BYJU’s IAS Weekly Current Affairs (Aug 27th – Sep 1st)

1. Merger of Banks Context:

Finance Minister Nirmala Sitharaman has announced the merger of 10 public sector banks into four entities as an effort to revive the economy.

Current Economic Status of India:

• India’s Gross Domestic Product (GDP) growth rate dropped to 5% in the April-June quarter due to a sharp deceleration in manufacturing output and farm sector

• The Gross Value Added (GVA) growth in the manufacturing sector dropped to 6% in the first quarter from 12.1% a year ago.

Details of the Bank Merger:

• With the merger of these banks, the total number of PSU banks will come down to 12.

• The date by which these mergers are to be completed will be decided after further consolidation with the relevant banks.

• Following are the mergers announced:

1. The largest of the mergers announced is that of Punjab National Bank with Oriental Bank of Commerce and United Bank. The amalgamated entity will become the second-largest public sector bank in India in terms of its branch network, after the State Bank of India.

2. Canara Bank and Syndicate Bank merger would make the merged entity the fourth-largest public sector bank.

3. Merger of Union Bank of India with Andhra Bank and Corporation Bank would make the merged entity the fifth largest public sector bank.

4. Indian Bank and Allahabad Bank.

• The reforms is significant due to its sheer magnitude, its ability to disrupt the status quo and is also a major change since nationalisation of banks.

History of Bank Mergers:

• In the late 1990s, Narasimham Committee recommended consolidation through a process of merging strong banks.

• Successive governments since then have been considering the issue.

• In 2016, the government has already merged State Bank of India with its 5 affiliate banks and Bharatiya Mahila Bank. Bank of Baroda was merged with Vijaya Bank and Dena Bank.

• Before it, the number of public sector banks in India was 27.

What were the Criteria for Selection of Banks?

• These banks were chosen for the mergers ensuring that there is no disruption in the banking services.

• Another basis for selection was that the banks should benefit from increased CASA [current account savings account] and greater reach.

• To ensure that their activities are not disrupted, those banks are chosen which operate on the same or very similar platforms.

Factors that will determine the Success of Mergers:

• Success of mergers is determined by a number of factors that can produce a combined effect greater than the sum of their separate effects. The major factors are:

• Costs: The most important factor. It can be realised through branch and staff rationalisation.

• Geographical locations: The fourth set also has geographical synergies. Allahabad Bank, headquartered in Kolkata, is stronger in east and north India, while Indian Bank has a strong presence in the south. This geographical synergy is somewhat missing in the other three sets.

• Technology: In all the four sets of merger, there is technological synergy as all the banks in a particular bucket have similar core banking solution platforms.

• Banking Products and business model.

Positive Outcomes of the Move:

• Out of the total 12 public sector banks, 6 will be able to compete at a global level that can leverage economies of scale. There are too many banks in India that are very small in size with respect to global standards. It constricts their growth by making them unable to expand.

• These bank mergers will lead to the creation of big banks with an enhanced capacity to give credit.

• The merger has the potential to lead to large cost reductions due to branch network overlaps.

• Similar business cultures of the banks would also facilitate a smooth transition.

• The mergers would also increase the post-merger business by 2-4.5 times.

• It will enable the consolidated entities to meaningfully improve scale of operations and help their competitive position.

• India industries hails decision since it aims to consolidate public sector banks and address the slowdown in GDP growth.

• The decision is lauded for reflecting the government’s commitment to provide the country the financial base on which we can grow and move towards the $5-trillion mark. It will equip banks to manage balance sheet size to serve the needs of a $5-trillion economy by 2025.

Challenges:

• Due to high bad loans of the merged entities, profitability could be impacted in the near term.

• Nine out of the ten banks have net Non Performing Assets (NPAs) of over 5%.

• More than 6% net NPA is one of the risk threshold of Prompt Corrective Action (PCA), the breach of which could invite restrictions by RBI.

• United Bank of India is under the PCA framework of the RBI due to high NPA.

• Oriental Bank of Commerce came out of the PCA framework earlier this year.

