General Studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
General Studies 3
- Challenges to internal security through communication networks, role of media and social networking sites in internal security challenges;
- Basics of cyber security.
Access to Cyber Space
With technology changing the dynamics of all aspects of life security and law and order has been the most challenging field in consideration. In a borderless and virtual world where no single law can bind a user there is need for constant innovation and wide participation.
- An iPhone used by Abu Dujana, said to be among the Lashkar-e-Taiba’s commanders in Kashmir, which fell into the hands of security forces, could be a valuable source of information for the National Investigation Agency (NIA).
- The odds that the agency is able to break into the device are, however, slim.
- For now, the government has sent the iPhone to the U.S., seeking assistance from its federal agencies.
- The government’s strategy of shipping it abroad to decipher its contents is unsustainable.
- But for some political agreements signed after the 26/11 attacks, there is no legal obligation on the U.S. to provide any assistance in this matter to India, even though the company that manufactured the device is American.
- Moreover, U.S. security agencies have themselves struggled to extract information from devices like the iPhone, in the face of resolute opposition from companies to decrypt their own products.
- If Apple could successfully resist a U.S. court order to help the Federal Bureau of Investigation (FBI) unlock an iPhone used by a terrorist involved in the 2015 San Bernardino attacks, what hope can the NIA have?
Encryption as a hurdle
- In the eight years since its creation, the NIA has grown into a competent organisation, with interception abilities comparable to top law enforcement bodies in the world.
- But NIA officials themselves rue that the online chatter they intercept is increasingly encrypted.
- Thus far, Indian intelligence agencies have relied on ‘zero days’ — vulnerabilities that exist in the original design of a software — to break into encrypted devices, but Internet companies now promptly patch their flaws, diminishing the utility of such tools.
- Take the case of Abu Dujana’s iPhone 7.
- While dealing with secure devices, law enforcement agencies usually have two options to unlock them.
- The first is to “brute force” the user’s password or PIN into the phone repeatedly, until it finally cracks open.
- But iPhones limit the number of false entries, killing the phone altogether after several failed attempts.
- The second option is to modify the ‘Touch’ sensor in phones that use fingerprints-recognition technology, so that a third party is grafted in as the legitimate user.
- Last year, however, Apple issued a software update that disables all iPhones where the Touch button had been “unofficially” modified.
- The company later allowed users to restore dead devices, but only after confirming their identity on other Apple platforms like iTunes.
- The reality is that a lot of online content is today out of the reach of law enforcement officials. Platforms like WhatsApp and Telegram are ‘end-to-end’ encrypted, making it difficult for police at the State and local level — who don’t have access to zero days — to register cases based on information contained in them.
- The distinct trend towards greater adoption of encryption poses a dilemma for Indian policymakers.
- Strong encryption protocols increase consumer confidence in the digital economy, but the Indian government fears a scenario where criminals or terrorists can easily “go dark” behind secure channels.
- In this case, Apple could build firmware that allows agencies to clock any number of attempts to unlock an iPhone.
- Technical details aside, the lesson here is that Apple may tightly secure its devices, but it also guards the “keys to the kingdom”.
- Emerging markets have struggled to deal with data giants — Brazil’s judiciary, for example, suspended WhatsApp on three occasions in 2016 for non-compliance with government requests — that operate on quasi-sovereign principles.
Need for legislations:
- Finally, legal solutions to electronic data access for law enforcement agencies are outdated.
- Governments are no longer the custodians of data, but every Indian request for electronic content is required to be vetted by the U.S. Department of Justice.
- In Abu Dujana’s case, if he has backed up his data on Apple’s iCloud service, an Indian request to share its content will take months to be processed, by which time the cloud data would have already been erased through another device.
- The current process of information-sharing through the India-U.S. Mutual Legal Assistance Treaty suffers from almost irreparable hurdles, ranging from bureaucratic delays on both sides to inconsistencies in domestic legal standards.
The need to establish a holistic and participative process with global stakeholders is seminal. The solution lies in a bilateral data-sharing agreement to help the Indian government engage with Internet companies directly, rather than routing requests through the U.S. government.
