The HINDU Notes – 12th September 2018 - VISION

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Wednesday, September 12, 2018

The HINDU Notes – 12th September 2018

📰 BIMSTEC embarrassment for India

Nepal, Thailand send only observers to grouping’s first joint military exercise being held in Pune

•India is facing an embarrassing situation at the first ever military exercise of the regional grouping BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) with Nepal and Thailand backing out from sending full contingents. On Tuesday, Nepal also conveyed that their Army Chief would not be able to attend the Chiefs’ conclave scheduled as part of the exercises.

•“All participating nations except Nepal have confirmed their Army Chiefs would attend the Chiefs’ conclave scheduled as part of the exercise,” a defence official said on condition of anonymity. “The reason was their new Chief has just taken charge and has a large number of commitments.”

•Nepal, which had initially confirmed its participation with a full contingent, pulled out in the last minute and instead sent three observers. The official communication from the Nepal Army was that “it was a political decision.” General Purna Chandra took charge as the Chief of Nepal Army on Sunday.

•The exercises were proposed by Prime Minister Narendra Modi during his speech at the BIMSTEC summit in Kathmandu last month that brought together leaders of India, Nepal, Bangladesh, Bhutan, Sri Lanka, Myanmar, and Thailand. However, PM Oli’s office said shortly after that MILEX had not been formally placed on the meeting’s agenda, and subsequently pulled out.

•Interestingly, while Nepal has backed off from this exercise, it is scheduled to hold its second military exercise with China next week.

•Apart from Nepal, Thailand, which was the last to confirm its participation in the exercise, conveyed that it could only send observers.

•The MILEX 18 exercise, scheduled from September 10 to 16 at the Aundh Military Station in Pune, is aimed at helping the BIMSTEC nations practise “planning and conduct of counter terrorist operations”, according to the Army.

•Each country was asked to send a contingent of 30 personnel including five officers and 25 soldiers in addition to three observers. However, Nepal and Thailand sent only observers.

•“Thailand has conveyed that they had budgeting constraints and so will send only observers,” said an official, who did not wish to be identified.

•The Ministry of External Affairs (MEA) did not respond to questions on the issue.

•Ambassador Chutintorn Gongsakdi of Thailand indicated that Thai government had not had sufficient time for preparation. “Thailand is absolutely committed to BIMSTEC. That is why we are observing MILEX,”he said. “This [level of participation] is due to fiscal year ending in September and MILEX being an unforeseen event,” he added.

•According to defence sources, a formal communication about the exercise was sent to all the countries in the grouping in end May. The initial meeting to plan the modalities of the exercise was held on June 19-20 and the final planning conference was held on August 2-3.

•BIMSTEC was set up in 1997 and includes India, Bangladesh, Bhutan, Myanmar, Nepal, Sri Lanka and Thailand.

📰 Small loans could turn bad: Rajan

Small loans could turn bad: Rajan
Former RBI Governor flags risks in MUDRA, Kisan credit card loans in his report to MPs’ panel

•Former RBI Governor Raghuram Rajan has cautioned that the next crisis in India’s banking sector could come from loans given to the unorganised micro and small businesses, called MUDRA loans, and credit extended through the Kisan credit card.

•MUDRA loans are offered under the Prime Minister Mudra Yojana or PMMY, launched in 2015 by the NDA government.

•A total of Rs. 6.37 lakh crore has been disbursed under the scheme by public and private sector banks, regional rural banks and micro-finance institutions till date, as per data from the Micro Units Development and Refinance Agency (MUDRA) website.

Credit targets

•In a note on bank non-performing assets (NPAs) prepared at the request of Murli Manohar Joshi, Chairman of the Parliament Estimates Committee, Dr. Rajan said the government should refrain from setting ambitious credit targets or from waiving loans.

•“Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk,” Dr. Rajan wrote in his 17-page note.

•He also flagged the Credit Guarantee Scheme for MSMEs, run by the Small Industries Development Bank of India, calling it “a growing contingent liability” that needs to be examined with urgency.

•He pointed out that most of the bad loans were created during 2006-08, a period that coincides with the first term of the UPA. “A large number of bad loans originated in the period 2006-2008 when economic growth was strong... it is at such times that banks make mistakes,” he wrote.

•Countering the BJP, which cited this reference to attack the UPA regime, the Congress claimed that NPAs of public sector banks were a “controllable” Rs. 2.83 lakh crore when the UPA demitted office in May 2014 but now it had gone up to Rs. 12 lakh crore.

•The former RBI Governor also revealed that he had shared a list of high-profile fraud cases with the Prime Minister’s Office in order to “coordinate action to bring at least one or two to book” but he did not mention whether it was done during the UPA’s time or the NDA’s.

📰 ‘Damage to Aravallis scary’

SC orders demolition of illegal structures

•The Supreme Court on Tuesday ordered the demolition of structures built illegally by a prominent builder in the protected forests of the Aravallis, noting that ecological damage done by colonisers to the ancient hills was irreversible and “quite frightening.”

•A Bench of Justices Madan B. Lokur and Deepak Gupta ordered that all structures built after August 18, 1992 in the area known as ‘Kant Enclave’ at Anangpur in Faridabad district of Haryana should be demolished.

•They have to be razed down by December 31, 2018, the court said.