• Asset quality of the fourth set of merger is much better. The combined net NPA is 4.39%.

• Rating agencies have raised concerns over the merger citing weak asset quality.

• The Narasimham Committee had recommended to shut down weaker banks and not to merge them with strong banks. But, the recent merger goes against that recommendation.

• There will not be any immediate improvement in credit availability as all of the banks have relatively weak NPA profiles.

• The Provision Coverage Ratio (PCR) of the banks are also much lower than the compliance level of 70%. PCR measures the provisioning for bad loans from the profit generated by the banks.

• Punjab National Bank (PNB) has a net NPA of 6.55% and it also suffered a loss of about ₹14,000 Cr. last year in the Nirav Modi scam.

• In handling staff rationalization which is a sensitive issue, the efficiency of banks is questioned.

• There are concerns among employees that the proposed merger would result in closure of large number of branches (as happened in the case of State Bank of India) reducing employment opportunities. The All India Bank Employees’ Association has opposed the move.

• Bank branch rationalisation is another challenge. There is overlap of bank branches in same area. Ex.: Canara Bank and Syndicate Bank merger (in Karnataka and other southern states), Punjab National Bank and Oriental Bank of Commerce (in the north and the west India).

• Another issue is the IT related synchronisation between banks.

• It is possible that the current mergers may face more friction than the last ones in which a large and strong bank absorbed much smaller entities.

• A larger issue is that the government nominees on the boards of banks are often political appointeeswho have little exposure to the banking sector.

Other Reforms announced along with the Merger:

• A number of smaller reforms to the boards of the banks were also announced aimed at improving their efficiency and accountability.

• A Board Committee would be made in charge of appraising the performance of officers of the rank of general managers and above, including the managing director. It is aimed at making the management accountable to the boards of the banks.

• The banks will be allowed to recruit chief risk officers from the market at market-linked compensation. It will attract the best available talent.

• Bank boards will be allowed to reduce or rationalise the number of committees.

• The effectiveness of the directors on the Management Committees of Boards will be increased by increasing the length of their terms. It is aimed at increasing the engagement of non-official directors.

• The government has announced that the 10 banks will get ₹55,250 Cr. capital out of the ₹70,000 Cr. that has been allocated for the current year.

• In addition, Bank of India and Central Bank of India will be able to expand their national presence and Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank will be able to strengthen their regional focus.

Implementation of Earlier Announcements:

• The government had last week announced a transparent one-time policy that will be issued by banks to enable MSME and retail borrowers to settle their dues. Instructions for this had been issued to the banks.

• Eight public sector banks have launched repo rate-linked loans ensuring the transmission of rate cuts by the RBI to end consumers.

• Earlier, it was said that banks would return loan documents within 15 days of the closure of the loan. This mechanism would be done through the core banking system and regional managers would be responsible.

• A system had been initiated to facilitate online tracking of loan documents in which borrowers can track their loans.

• Partial credit guarantee schemes have been executed, particularly for the NBFCs including housing finance corporations. It will ensure that liquidity is reaching them.

• The plan for the co-origination of loans between banks and NBFCs had already initiated through with bank-NBFC tie-ups.

Future Prospects:

• It should be ensured that the proposed merger will not result either in cost cutting, closure of branches or retrenchment of employees.

• The employees should receive the best of the employee benefits and the admin staff need to be redeployed for business.

• The merger need to be supported with adequate reforms in governance and management of these banks.

• Key reforms with respect to appointments, especially of government nominees, need to be made at the board level.

• The amalgamation will require harmonisation of asset quality (related to NPA) and provisioning levels among the merging banks so as to increase the credit provisions.

Conclusion:

The definition of global banks is not only about the size but also about the professionalism in its governance. The government will have to promptly manage the implementation and outcome of four simultaneous mergers which may disrupt the industry.

2. Over 19 Lakh Excluded From Final NRC Context:

Out of the 3.3 Cr. applicants, more than 19 lakh have been left out of Assam’s final National Register of Citizens (NRC).

