28 December 2022

DAILY CURRENT AFFAIRS ANALYSIS

No.	Topic Name	Prelims/Mains
1.	CRAR	Prelims & Mains
2.	NPA	Prelims & Mains
3.	MGNREGA	Prelims & Mains
4.	Delimitation	Prelims & Mains

 1 – CRAR: GS II – Topic Indian Economy

Context:

• The Indian economy was showing signs of a gradual strengthening of the growth momentum, drawing on macroeconomic fundamentals, against the backdrop of a highly uncertain global environment brought on by globalisation of inflation, energy and food shortages, and synchronised tightening of monetary policy worldwide, according to the Reserve Bank of India (RBI) in the Report on Trends and Progress of Banking in India 2021–22.

What is CRAR?

• The Capital Adequacy Ratio, or CRAR, is a bank’s measure of its capital-to-risk ratio (CAR).
• Central banks and bank regulators decide on CRAR to prevent commercial banks from using excessive leverage and failing.
• A 8% capital to risk-weighted asset ratio was needed by Basel III regulations.
• Scheduled commercial banks in India are required to maintain a CAR of 9%, while public sector banks are recommended to maintain a CAR of 12%, in accordance with RBI recommendations.
• It is determined by dividing the bank’s total assets, which have been risk-weighted for operational, market, and credit risk, by the capital of the institution.
• The RBI keeps an eye on the bank’s CRAR to make sure it can tolerate a reasonable amount of loss and complies with statutory capital requirements.
• If a bank has a higher CRAR, it is better capitalised.

 Why recapitalize RRBs?

• With a focus on small and marginal farmers, micro- and small companies, rural craftsmen, and vulnerable sections in society, RRBs are primarily responsible for addressing the banking and credit needs of the rural and agricultural sectors.
• If the RRB is more dependable and financially solid and has an enhanced CRAR, they will be able to meet the credit requirements in rural areas.
• The RRBs are required by RBI regulations to contribute 75% of their total credit to PSL (Priority Sector Lending).
• RRBs also provide financing to freelancers, microenterprises, and small businesses in rural areas.
• With the recapitalization assistance to boost CRAR, RRBs would be able to continue lending to these types of borrowers in accordance with their PSL goal and thereby enhance rural lives.

Source  The  Hindu

 2 – NPA: GS III – Topic Indian Economy

Context:

• Recently, Indian banks were able to collect 13%, or $1.32 billion, of the staggering $10.09 billion in non-performing loans that were written off in the five years between FY18 and FY22, according to a recent statement by Finance Minister Nirmala Sitharaman to Parliament. This comprises recoveries through all methods that are available, including as sales of non-performing loans to asset reconstruction firms, resolution of cases under the Insolvency and Bankruptcy Code (IBC), actions initiated under the SARFAESI Act, and so forth.

Non-Performing Assets: What Are They?

• Non-performing assets are those that no longer bring in revenue for the bank.
• Previously, the idea of “Past Due” was used to categorise assets as non-performing assets (NPAs).
• A credit for which interest and/or principal payments have been “past due” for a predetermined amount of time is referred to as a “non-performing asset” (NPA).
• With effect for the fiscal year that concluded on March 31, 2004, “90 days’ overdue rules” for recognising NPAs were made applicable in an effort to align with worldwide best practises and promote greater transparency.
• Banks typically classify commercial loans that are more than 90 days past due and consumer loans that are more than 180 days past due as nonperforming assets.
• If the interest, instalment, or principle on an agricultural loan is not repaid after two harvest seasons, NPAs are declared.
• However, this time frame shouldn’t exceed two years. After two years, any unpaid loan or instalment will be labelled as NPA.

NPA Issue with Indian Banks:

• The Reserve Bank of India and the central government’s numerous actions, including the Insolvency and Bankruptcy Code and the repeal of earlier policies like the 5:25 rule, contributed to the NPA’s downward trend starting in FY 2018.
• It was anticipated that the country will experience a rise in defaulted loans as a result of the coronavirus (COVID-19) epidemic and lockdown.
• Based on the value for September 2020, the Reserve Bank of India forecast three scenarios for the fiscal year 2022 until September 2021.
• The GNPA-ratio would hit a new high of 13.5% under the baseline scenario.

