
  • The old unit of currency must be retired and replaced with a new currency unit.
  • The move is also taken to curb the menace of black money, fake notes and corruption by reducing the amount of cash available in the system.

In the context of India:

  • On November 8, 2016 Prime Minister announced that Rs 500 and Rs 1000 denomination notes will become invalid.
  • The government introduced new notes of Rs 2,000 and Rs 500 .

What are the impacts of demonetisation on the informal sector of India?

  • Decline in growth of economy: The recent estimates show that the Indian economy grew at only 6.1% in the fourth quarter of 2016-17 compared to the expected 7.1%.
  • Gross value added growth at basic prices also declined from 6.7% in the third quarter to 5.6% in the fourth quarter and is much lower than 8.7% in the fourth quarter of 2015-16.
  • Labour: Demonetisation has hurt the informal economy and triggered a rush for distress labour under job guarantee scheme (MGNREGA).
  • Restriction on cattle market: The cattle market restrictions are especially damaging to farmers, as it will lower the price of their livestock and make its sale difficult.
  • The ban will also adversely affect the livelihood of millions of people working in beef and leather industry.
  • Misconception: The government see the informal and the formal sector as two clearly distinct groups.
  • As a result, many of their arguments are based on a hidden assumption that the informal sector is not involved in the market exchanges with the formal sector.
  • When the decline in sales and prices spreads from the informal sector to the formal one, the financial situation of the country is effected as a whole.

What are the measures to be taken?  

  • There is a need to strengthen government schools and health facilities.
  • This could disproportionately benefit poor and low-income children and families who likely operate in the informal economy.
  • There should be focus on improving productivity of informal enterprises by creating awareness of good business practices and prevailing market conditions.
  • Reducing the threat of coercive government regulation and action can also help informal workers earn a living without constant harassment of police and inspectors.
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Banking on Legislation –Financial Resolution 

Banking on Legislation –Financial Resolution 


The recapitalization of public sector banks (PSBs) through bailouts be they as budgetary allocation or some sort of bond issue, has evoked much discussion.


  • The Insolvency and Bankruptcy Code is cited as adequate punishment for defaulting borrower companies.
  • Under the code, the resolution process has brought little succor to banks as the recovery rate from defaulting companies has so far been merely 15-20% of the original amount lent.
  • There is no attempt so far by the Reserve Bank of India (RBI) to issue guidance to PSBs to blacklist these entities from getting further loans or prevent their management from retaining a majority equity state during the resolution process as penalty for the huge haircuts being taken by banks.
  • The Banks have been continually reporting losses in each successive quarter.
  • Six PSBs have already been placed under prompt corrective action by the RBI.

Financial Stability Board (FSB) Peer Review Report 2016:

  • 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%.
  • The deposits in these banks are very much at risk.

Financial Resolution and Deposit Insurance (FRDI) Bill, 2017:

  • This covers bankruptcy of businesses such as banks and insurance.
  • Financial resolution includes solutions for banks facing ‘material’ or ‘imminent’ risk to viability depending on their capital and asset worth.
  • The Bill also introduces the provision for a “bail-in”, whose purpose is to provide capital to absorb the losses of a bank and ensure its survival.
  • Survival does not mean safety of depositors’ money, but restoration of capital of the bank.
  • The bail-in empowers the proposed Resolution Corporation to cancel a liability owed by the bank or change the form of an existing liability to another security.
  • The only money owed to depositors that cannot be bailed-in is the amount covered by deposit insurance.
  • The Deposit Insurance and Credit Guarantee Corporation Act, 1961 which insured deposits worth one lakh for each depositor has been replaced by the cabinet.
  • The FRBI Bill empowers the Resolution Corporation to decide the amount insured for each depositor. It is possible that the insured amounts will not only vary for customers in different banks, but may also be different for different customers of the same bank.

“Bail-in” clause

  • The ‘bail-in’ clause changes the nature of relationship between the customer and the bank.
  • It would mean that money is no longer safe in a bank.
  • An account would lose its sovereign guarantee and instead become an investment.
  • The customer would need to monitor the level of toxicity of his bank with respect to its losses and accordingly keep switching bank accounts.
  • The customer is not privy to the leading decisions in a bank unlike any vendor or investor dealing with a company. Hence the rules for bankruptcy of a regular business cannot be applied to bank failures.
  • The government must take a stand and defy the FSB’s diktat on the ‘bail-in ‘clause.

What is Bank recapitalization?

  • Bank recapitalization means recapitalising banks with new capital to improve their balance sheet.
  • The government, using different instruments to add capital into banks which undergoing credit deficiency.
  • Since the government is the biggest shareholder in public sector banks, the responsibility of infusing capital majorly lies with the government.

How Bank recapitalization takes place?

  • The recapitalisation plan comes into action when banks get caught in a situation where their liabilities are comparatively higher than their assets.
  • The liquidity with banks is a liability as it is the money deposited by customers, which needs to be paid sooner or later.
  • Due to this their balance-sheet weakens and banks find it difficult to raise capital from the open market.
  • Thus, the government, which is also the biggest shareholder, can infuse capital in banks by either buying new shares or by issuing bonds.

Why has Recapitalisation of the Banks Occurred?

  • Recapitalisation of the Banks occurs when:
  • People defaulted on loans and mortgages;
  • banks lent money (bought CDOs) to sub-prime mortgage companies in America who lost money;
  • falling house prices means that banks assets decline further and if they repossess homes it’s harder to get value of the original loan back, and
  • Recession led to more defaults and losses.
  • Presently, the government is finalizing the structure of bonds and decision in this regard could be made very soon
  • The latest figures shown in the ministry presentation put the increase in non-performing assets (NPAs) from financial year (FY) 2015 till June 2017 at Rs4.55 trillion
  • The governments have recapitalized banks through various means. These can be mainly divided into direct capital infusion, issuance of public debt into banks either as a swap for bad assets or unrequited, and by assuming the bank’s liabilities.

Rationale behind recapitalization of banks by the government:

  • By infusing capital, the government is trying to partially improve the balance sheets of public sector banks.
  • This will also help banks write off some of the Rs 10 lakh crore bad loans currently on their books.
  • For tackling the problem of stressed assets.
  • The amount is expected to help put India’s banks on the path to recovery.

How recapitalization will help banks to tackle the NPA problem?

  • The Public Sector Banks will get additional capital from the government from the issue of the bonds. The amount of capital to be obtained by each PSB will be determined later and it depends upon the depth of their NPA problem.
  • Banks once obtained the funds, can write-off the bad assets by using the fund from recapitalization.
  • As per the Basel III norms, there should be a minimum higher quality capital like equity capital.

What are Non Performing Assets (NPAs)?

  • A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
  • Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
  • Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
  • Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  • Loss assets: As per RBI, Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
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