Connecting the dots:
- Critically analyse the need for an encryption policy that is globally acceptable in the current scenario of global security challenges.
General Studies 3
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
- Inclusive growth and issues arising from it.
General Studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation; Important aspects of governance, transparency and accountability
RBI given greater role in dealing with large amount of stressed assets
The Reserve Bank of India (RBI) on 22nd May proposed expanding the scope of oversight committees and a larger role for credit rating agencies as it draws up an action plan to deal with the Indian banking system’s nearly Rs. 10 trillion (10 lakh crore) stressed loan problem. Earlier this month, the government moved an ordinance empowering the central bank to intervene directly in stressed asset cases.
Banking Regulation (Amendment) Ordinance of May 4, 2017, empowered the RBI to take decisions on the settlement of non-performing assets (NPAs) and a consequent cleaning up of bank balance sheets.
- Banks in India are in possession of ?6,11,607 crore worth of NPAs as of March 31, 2016.
- According to a recent Credit Suisse estimate, there could be a default on 16-17% of total bank loans by March 31, 2018.
- The current food and non-food credit stands at approximately ?75,00,000 crore. This would translate to about ?12 lakh crore of NPAs.
Therefore, the ordinance correctly acknowledges the unacceptably high level of stressed assets in the banking system. Indeed, banks are sitting on a huge pile of scrap.
Failure of Public Sector Banks
- Most of these bad loans are the result of money or loans given generously by public sector banks to large corporate groups, given without any consideration to the principles of sound lending. Hence, the resultant inability of the banks to recover either interest or the principal sum lent.
Corporate borrowers, the major concern
- In India, corporates rely on banks as the main source for funds. The February 2017 International Monetary Fund (IMF) report states that 65.7% of Indian corporate debt as of March 31, 2016 is funded by banks.
- The December 2016 Financial Stability Report states that large borrowers account for 56% of bank debt and 88% of their NPAs. Inability of top Indian corporates to make timely interest payments are a major concern.
- The 2017 IMF report also states that about half of the over all debt is owed by firms who are already highly indebted (debt-equity ratio more than 150%). These borrowers are simply not earning enough to meet their interest commitments.
- However, some of the major corporate groups are key drivers of growth of the Indian economy. As the corporate bond market is not yet matured in India, bank financing is crucial for such corporate groups.
- In addition, granting loans to corporates that lacked capital as well as expertise (in sectors that were once the sole preserve of the government) was obviously a decision made at the behest of the RBI and the government with little regard to the best interest of the bank.
Mixed dilemma – It was for the sake of development that the RBI encouraged banks to lend to corporates. Now, for the same reason, resolution is being thrust on banks.
Put simply, the RBI may from time to time, issue directions to banking companies for resolution of stressed assets. The Central government may by order authorize the RBI to issue direction to any banking company to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016.
About Insolvency and Bankruptcy Code, 2016
- The new bankruptcy law will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters.
- The new code will replace existing bankruptcy laws and cover individuals, companies, limited liability partnerships and partnership firms. It will amend laws including the Companies Act to become the overarching legislation to deal with corporate insolvency. It will also help creditors recover loans faster.
- On the parameter of resolving insolvency, India is ranked 136 among 189 countries. At present, it takes more than four years to resolve a case of bankruptcy in India, according to the World Bank. The code seeks to reduce this time to less than a year.
To sum up, since bankers were unable (or unwilling) to take the tough decisions needed to resolve stressed loans, the RBI will now step in and do it for them. The amendment to Banking Regulation Act is expected to allow the RBI to deal with the menace of bad loans on a case-to-case basis as opposed to following a set of broad guidelines and rules for all non-performing assets (NPAs). RBI can now issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the IBC.
Connecting the dots:
- The recent Banking Regulation (Amendment) Ordinance has empowered RBI to take decisions on the settlement of non-performing assets (NPAs) and a consequent cleaning up of bank balance sheets. Do you think, this is a right move? Critically examine.
- How does NPA affect Indian economy? How can Government, Banks and RBI work in sync in reducing NPA and reduce its effects on economy?
- Critically examine why NPA has become a major threat to the stability of the country’s financial system and the economy as such and steps needed to address this issue.
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