IASbaba's Daily Current Affairs Analysis

IASbaba’s Daily Current Affairs (Prelims + Mains Focus)- 22nd February 2018

(PRELIMS+MAINS FOCUS)

Blockchain Technology can help check banking frauds

Part of: Mains GS Paper III- Indian economy

Key pointers:

The adoption of blockchain by India’s banks could help avert frauds such as the one at Punjab National Bank.
The disaggregated and transparent nature of the technology, which updates information across all users simultaneously, would have ensured immediate verification of any transaction.
Transaction reconciliation systems at present do not result in immediate notification.
SBI had already implemented it in its reconciliation systems and in several cross-country payment gateways.

Main focus:

Blockchain, a distributed ledger technology originally developed as an accounting system for the cryptocurrency Bitcoin, is being researched across the banking and financial services industries for the potential benefits it may offer in an increasingly digitised business environment.
Blockchains are immutable and distributed ledgers, which means that anything recorded on them cannot be changed or deleted and is instantly uploaded to all users on that blockchain.
Central banks including the U.S. Federal Reserve and the Reserve Bank of India have been examining the technology to understand the regulatory challenges it may pose.

Blockchain is not a panacea for all issues facing the banking system today but is an ideal technology to ensure proof of integrity to the data and reduce incidents of fraud.

Article link: Click here

Making eNAM more inclusive and robust

Part of: Mains GS Paper III- Indian agriculture

Key pointers:

In a bid to engage more farmers on the electronic National Agriculture Market (eNAM) platform, the government unveiled mobile payment facility BHIM, and other features in regional languages as well.
The eNAM website is now available in Gujarati, Marathi, Tamil, Telugu, Bengali and Odia besides Hindi and English.
The eNAM trading facility is available in six languages.
The eNAM has been strengthened with features like MIS dashboard, BHIM and other mobile payment facilities, enhanced features on mobile app such as gate entry and payment via mobiles.

Article link: Click here

Canada on concerns over ”Khalistan” issue

Part of: Mains GS Paper II- Indian Federalism, International realtions

Key pointers:

Canada’s Prime Minister Justin Trudeau asserted that Canada believes in united India and assured that it did not support any separatist movement in India or elsewhere.
Punjab CM has raised the issue of concerns over ”Khalistan” with the Canadian Premier.
Amarinder raised the issue of Indo-Canadians believed to be involved in targeted killings in Punjab, urging him to take cognizance of the same and initiate stern action against such elements.
The CM mentioned his government’s `Connect with Your Roots’, which he said could facilitate youth from Punjabi Diaspora in Canada to come and see Punjab, and urged the Canadian government to support the programme.

Article link: Click here

(MAINS FOCUS)

INTERNATIONAL

TOPIC: General Studies 2:

India and its neighbourhood- relations.

Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Effect of policies and politics of developed and developing countries on India’s interests

Maldives Issue: China’s interference in Indian Ocean

Background:

The ongoing crisis in the Maldives has acquired a particularly serious dimension over the past week.

Several reports have emerged suggesting China may be directly backing Abdulla Yameen’s decision to impose—and extend—the emergency in the small island state.
These reports suggest that China has implicitly promised support to Yameen in the event that India moves to forcibly change the political status quo there.
Many have reported Chinese naval activity in the eastern Indian Ocean earlier this month.

The above potentially will have serious consequence to the troubled India-China relationship.
Any potential Chinese show of force in the Indian Ocean stands to upturn India’s position as the pre-eminent power in that maritime space.

What happened?

Earlier this month, a Chinese naval surface action group (SAG) of three ships entered the eastern Indian Ocean through the Sunda Straits—thousands of nautical miles away from the waters of South Asian littorals—and having made their presence known, exited the area into the South China Sea.
One of these ships was a Type 071 transport vessel which is used to land troops for an amphibious assault.

How is it related to Maldives crisis?

It is quite possible that Yameen’s decision to impose the emergency in the Maldives was based on his impression that the tides were not favourable to him, and that the Mohamed Nasheed-led opposition was about to depose him, potentially with Indian support.
In that case, it is likely that he would have consulted Beijing on the future course of action.
Beijing had to signal India that it has the muscle to push Indian forces out of the Maldives if it so chooses.

