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Daily Current Affairs IAS | UPSC Prelims and Mains Exam – 25th May 2019

  • IASbaba
  • May 25, 2019
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IAS UPSC Prelims and Mains Exam – 25th May 2019

Archives


(MAINS FOCUS)


ECONOMY

TOPIC: General studies 2 and 3

  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
  • Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
  • Inclusive growth and issues arising from it.

Resolving NPA Crisis: II

Introduction:

In order to put the slowing economy back on track economic reforms needs to be taken. Reforms in banking must surely be top priority.

  • Banks were forced by the RBI and the central government2 to disclose evergreened loans and provision for them.
  • A new Bankruptcy Code was legislated to allow lenders to take charge of the resolution process.

Issues remain:

  • Operational issues at public sector banks (PSBs).
  • Putting in tax payers’ money to keep them afloat.
  • Investors and depositors have very little assurance that a similar NPA crisis will not recur in future.

Going forward:

To prevent repetition of the NPA crisis, structural reforms at PSBs are imperative on three counts.

Poor credit appraisal and risk management systems:

  • It led banks concentrating their loans in a handful of borrowers. This need drastic overhaul.
  • RBI recently imposed tighter curbs on the group-level and firm-level exposures of banks, capping them at 40 per cent and 20 per cent respectively of Tier-1 capital. But such limits cannot substitute for the PSBs’ lack of in-house talent in credit and project appraisal, which needs urgent fixing.
  • RBI needs to work on internal early warning systems that leverage analytics to head off credit bubbles too.

Increasing accountability:

  • While mis-judgement can be condoned, strict enforcement action needs to be taken against bankers who willingly colluded with corporate borrowers to evergreen loans.
  • There’s also need for a thorough overhaul of recruitment policies at PSBs, greater accountability from their top managements and Boards and performance-linked compensation.

Governance reforms:

  • Political interference has played an egregious role in diverting bank funds to crony capitalists.
  • Fixing this issue requires deep-rooted governance reforms that distance the management and Boards of PSBs from their promoter — the Central government.
  • A roadmap for the transfer and gradual dilution of the government shareholding in PSBs is now critical, as is the strengthening of the toothless Bank Boards Bureau.
  • RBI on its part needs to work through recent setbacks to the IBC process to put it back on its feet.

Conclusion:

Resolving NPA crisis would help bring back the Indian public’s and depositors’ confidence in banks.

Connecting the dots:

  • In order to put the slowing economy back on reforms in banking must surely be top priority. Comment.

Also read: Resolving the NPA crisis
https://iasbaba.com/2019/05/daily-current-affairs-ias-upsc-prelims-and-mains-exam-15th-may-2019/


Note: No must read (because of election results and politics related news editorials)

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