22 September 2022

DAILY CURRENT AFFAIRS ANALYSIS

1 – Digital Lending: GS III Topic – Economy-related issues

Context:

• Shaktikanta Das, governor of the Reserve Bank of India (RBI), raised concerns about digital lending on Tuesday, citing a number of complaints about usurious interest rates, unethical collection practises, and data privacy issues. He emphasised the need for the FinTech sector to concentrate on governance, business conduct, regulatory compliance, and risk mitigation to ensure that customers were protected while their needs were met.

About:

Digital technology have recently altered the loan industry. The desire for a better client experience, quicker turnaround times, and the use of contemporary technology like artificial intelligence (AI) and machine learning have all contributed to the transformation of the lending landscape (ML). However, there are a number of issues with the digital lending environment. The Reserve Bank of India (RBI) has released guidelines intended to strengthen the regulatory framework for such activities in an effort to allay these worries. The most recent laws were developed as a result of suggestions made by the Working Group on “Digital Lending, including Lending through Online Platforms and Mobile Apps” (WGDL), which was established in January 2021.

What is the landscape of digital lending?

• Digital lending is the term for lending made possible by technology on websites or mobile apps. For customer acquisition, credit assessment, decision making, authentication, disbursements, and recovery, automated technologies and algorithms are used. It not only reduces costs but also ensures prompt payment.
• The platform of the former is multi-sided since Lending Service Providers (LSPs) collaborate with Non-Banking Financial Companies (NBFCs) to distribute loans (or a line of credit) to the client.

How far along is India’s digital lending industry?

• One of the fintech sectors with the quickest growth in India is digital lending. From a volume of US$ 9 billion in 2012 to around US$ 110 billion in 2019, it has increased dramatically. Furthermore, it is anticipated that by 2023, the digital lending market will have grown to a size of about US$350 billion.
• Neo-banks, non-banking finance companies, and fintech startups are the primary players in this market (NBFCs).
• Small borrowers without a history of credit history who aren’t catered to by conventional financial institutions are among its clients in particular. Their primary focus is on short-term loans, particularly those with tenures of less than 30 days.
• Commercial banks are also quickly entering the field of financial intermediaries, either working with NBFCs independently or collaborating with them to share synergies through digital lending.

Why has digital lending become so popular so quickly?

• First, the rise of FinTech start-ups has been fueled by the quick development of blockchain, cloud computing, artificial intelligence, and other technologies, as well as faster and more inexpensive internet connectivity. Lending has also changed and gone “digital.”
• Second, lenders now have access to the synergy of the substantial client base that banks have built over the past ten years, particularly with the August 2015 introduction of the Pradhan Mantri Jan Dhan Yojana (PMJDY) plan.
• Third, the industry offers a big opportunity that is drawing significant investment. Over the last seven years, there has been a 19.6% compound annual growth rate for digital lending platforms.
• Fourth, according to KPMG, financial inclusion and digital lending have been greatly aided by the swift digitization of the economy and services.

Which advantages of digital lending stand out the most?

• Easy loan disbursement: By reducing geographic obstacles, digital lending platforms have made it possible for borrowers to submit loan applications right away. They feature simple data entry, a customised user interface, and efficient loan application processes
• Less Errors: Since it is simpler to obtain an applicant’s information while using digital lending, there are fewer risks of human error. The authenticity of documents can be digitally scanned, speeding up and ensuring accuracy
• Enhances efficiency: A digital lending platform can boost efficiency while halving overhead costs. Digital lending enhances lender-borrower connections, increases revenue and growth, and saves time.
• Better customer experience: Digital lending saves applicants from having to wait a long time for a loan decision and has a short response time. Banks also spend less time and less money managing loans as a result of this. With speedy loan approval and money, banks can process more loans and products and provide borrowers with a better experience.

What worries exist regarding digital lending?

• First, LSPs frequently engage in risky lending activities by providing loans to borrowers who are unable to repay it in order to establish their position in a market with many other peers. By distributing the risk over all customers and charging higher interest rates, the risk is reduced.
• Second, determining a participant’s operational legitimacy was challenging in the absence of regulatory standards for disclosure and transparency. For Indian Android users, there were over 1,100 loan apps available between January and February 2021, of which about 600 were unlawful. They either had NBFC partners with assets under INR 1,000 crore or were not subject to RBI regulation.
• Other issues with digital lending include mis-selling, privacy violations, unfair business practises, the charging of high interest rates, and unethical recovery methods.

What are the RBI’s new rules, and how do they solve the issues?