Details:

• The final NRC was the conclusion of a five year exercise monitored by the Supreme Court that cost ₹1,220 Cr.

• The final version of the NRC contains the names of around 3.11 Cr. of the total of 3.30 Cr. people who had applied for inclusion in the document.

• The number of exclusions has come down from the draft NRC. 41.09 lakh people were left out in the draft list published in July, 2018.

• The representatives of Gurkha community has said that more than one lakh community members have been excluded from the NRC.

• An MLA of the Assam Legislative Assembly is also among those who have been excluded.

How did they got excluded?

• The final NRC has been published after disposal of all claims and objections.

• Those who did not submit claims are also among the 19 lakh people left out.

• It was a huge exercise involving about 52,000 Assam government officials working for a prolonged period.

• Those who are assigned as D (doubtful) voters and surname mismatch cases are also excluded.

• According to the Coordinator for NRC, all decisions of inclusion and exclusion were taken by statutory officers in an objective and transparent manner.

• He added that applicants were provided adequate opportunity of being heard at every stage of the process as per statutory provisions.

Objectives behind NRC:

• Updating the NRC was aimed to filter Indians from illegal immigrants, believed to have come mostly from Bangladesh.

• There is a belief that illegal immigrants are depriving locals of rights and opportunities

• It has been a demand for almost forty years that started in 1980 during the anti-foreigners’ Assam Agitation.

• In 1985, the Assam Accord ended the agitation by incorporating this demand and prescribing 1971 as the base year for detecting and deporting foreigners in the State.

What Lies Ahead for Those Who are excluded?

• Those excluded cannot technically be called foreigners as they have legal options to challenge their exclusion from the NRC.

• Each of them has 120 days to appeal before the Foreigners’ Tribunals.

• The tribunals have six months to dispose of the cases.

• The appellants can thereafter approach the Gauhati High Court and the Supreme Court to establish their citizenship with proper documents.

• Otherwise they will be send to detention camps for foreigners. There are six detention centres in Assam, and 10 more are likely to come up.

• Assam Chief Minister, opposition party and several NGOs have offered legal help to the excluded people.

Supreme Court Denies Request for Re-Verification?

• The Centre and the State government had filed affidavits in the Supreme Court demanding re-verification of 20% of the names in districts bordering Bangladesh and 10% in other districts.

• However, both requests were turned down.

Challenges:

• It is alleged that names of many Indian citizens who migrated from Bangladesh as refugees prior to 1971 have not been included in the NRC because authorities refused to accept refugee certificates.

• On the other hand allegations are also raised about manipulation of legacy data for including names in the NRC.

• Careless implementation has been alleged for disenfranchising many genuine citizens.

• There are several families whose immediate family members have been excluded despite submitting the same documents.

• Spelling errors in documents are also suspected for people being excluded.

• The validity of the tribunals as a body to adjudicate such cases is also questioned.

• Demands have been raising for an exercise similar to Assam’s NRC in the Delhi to address issues such as prevention of possible terror plots to reining in street crimes, drug trafficking, enhancing women’s safety, etc.

Opposition against the Final NRC:

• Most political parties and pressure groups were unhappy with the final NRC data.

• There is a possibility of attempts to create trouble either physically or through social media.

• Even after legal options are exhausted, it will not be possible to send a large number of people to detention centres.

• The All Assam Students’ Union (AASU) has decided to challenge the findings of the National Register of Citizens (NRC) in the Supreme Court. They accuse that the NRC has turned out to be incomplete and error-prone.

• AASU had spearheaded the anti-foreigners Assam Agitation four decades ago and demanded an updated NRC in 1980. It was a signatory to the agitation-ending Assam Accord.

• Assam Public Works, an NGO whose petition in the Supreme Court in July 2009 led to the start of the NRC exercise four years later, also criticised the findings.

3. G7

• The G7 or ‘Group of Seven’ are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

• It is an intergovernmental organisation that was formed in 1975 by the top economies of the time as an informal forum to discuss pressing world issues.

• The G7 was known as the ‘G8’ for several years after the original seven were joined by Russia in 1997.