The “Grey zone coercion” strategy of China:

A strategy by which China seeks to meet its strategic objective without crossing its adversary’s threshold for conventional military retaliation.
Example-
By choosing to message its resolve to India from a distance, Beijing ensured that India would not be provoked militarily and yet be compelled to take into account the strategic signal emanating from the east.

Options available for India:

New Delhi must continue to keep up a robust presence in the Arabian Sea, to let Beijing know that regardless of the PLAN’s show of strength, India is unprepared to cede its primacy in its maritime neighbourhood.
The Indian Navy must also be allowed to expand its presence operations in the South China Sea, long considered a Chinese preserve.
China’s vulnerabilities in its near-seas must be taken advantage of by Indian naval planners.
To counter PLAN power-projection in the Indian Ocean, the Indian Navy can raise the tempo of operations in littoral-South-East Asia, where Beijing cannot prove a territorial violation and yet feel the perceived violation in its sphere of maritime influence.
India must have an alternative plan ready for the Maldives, just in case naval posturing does not beget an optimal solution.
This does not have to involve boots on the ground.

Conclusion:

The Indian Navy must be prepared for a sustained presence around the island State. In the game of brinkmanship ongoing in the Indian Ocean littorals, India must not be fall behind China.

Connecting the dots:

With ongoing Maldives crisis, China showed its naval presence in Indian Ocean. Discuss how this is an issue for India. Also suggest ways as to how India can deal with it.

ECONOMY

TOPIC: General Studies 3:

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Checking Banking Frauds

Background:

The Nirav Modi case has once again cast the spotlight on the dark corners of the Indian banking universe.
The information available till now suggests that there was a failure at different levels—internal controls, corporate governance and weak regulatory capabilities.

Failures at different levels:

The fact that the fraud at PNB spanned for seven years without setting the alarm bells ringing at the numerous audits at banks, raises some hard-hitting questions on the manner in which auditors carry on their affairs.
A scam of this proportion happened even when numerous external auditors are scrutinising banks shows failure in the auditing processes of PNB.
The way banks use SWIFT (a messaging network for securely transmitting instructions for all financial transactions through a standardised system of codes) and the business processes they have in place to do so, differs from bank to bank.
In the case of PNB, it is evident that the various checks and authorisations had been completely compromised.

Minimizing risks of banking frauds:

Technology should be seen as a game changer.
It can reduce the chances of human connivance and can be used to detect outlier lending or guarantees.
A good technology system should make it impossible—or at least extremely difficult—for individual employees to bypass controls, as seems to have happened in the Punjab National Bank case.
Most importantly, bank boards, and especially the audit committees, must have clear responsibilities.

Usage of blockchain technology to reduce fraud.
Blockchain technology could be used to make banking transactions more transparent. This would mean that every link in the chain can be scrutinized publicly.
Banks can also set up a special fraud monitoring agency, with officials specially trained to detect incipient frauds.
Banks can also choose to appoint one member of the board to oversee fraud risk management.
In other words, banks need to focus more on frauds in order to maximize the chances of detecting them at an early stage.
This will also require banks to improve their human resource management policies.
The role of third parties such as chartered accountants, auditors, and advocates who figure in bank frauds should also be examined with a tough eye.
The regulator should revisit the role of auditors both in the case of borrowers and lenders.
They will need to design stringent systems where auditors are not able to get away with fraudulent financial statements. However, to make this happen, it will also be necessary that investigations are conducted in a given time frame.
The Reserve Bank of India (RBI) will have to build capabilities, both in terms of designing rules and making sure that they are effectively implemented. It will be a delicate balancing act, since over-regulation could scare bankers off any sort of lending, hardly what the doctor ordered for a growing economy.
For now, the RBI has done well to constitute an expert committee to look into the rising incidence of frauds, among other things, in the banking system.

Conclusion:

India needs a safe and efficient banking system to service the needs of a growing economy.
The government and RBI must to use the current opportunity to strengthen the banking system. The authorities should not let this crisis go waste but use it as an opportunity to minimize the risk of such frauds in the future.

Connecting the dots:

Banking frauds like that of Nirav Modi case shows failure at different levels—internal controls, corporate governance and weak regulatory capabilities. Analyze. Also suggest ways to check such frauds.