Willful Defaulter:

• Any entity is regarded as a wilful defaulter if: It has neglected to fulfil its financial obligations to the lender, while having the resources to do so.
• The unit has fallen short of its obligations to the lender in terms of payments and repayments, and has diverted the lender’s finances away from the intended purposes in favour of other ones.
• The funds have not been used for the specific purpose for which credit was secured, nor are they available in the form of other assets with the unit since the unit has failed to fulfil its payment/repayment obligations to the lender and syphoned off the cash.
• With outstanding loans totaling more than 25 lakh, the Banks are required to provide the Reserve Bank of India (RBI) with the names of the willful defaulters.

 SARFAESI Act:

• A central database of security interests based on property rights is made possible by the SARFAESI Act of 2002, which is “.. an act to regulate securitization and reconstruction of financial assets and enforcement of security interests, and to provide for matters associated with or incidental thereto.”
• Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest is referred to as SARFAESI.
• It enables banks and other financial institutions to recoup loans by selling the home or commercial property of defaulters at auction.
• The first Asset Reconstruction Corporation (ARC) in India, ARCIL, was founded as a result of this statute.
• Under section 13 of the SARFAESI Act of 2002, secured creditors (banks or financial institutions) have rights to the enforcement of security interests.
• The Supreme Court of India has ruled that all state and multi-state cooperative banks must now abide by the SARFAESI Act of 2002. With the Supreme Court’s landmark ruling, banks can now take and sell defaulters’ properties to repay their obligations.

Code on Insolvency and Bankruptcy:

• India’s bankruptcy law, the Insolvency and Bankruptcy Code, 2016 (IBC), seeks to harmonise the current framework by introducing a unified insolvency and bankruptcy law.
• A debtor who is unable to pay off their debts is said to be insolvent.
• A individual or business that is insolvent and unable to pay its debts declares bankruptcy.
• In order to aid creditors, such banks, in recovering debts and avoiding bad loans, which are a significant drag on the economy, it provides clearer and quicker insolvency procedures.
• It is a comprehensive insolvency code that is applicable to all corporations, partnerships, and people (other than financial firms).

Source The  Hindu

3 – MGNREGA: GS II – Topic Government Schemes and Interventions

Context:

• All employees engaged under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGREGS) would need to digitally record their attendance beginning on January 1, 2023, per the Center’s requirements.

 About MGNREGA:

• About: In 2005, the Ministry of Rural Development launched MGNREGA, one of the world’s largest labour guarantee programmes.
• The basic objective of the programme is to offer every adult resident of a rural home who is willing to engage in unskilled physical labour for the benefit of the public 100 days of guaranteed work per fiscal year.
• As of 2022-2023, 15.4 crore people are MGNREGA-eligible workers.
• Lawful Ability to Work: This act uses a rights-based framework, in contrast to earlier employment guarantee programmes, to address the underlying causes of chronic poverty.
• At least one-third of the recipients must be women.
• The Minimum Wages Act of 1948 mandates that salaries be paid in accordance with the state’s statutory minimum wages for agricultural labourers.
• Demand-Driven Strategy The MGNREGA’s design’s most important feature is its legally supported demand that any rural adult find employment within 15 days of applying; if this is not the case, a “unemployment allowance” must be supplied.
• Worker self-selection is possible under the demand-driven system.
• Decentralized preparation There is an emphasis on deepening the decentralisation process by giving Panchayati Raj Institutions (PRIs) a substantial role in organising and carrying out these initiatives.
• According to the law, Gram Sabhas must recommend projects to be taken on and must execute at least half of those projects.

What Issues Arise in the Implementation of the Scheme?