• The Group returned to being called G7 after Russia was expelled as a member in 2014 following the latter’s annexation of the Crimea region of Ukraine.

• The G7 nations meet at annual Summits that are presided over by leaders of member countries on a rotational basis.

• The G7 does not have a formal constitution or a fixed headquarters.

• The decisions taken by leaders during annual Summits are non-binding.

• The current G7 Summit being held in France is the 45th, and the next one will be held in the United States in 2020.

• The host country typically gets to invite dignitaries from outside the G7 to attend the Summit.

Context

• Prime Minister Narendra Modi has met US President Donald Trump on the sidelines of the G7 Summit in Biarritz in southwestern France.

• Modi was invited to attend the Summit as a special guest of French President Emmanuel Macron.

What the G7 does?

The G7 Summit is an informal gathering that lasts two days, in which leaders of member countries discuss a wide range of global issues.

• The Group was initially formed as an effort by the US and its allies to discuss economic issues, which in the late 1970s included battling a global oil crisis

• Since then, the G7 has discussed issues affecting every decade, such as financial crises, and has aimed to tackle specific challenges, such as the economic changeover of ex-Soviet bloc nations, terrorism, arms control, and drug trafficking, among others.

• The groundwork for the Summit, including matters to be discussed and follow-up meetings, is done by the “sherpas”, who are generally personal representatives or members of diplomatic staff such as ambassadors.

• The sherpa for Prime Minister Modi at the current Summit is former Union Minister Suresh Prabhu.

India at the G7 Summit

• The invite to India to be a Biarritz Partner and to Prime Minister Modi to be a special guest at the Summit was extended by President Macron keeping in mind the common interests of India and France, such as tackling climate change and the development of renewable energy.

• Prime Minister Modi collaborated closely with President Macron’s predecessor, President François Hollande, in the creation of the International Solar Alliance in 2015.

G7 and G20

• The G20 is a larger group of countries, which also includes G7 members. The G20 was formed in 1999, in response to a felt need to bring more countries on board to address global economic concerns.

• Apart from the G7 countries, the G20 comprises Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, and Turkey.

• Together, the G20 countries make up around 80% of the world’s economy.

• As opposed to the G7, which discusses a broad range of issues, deliberations at the G20 are confined to those concerning the global economy and financial markets.

4. Cabinet eases rules for FDI in retail, media Context:

The Union Cabinet has announced a number of decisions designed to attract increased foreign direct investment into the country.

Details:

• The government approved foreign investment in digital media up to stakes of 26%.

• It has allowed 100% foreign investment for coal mining and contract manufacturing under automatic route.

• It has been decided to permit 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure subject to provisions of Coal Mines (special provisions) Act, 2015 and the Mines and Minerals (development and regulation) Act, 1957 as amended from time to time, and other relevant acts on the subject.

• Sourcing norms for single-brand retailers has also been eased.

• On FDI in single brand retailing, the Cabinet has expanded the definition of mandatory 30% domestic sourcing norm. It also allowed single brand retailers to start online sales, waiving the previous condition of setting up a mandatory brick-and-mortar store.

• Single-brand retail trading refers to a business/franchisee/entity that sells goods to individual customers and not to other businesses and all such goods are sold under the same brand.

• Currently, the FDI policy says that a single-brand retail company with more than 51% FDI needs to source 30% of its goods from within India.

• The new decision says that this 30% can be calculated over the first five years of operation.

• Further, all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.

• It has been decided that ‘sourcing of goods from India for global operations’ can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement.

• Online sales will lead to creation of jobs in logistics, digital payments, customer care, training and product skilling.

• The current FDI policy provides for 100% FDI under the automatic route in the manufacturing sector.

• There was no specific provision for contract manufacturing in the policy.

• It has now decided to allow 100% FDI under the automatic route in contract manufacturing in India as well.

5. Aqua Aquaria 2019 expo inaugurated

• Vice-President M Venkaiah Naidu inaugurated the fifth edition of Aqua Aquaria India-2019.