• The digital lenders have been divided into three groups by the RBI: (a) entities that are under its regulation and are allowed to conduct lending business; (b) entities that are authorised to conduct lending under other statutory or regulatory provisions but are not under the RBI’s regulation; and (c) entities that are lending outside the ambit of any such statutory or regulatory provision.
• These rules apply to the first group of entities, which the RBI regulates. The RBI has urged the appropriate regulator, controlling authority, or the Union Government to develop recommendations for additional organisations falling under the second and third categories.
• Transparency is the new regulations’ main tenet.
• Only regulated entities may make loans; these organisations must either be under the RBI’s regulation or have legal authorization to do so. This would also aid in addressing regulatory arbitrage given the industry’s extensive outsourcing.
• To avoid using the LSP’s nodal pass-through account, the RBI has ordered that all loan disbursements and repayments be carried out directly between the bank accounts of the borrower and the business.
• Transparency regarding Borrowing Costs: Lenders would be required to provide borrowers with standardised information about all fees, levies, and the total cost of digital loans expressed as an annual percentage rate (APR). The cost of borrowing money, including fees, is stated as a percentage and is known as the annual percentage rate (APR).
• For all digital lending products, they must give the borrower a key fact statement (KFS) in standardised format prior to the execution of the contract. Additionally, this would make it easier for borrowers to compare their offers to those of competitors in the market.
• Automatic Increase of Credit Limit: According to the RBI, automatic increases in credit limits are not permitted unless the borrower explicitly consents in writing and on file. Along with information on the tasks they have been assigned, these regulated entities must also provide a list of the LSPs and DLAs (Digital Lending Apps) they have employed on their website.
• Prior to forming a partnership with an LSP for digital lending, they must additionally carry out an increased due diligence procedure. They should consider, among other things, its technical capabilities, data privacy rules, and storage methods.
• Grievance Redressal: Entities would need to establish a grievance redressal officer to fulfil the requirement for a specialised resolution structure. Integrated Ombudsman Scheme (RB-IOS) of the RBI, should the complaint not be handled within 30 days of receipt, will also be responsible for the ecosystem.
• Data Gathering and Sharing: All data gathered by the apps must be “need-based” and must have the borrower’s prior, unambiguous approval. Users have the option to revoke previously given permission. During enrollment, the privacy policy must specify the data that will be gathered. According to the RBI, user consent is required before sharing any personal data with a third party.
• According to the recommendations, regulated businesses must make sure that all lending conducted through DLAs—regardless of its type or duration—is reported to credit information companies (CICs). The Buy Now Pay Later (BNPL) style of lending must also be notified to CICs.

What’s coming up?

• First, the RBI has stated that additional government input is required for some of the working group’s suggestions, such as drafting laws to forbid unregulated lending practises. The Government needs to address this right away.
• Second, India continues to have the second-highest proportion of persons without a bank account. The fact that over 190 million adult Indians don’t have any sort of bank account presents a big opportunity. In order to increase financial inclusion, Jan Dhan Yojana banking correspondents need to get incentives.

Conclusion:

• Although the percentage of digital lending may be tiny right now, given their scalability, they could soon overtake traditional lenders in importance. It remains to be seen how the new restrictions will affect the operational models used by the digital lenders. The regulations have done a good job of protecting the interests of consumers (borrowers) without placing an unnecessary burden on lending organisations or platform operators. The government’s goal of financial inclusion has a lot of potential to be advanced through the digital lending ecosystem. Therefore, the ecosystem needs to be properly supported and fostered.

Source The Hindu

2 – Lumpy Skin Disease: GS II – Health related issues

Context:

• To stop the disease that causes lumpy skin from spreading throughout the city, the Mumbai Police have banned the transportation of cattle. This implies that cattle cannot be transferred from the location where they are being reared or brought to markets. The directive became effective on September 14 and will remain in effect until October 13. In Maharashtra, where the disease has now spread to 25 districts, 127 animals have died. More than ten States and Union Territories currently have cattle that are affected by the infectious viral virus. The spread of the disease, which has become a problem for the dairy industry, is being managed by the Center and States, according to Prime Minister Narendra Modi’s announcement from last week.

Lumpy Skin Disease: What Is It?

Causes:

• Lumpy Skin Disease Virus infects water buffalo or cattle, which results in LSD (LSDV).
• The mortality rate is under 10%, according to the Food and Agriculture Organization (FAO).
• In 1929, Zambia reported an epidemic of lumpy skin condition. At first, it was believed to be the result of poisoning or an allergy to bug bites.

Transmission:

• Mosquitoes and biting flies are the main biting insects (vectors) that transmit lumpy skin disease between animals.
• The main symptoms include fever, fluid discharge from the eyes and nose, saliva dripping from the lips, and body blisters.
• Due to difficulty chewing or eating, the animal stops eating, which lowers milk production.

Treatment and Prevention:

• The Indian Livestock Health and Disease Control Programme provides coverage for vaccination against certain diseases.
• No particular antiviral medications are available to treat lumpy skin condition. Supportive care for cattle is the sole available treatment. This can involve utilising wound care sprays to treat skin lesions and medications to stop subsequent skin infections and pneumonia.
• Animals suffering from pain can be given anti-inflammatory medications to maintain their appetite.