• Delay and Insufficiency in Funds Disbursement: The MGNREGA mandate that wages be paid within 15 days has not been met by the majority of states. Workers are also not compensated for late wage payments.
• The programme has consequently became supply-based, and employees have begun to lose interest in working for it.
• There is currently no lack of evidence to support the claim that financial shortfalls are the root cause of wage payment delays, including a statement from the Ministry of Finance.
• Separation based on caste: By caste, the delays varied greatly. While just 26% of payments for non-SC/ST employees were completed within the necessary seven days, 46% of payments for SC (Scheduled Caste) employees and 37% of payments for ST (Scheduled Tribes) employees were.
• Caste-based segregation had a negative impact that was most noticeable in underdeveloped States like West Bengal, Madhya Pradesh, Jharkhand, and Odisha.
• PRI’s role is ineffective: Grame Panchayats are unable to put this act into effect quickly and efficiently due to their restricted autonomy.
• There are several unfinished projects because MGNREGA-funded projects have taken longer than anticipated to complete and because project inspections haven’t always been thorough. The MGNREGA’s asset development and work quality are also problematic.
• Fabrication of employment cards: The creation of phoney employment cards, the use of fictitious identities, the absence of entries, and late entries are all issues.

How to Proceed:

• The method used to distribute and analyse the work, as well as the several government entities, need to work together more effectively.
• There are several compensation variances that must also be managed. In this field, women typically earn 22.24% less than men.
• Every town needs to start doing public work, and state governments need to make sure this happens. As soon as possible after arriving on the job site, workers should be assigned tasks.
• Local authorities must actively interact with migrant workers who have been quarantined or repatriated and help those who need it acquire job cards.
• Grame Panchayats must be given enough resources, power, and responsibilities to approve projects, complete work on demand, and permit salary payments in order to avoid payment delays.
• It is vital for MGNREGA to converge with other government initiatives. For instance, the Green India Initiative and the Swachh Bharat Abhiyan.

Source The  Hindu

4 – Delimitation: GS II – Topic Government Schemes and Interventions:

Context:

• The map for the Jammu and Kashmir Assembly election was amended by the Delimitation Commission a few days before the Supreme Court of India’s decision on sedition. As was to be expected, political parties in Kashmir disagree with the conclusions. During the consultation period, they voiced serious concerns about the commission’s drafting, but the most of them went ignored. Instead, the panel’s final report praises the members’ enthusiasm and backing. Ex-officio members of the commission comprised Chief Election Commissioner (CEC) Sushil Chandra and J&K State Election Commissioner K.K. Sharma in addition to Justice (retired) Ranjana Prakash Desai.

About delimitation:

• Delimitation is defined as the act or process of setting geographical constituency boundaries of a country to account for population fluctuations.

Why delimitation is done:

• to guarantee equal representation of all population divisions.
• fair geographic distribution to avoid giving one political party an electoral edge over another.
• should follow the principle of “One Vote, One Value.”

How does delimitation take place?

• According to Article 82, the Parliament passes a Delimitation Act following each Census.
• After every census, States are also divided into territorial constituencies in accordance with the Delimitation Act, as stated in Article 170.
• After the Act is put into operation, the Union government establishes a Delimitation Commission.
• With the help of the Election Commission, the President carried out the first delimitation exercise in 1950–1951.
• The Delimitation Commission Act was enacted in 1952.
• Delimitation Commissions were constituted four times, in 1952, 1963, 1973, and 2002, under the Acts of 1952, 1962, 1972, and 2002.
• Following the 1981 and 1991 Censuses, the distinction was gone.

Position of current delimitation:

• For the 2009 general elections, 499 of the 543 parliamentary districts had new boundaries established.
• Except for Jammu and Kashmir, Arunachal Pradesh, Assam, Jharkhand, Manipur, and Nagaland, all other states were affected by this.

Problems with delimitation:

• States that don’t prioritise population control may end up with more seats in the House of Representatives. The southern states that supported family planning ran the risk of losing seats.
• Despite delimitation using the 2001 census, the number of seats in the Assemblies and Parliament, which were established based on the 1971 Census, remained the same in 2008.
• The number of Lok Shaba & Rajya Sabha seats has been regulated by the constitution to a maximum of 550 & 250 respectively since more people are represented by a single lawmaker.

What needs to be done:

• A national consensus-building initiative should be started before 2026.
• The Finance Commission’s population weighting can be reduced to 10% or even 5%.

Source The  Hindu