• The three-day expo is being organised by the Marine Products Export Development Authority (MPEDA).

• About 5,000 stakeholders from Kerala, Tamil Nadu, Telangana, Andhra Pradesh and several other States are expected to take part in the expo, where about 200 companies and organisations are showcasing their equipment and services.

• Yields - Calling for efforts to improve yields, he said country’s freshwater aqua culturists give yields varying from 1.5 to 4.5 tonnes a hectare annually as against 10 to 15 tonnes in China and Israel.

• Untapped Potential - It is a matter of great concern that the country tapped only a fraction of the aquaculture potential that is available to it. We utilise only about 40 per cent of the available 2.36 million hectares of ponds and tanks for freshwater aquaculture.

• The country tapped about 15 per cent of a total potential of brackish water resource of 1.2 million hectares.

• Fish production - India, the second largest fish producer in the world with a production of 13.70 million tonnes during 2018-19, earns 10 per cent of its total exports from fisheries. With export earnings of 7 billion, India is the fourth largest exporter of fish in revenue terms.

• The contribution of fisheries to the Gross Domestic Product is about one per cent and about 5.37 per cent to the Agricultural GDP.

• The need to boost fish production is felt now, more than ever to ensure food security to our billion-strong population. Since over 16 per cent of animal protein supplies originate from the fisheries sector, the sector is identified as a major factor contributing to food security.

6. A-WEB

• The Election Commission of India (ECI) , which is taking over as Chair of the Association of World Election Bodies (A-WEB), is hosting the 4th General Assembly.

• Over 120 participants from more than 50 countries will attend the events, scheduled for three days from Monday.

• A meeting of the executive board of A-WEB will be held on Monday, while the General Assembly of A-WEB will be held when India takes over as Chair of A-WEB for the 2019-2021 term on Tuesday.

• Chief Election Commissioner of India Sunil Arora will preside over the General Assembly meeting.

• Detailed deliberations at the A-WEB General Assembly include discussions on challenges and the future of furthering partnership among Election Management Boards, appointment of office-bearers, programmes and activities to be undertaken by A-WEB in 2020.

• Also, an international conference on ‘Initiatives and Challenges of Social Media and Information Technology in Elections’ will be held.

7. Russia set to offer submarines during Modi-Putin summit

Context:

Russia is likely to offer India its conventional submarines at the summit between Prime Minister Narendra Modi and President Vladimir Putin at Vladivostok.

Details:

• Modi is to visit Vladivostok to attend the Eastern Economic Forum as well as the annual bilateral summit with Russian President Vladimir Putin.

• This is the 20th summit between the leaders of the two countries since the year 2000 when the mechanism was institutionalized.

• The meeting between Modi and Putin will be their third this year—previously they met on the margins of the Shanghai Cooperation Organisation meet in the Kyrgyz capital Bishkek and the G20 meet in Osaka.

• The two countries are looking to get Indian investment into Russia’s Far East that borders China, a region rich in mineral resources.

• The submarines will be offered on the government-to-government route under the Navy’s Project-75I at the summit.

• This is expected to save a lot of time in the procurement process.

• The Navy is looking to buy six advanced conventional diesel-electric submarines under Project 75I that, after several delays, has made progress in the past several months.

• The procurement is under the Strategic Partnership (SP) model, and is the second project to be processed through this route after the Navy’s tender for utility helicopters.

• The Russian submarine will likely be based on the Amur 1650 conventional submarine, modified to suit Indian requirements.

8. Two new species of eels discovered Context:

Two new species of marine eel are discovered and documented this year by Estuarine Biology Regional Centre (EBRC) of the Zoological Survey of India (ZSI) at Gopalpur-on-sea in Odisha.

Details:

• Till now, 10 species of short brown unpatterned moray eels have been discovered in the world, out of which two were found in Indian waters.

• One of them is a short brown un-patterned moray eel now named ‘Gymnothorax andamanensesis’.

• With this new discovery, the number of short brown un-patterned moray eels discovered from the Indian coast has increased to three.

