Q.1) Recent incidence of Punjab National Bank fraud again raises the need for banking sector reforms. In this context discuss the various challenges banking sector is facing today? Highlight some of the steps government has taken recently in order to bring reform in banking industry?(GS-3)
Recently, PNB found that the SWIFT system had been misused by junior-level branch officials, who had fraudulently issued letters of undertaking (LoUs) on behalf of some companies for availing buyer’s credit from overseas branches of Indian banks.The alleged fraud was carried out through misuse of Letters of Undertaking or LoUs issued by Punjab National Bank
- Bad loan:These bad loans are squeezing banks’ profitability and capital positions, threatening the health of some of India’s biggest banks.
- Cyber threats:The RBI classifies bank fraud as transactions involving any cheating, negligence, misappropriation of funds, or forged documents
- Bank fraud:Another pressing concern for the banking regulator is the increased number of fraudulent transactions at Indian banks.
- The new Bankruptcy Code: The biggest change came from the new bankruptcy code that provide for a faster resolution of stressed assets in a time bound manner.
- Use of bots and artificial intelligence :The adoption of AI is going to transform many of the segments of banks especially ‘sales platform’ and ‘customer service
Huge non-performing assets:
- Recapitalize public sector banks to strengthen their ability to expand credit
- Low Credit Offtake : The credit offtake is still low at around 70 per cent. The public sector banks (PSBs ) are anyway staying away from lending , while private sector banks are selectively offering refinancing to good corporate.
Recent steps taken by the government:
- As part of its resolve to bring down burgeoning NPAs, the government issued two ordinances — Banking Regulation (Amendment) Ordinance, 2017 and Insolvency and Bankruptcy Code Code (Amendment) Ordinance, 2017 – during the year
- The Banking Regulation (Amendment) Ordinance, 2017 gave way to the Act permitting the Reserve Bank of India (RBI) to direct any bank to initiate insolvency proceedings and give directions for resolution of stressed assets
- Accelerate recoveries from non-performing assets:The Strategic Debt Restructuring Scheme allows banks to convert the debt into equity, take control of the project, remove the existing management, and induct new management.
- Recapitalize public sector banks to strengthen their ability to expand credit:The Reserve Bank of India has placed, a significant part of the recapitalization plan, under the prompt corrective action, or PCA, framework
Q.2)Discuss the importance of Fiscal Responsibility and Budget Management (FRBM) Act. What are the proposed changes to FRBM Act in the Budget 2018-19?(GS 3)
The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits. The targets were breached time and again. Finance Minister deferred the fiscal deficit target of 3.2% due to several factors such as low GST collections, spike in oil prices and pressure to spend more.
FRBM Act and is significance:
- The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) was passed with an aim to institutionalize financial discipline, reduce India’s fiscal deficit and improve macroeconomic management by moving towards a balanced budget.
- The main purpose was to eliminate revenue deficit of the country and bring down the fiscal deficit to a manageable 3% of the GDP by March 2008. Fiscal deficit occurs when the government’s expenditure outgrows its revenues.
- The financial health of the government was eroded by excessive government borrowing and its resultant debts. High revenue deficit due to higher expenditure on subsidies, salaries, defence etc. compelled the government to make big borrowing.
- The borrowing again produced high interest payments. Interest payments became the largest expenditure item of the government.
- The Government introduced FRBM Act, 2003 to check the deteriorating fiscal situation.
Proposed changes to FRBM Act in the Budget 2018-19:
- Budget 2018-19 has proposed amending the FRBM Act again, which will shift the target of 3% fiscal deficit-GDP ratio to end-March 2021. No target has been set for revenue deficit and combined and central debt-GDP ratios are to be reduced to 60% and 40% of GDP by 2024-25.
- The current Budget has retained the fiscal deficit at 3.5% of GDP, missing the budgeted target of 3.2% which was itself a deviation from the stipulated target of 3% for 2017-18 in the amended FRBM Act.
- In the absence of improvement in the fiscal deficit level in 2017-18, the debt-GDP ratio has increased to 49.1% in 2017-18 from 48.7% in 2016-17 rather than falling.
- The NK Singh committee had recommended a target at which the fiscal deficit to GDP ratio was to be stabilised set at 2.5%. The government apparently did not accept this framework and continued with the 3% target. However, government has to abide by this 3% mandate beyond 2020-21 to bring down debt to GDP ratio to 40% by 20124-25.
- The committee had specified a revenue deficit glide path, reaching 0.8% by 2022-23. This too was not accepted. Unless government dis-savings are eliminated, it will be difficult to reverse the trend of a falling savings rate.
- The Central government did not accept the recommendation of setting up a fiscal council.
Q.3) Write a short note on any two of the following :
a) Rashtriya Swasthya Bima Yojana (GS-3)
b) International Solar Alliance (ISA)(GS-3)
c) Chandrayaan-II(GS 3)
a) Rashtriya Swasthya Bima Yojana (RSBY), is a government-run health insurance programme for the Indian poor.The scheme aims to provide health insurance coverage to the unrecognised sector workers belonging to the BPL category and their family members shall be beneficiaries under this scheme.
It provides for cashless insurance for hospitalisation in public as well as private hospitals. The scheme started enrolling on April 1, 2008 and has been implemented in 25 states of India.A total of 36 million families have been enrolled as of February 2014. Initially, RSBY was a project under the Ministry of Labour and Employment. Now it has been transferred to Ministry of Health and Family Welfare from April 1, 2015.
Every “below poverty line” (BPL) family holding a yellow ration card pays ₹30 (47¢ US) registration fee to get a biometric-enabled smart card containing their fingerprints and photographs.
b) International Solar Alliance (ISA)
- The ISA was launched on November 30, 2015 in Paris, on the sidelines of COP-21, the UN climate conference
- The ISA aims to mobilise more than $1,000 billion in investments by 2030 for “massive deployment” of solar energy.
- It further aims to pave the way for future technologies adapted to the needs of moving to a fossil-free future and keep global temperatures from rising above 2°C by the end of the century.
- It is the first treaty-based international intergovernmental organisation to be based out of India.
- It has 121 member countries
- India has committed itself to having 175,000 MW of renewed energy in the grid by 2022.
- As part of the agreement, India will contribute $27 million to the ISA for creating corpus, building infrastructure and recurring expenditure over five years from 2016-17 to 2020-21.
c) Chandrayaan II:
- India’s second moon mission, Chandrayaan-II, which would land a rover on the lunar surface is expected to be launched in April this year.
- Chandrayaan-I discovered water on the moon and this will mission will be an extension of that.
- Chandrayaan-II would cost about Rs. 800 crore.
- It has three components: an orbiter, a lander and a moon rover.
- The orbiter had a life of one year while the lander and the rover were designed to last a lunar day, which was 14 days, as they worked on solar power.
- A location had been identified at the Moon’s South Pole to drop the lander and rover.