Source The Hindu

3 – La Nina: GS I – Geography

Context:

• One of the longest La Nia episodes in recorded history, the current La Nia phase of the equatorial Pacific Ocean is expected to last for at least another six months. The fact that it continues into a third year since 1950 is also unprecedented. In the upcoming months, this is anticipated to have wide-ranging effects on weather events around the world and may make different regions’ floods and droughts worse.

About:

• La Nina is Spanish for “The Little Girl.” Other names for it include El Viejo, anti-El Nino, and just “a chilly event.”
• Periods of below-average sea surface temperatures can be seen in the east-central Equatorial Pacific during La Nina episodes.
• The sea surface temperature has dropped by more than 0.9°F for at least five consecutive three-month seasons, which is indicative.
• There is a strong high pressure over the eastern equatorial Pacific when there is a La Nina event because the water temperature in the Eastern Pacific becomes significantly colder than usual.

The La Nina Conditions:

• In the tropical Pacific, the region of the Pacific Ocean between the Tropics of Cancer and Capricorn, cooler-than-average waters accumulate, which leads to La Nina.
• Lower-than-average air pressure across the western Pacific is a defining feature of La Nina. More rain is a result of these low-pressure areas.
• Rainfall that is above average over northern Brazil and southeastern Africa is another effect of la nina occurrences.
• However, devastating floods in northern Australia are linked to powerful La Nina episodes.
• Higher-than-average pressure over the central and eastern Pacific is another characteristic of La Nina.
• As a result, there are fewer clouds and fewer raindrops in that area.
• Along the Gulf Coast of the United States, the pampas region of southern South America, and the west coast of tropical South America, drier-than-normal conditions have been noted.

The effects of La Nina:

• El Nino lowers the number of hurricanes in the fall in Europe.
• La Nina typically results in colder winters in southern/western Europe, which causes snow in the Mediterranean region, and milder winters in northern Europe (particularly the UK).
• Continental North America is where the majority of these conditions are felt. Stronger winds along the equatorial region, particularly in the Pacific, are among the broader effects.
• favourable hurricane conditions in the central Atlantic and Caribbean.
• Greater tornado occurrences in different US states.
• La Nina brings about drought in Peru and Ecuador, two South American nations.
• Western South America’s fishing industry typically benefits from it.
• Western Pacific: In the western Pacific, La Nina enhances the possibility of landfall, especially into continental Asia and China, which are the regions most susceptible to its effects.
• In Australia, it also causes significant flooding.
• In the western Pacific, Indian Ocean, and along the Somalian coast, temperatures have risen.
• Source The Hindu

4 – E – Sim Technology: Prelims Specific Topic

Context:

• The eSIM, also known as an embedded SIM, isn’t precisely a recent development in technology. But because to fitness-focused wearables and smartphones like the Google Pixel series, Samsung Galaxy S and Z-series, and Apple iPhones, particularly the iPhone 14, which exclusively uses eSIMs in the US, it is swiftly gaining popularity.

About:

• In 2012, the first eSIMs were created.
• It is an embedded SIM, which is indelibly incorporated into the same physical structure as a typical SIM card chip.
• An eSIM is made up of several elements that are similar to those found in a conventional SIM card and are found inside of a phone. They also serve the same purpose, serving as a distinctive identifier that allows telecom operators and other users to find your specific smartphone when they call or text you.
• Being connected to the motherboard, however, also enables re-programming, enabling users to switch carriers without having to swap out any actual SIM cards.

What Benefits Are There?

Security:

• Since there is no physical component to rip out and use in another device, an eSIM offers security against sim theft.
• After being stolen, an attacker cannot access your phone to access your bank or social media accounts.
• reducing the number of phone openings:
• Your phone’s frame has fewer openings, which lessens the chance that contaminants like water and dust may get inside.
• Additionally, it frees up some interior phone space for other uses.

What drawbacks are there?

During Emergencies:

• Your communication will be completely cut off if your phone breaks down, runs out of battery, or just falls and cracks its screen. Meanwhile, conventional SIMs may be easily removed from the harmed phone and put into a backup device or alternative phone.

Unusable in nations that do not support eSIM:

• In a nation where telecom carriers do not yet support the technology, eSIM phones cannot be used.
• This isn’t a problem if your phone accepts both eSIM and conventional SIM cards, but it is with phones like the US version of the iPhone 14, which will only accept eSIM.

Telcos exercise more authority:

• The initial trip to the telecom operator’s store to purchase a SIM card may be avoided with an eSIM, but transferring phones requires the operator’s assistance.
• In the future, operators might charge extra for eSIM subscriptions or for switching phones.

Source The Hindu