• Similarly, a new white-spotted moray eel, named ‘Gymnothorax smithi’ has also been identified.

• Marine eels are mostly found in shallow waters but some of them live offshore in sandy or clayey bottoms ranging up to 500 metres.

Conclusion:

Marine biodiversity is still considerably unexplored in India, which has a long coast line. Increased knowledge about it through exploration will be a great help in its conservation and proper utilisation.

9. Star tortoise, otters get higher protection at CITES Context:

India’s proposal to upgrade the protection of star tortoises, the smooth-coated otter and small-clawed otters in CITES (Convention on International Trade in Endangered Species on Wild Fauna and Flora) have been approved.

Details:

• These species have been listed under Appendix I of CITES and will now enjoy the highest degree of protection.

• A complete international ban will be enforced on their trade as part of efforts to boost numbers.

• The upgradation was approved at the Conference of the Parties (COP18) held at Geneva.

CITES:

• CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora, also known as the Washington Convention) is a multilateral treaty to protect endangered plants and animals. It was drafted as a result of a resolution adopted in 1963 at a meeting of members of the International Union for Conservation of Nature (IUCN).

• Its aim is to ensure that international trade in specimens of wild animals and plants does not threaten the survival of the species in the wild, and it accords varying degrees of protection to more than 35,000 species of animals and plants.

• CITES is one of the largest and oldest conservation and sustainable use agreements in existence. Participation is voluntary, and countries that have agreed to be bound by the Convention are known as Parties. Although CITES is legally binding on the Parties, it does not take the place of national laws. Rather it provides a framework respected by each Party, which must adopt their own domestic legislation to implement CITES at the national level.

• Appendix I of CITES lists species that are the most endangered among CITES-listed animals and plants.

• They are threatened with extinction and CITES prohibits international trade in specimens of these species except when the purpose of the import is not commercial, for instance for scientific research.

• Appendix II, are species that are not necessarily threatened with extinction, but may become so unless trade in specimens of such species is subject to strict regulation in order to avoid utilization incompatible with the survival of the species in the wild.

• In addition, Appendix II can include species similar in appearance to species already listed in the Appendices.

• International trade in specimens of Appendix II species may be authorized by the granting of an export permit or re-export certificate.

• Appendix III, are species that are listed after one member country has asked other CITES Parties for assistance in controlling trade in a species.

• The species are not necessarily threatened with extinction globally.

• In all member countries, trade in these species is only permitted with an appropriate export permit and a certificate of origin from the state of the member country who has listed the species.

Star tortoise:

• The Indian star tortoise (Geochelone elegans) is a threatened species of tortoise found in dry areas and scrub forest in India, Pakistan and Sri Lanka.

• 90% of trade of star tortoises occurs as part of the international pet market.

• A decline greater than 30% was predicted by 2025 if the exploitation continued or expanded.

• The species is categorized as ‘vulnerable’ by the International Union of Conservation of Nature.

Smooth Coated Otter:

• The smooth-coated otter (Lutrogale perspicillata) is an otter species occurring in most of the Indian subcontinent and Southeast Asia, with a disjunct population in Iraq.

• As its name indicates, the fur of this species is smoother and shorter than that of other otter species.

• It occurs in areas where fresh water is plentiful — wetlands and seasonal swamps, rivers, lakes, and rice paddies.

• The species is categorized as ‘vulnerable’ by the International Union of Conservation of Nature.

• Small-clawed Otters (Anoyx cinereus) species is also categorized as ‘vulnerable’ by the International Union of Conservation of Nature.

10. Werewolf syndrome

• At least 17 children developed the socalled “werewolf syndrome” in a major medicine mixup in Spain.

• They are suffering from the rare condition known as hypertrichosis.

• Hypertrichosis causes abnormal hair growth.

• The alert was given after parents started noticing their children, some of them babies were growing hair all over their body after taking what they thought was omeprazole, a drug that helps with gastric reflux.

• After investigating, authorities discovered the drugs they took actually contained minoxidil, a medication used for the treatment of hair loss.