•It held that these illegal structures defy a Haryana government notification of August 18, 1992, issued under the Punjab Land Preservation Act, declaring the area as forest land and fragile.

Granted exemption

•The court, however, ordered not to disturb constructions made between April 17, 1984 and August 18, 1992. These structures were built on the basis of an exemption given to Kant &Co by the State’s town planning department under the Haryana Development and Regulation of Urban Areas Act of 1975 for setting up a “film studio and allied complex” in the area. The exemption was removed when the August 18, 1992 notification kicked in.

•Kant & Co, the court ordered, should pay a full refund to investors to whom they had already transferred the land. The builder has to pay interest at 18% per annum from the date of the investment.

Dept. pulled up

•The court pulled up the State town and country planning department for supporting the illegalities. The department was myopic and brazen to push its agenda in favour of the builder no matter what it cost to the environment and ground water in the area.

•The Bench accused the department of having “completely vitiated the efforts of the forest department as well as the orders of the Supreme Court.”

•“There is no doubt that at the end of the day, the State of Haryana comes out in very poor light and must be held accountable for its conflicting and self-destructive stand,” Justice Lokur, who wrote the 81-page judgment, observed.

•“It is not only the future generations that have to pay a heavy price for this environmental degradation, but even the present generation is paying a heavy price for the environmental and ecological degradation inasmuch as there is an acute water shortage in the area as prophesied by the Central Ground Water Board,” he said.

📰 AAI shelves water aerodrome project in Chilika Lake

•The Airports Authority of India (AAI) has dropped the proposed water aerodrome project at Chilika Lake in Odisha, according to a senior official.

•Susanta Nanda, Chief Executive of the Chilika Development Authority (CDA), told reporters Monday that the AAI has cancelled the seaplane project in the lake which, if implemented, would have negatively impacted the ecosystem and the surrounding human population at the world’s second largest brackish water lake.

•The AAI has decided to shelve the project following stiff opposition from environmentalists and the CDA, according to Nanda.

📰 India’s first missile tracking ship is readying for sea trials

Built by Hindustan Shipyard Ltd., the hi-tech vessel will enter elite global club

•Once ready, it will be India’s first, a force multiplier and cruise the country into a global elite club. Hindustan Shipyard Limited (HSL) is gearing up to undertake sea trials of India’s first missile tracking ship by the first week of October.

•The keel of the ship, which was laid on June 30, 2014, is being built for the National Technical Research Organisation, the technical intelligence agency working directly under the supervision of the Prime Minister’s Office and the National Security Adviser.

•Considered a “topmost secret project”, a lot of confidentiality is being maintained in executing the project costing about ₹750 crore. It will be named after its induction into the Indian Navy. For now, it is simply referred as VC 11184.

Strategic weapons prog.

•This will be the first of its kind ocean surveillance ship being built as part of the efforts under the NDA government to strengthen the country’s strategic weapons programme.

•When asked about the commencement of sea trials, HSL Chairman and Managing Director Rear Admiral L.V. Sarat Babu told The Hindu that the sea trials would be carried out either by September-end or the first week of October and they were confident of handing over the vessel to the Indian Navy by the year-end. “This would put India in the elite of club of a few countries that have such a sophisticated ocean surveillance ship,” the Rear Admiral pointed out.

•Declining to comment further, he said they had successfully completed the basin trials sometime ago.

300-strong crew

•The ship was built inside the covered dry dock. It has the capacity to carry 300-strong crew with hi-tech gadgets and communication equipment, powered by two diesel engines, and a large deck capable of helicopter landing.

•HSL, set up in 1941, achieved a total income of ₹651.67 crore and a value of production of ₹644.78 crore during 2017-18, the highest since inception. It is poised to get orders for construction of five fleet support ships costing ₹9,000 crore and finalise request for proposal for design collaborator for construction of two Special Operation Vessels called mini submarines. It is also banking on the order for medium refit of Russia-made third Sindhughosh class submarineINS Sindhuratna for which it has submitted technical bids.

•Visakhapatnam is considered a strategic location on the East Coast for the Indian defence forces as it is home for Ship Building Centre to build nuclear powered submarine INS Arihant class, Naval Alternate Operational Base at Rambilli, the second naval base after Eastern Naval Command headquarters, training centre for Marine Commandos and headquarters of the submarine arm.

📰 Avoidable suspense: on Indian-origin FPIs

SEBI could have handled better the issue of Indian-origin foreign portfolio investors

•Foreign investors in the Indian market are used to unexpected twists in the regulatory landscape, but they seldom talk tough in the public domain. So it was unusual for a group of foreign portfolio investors (FPIs) to openly appeal to the Prime Minister for an urgent intervention last Monday. The Asset Managers Roundtable of India (AMRI) warned that India’s booming stock markets will be in for a tight bear-hug and the embattled rupee could face even greater pressure if an April 10 diktat from the Securities and Exchange Board of India is not scrapped. The SEBI circular, they argued, disqualifies about $75 billion of portfolio investments into India made by FPIs backed by domestic institutions, NRIs, Persons of Indian Origin and Overseas Citizen of India card-holders. The total portfolio investments in India’s financial markets are estimated at $450 billion. The circular, issued to enhance the Know Your Client norms for FPIs, ended up imposing a blanket ban on certain types of investments where NRIs, PIOs or OCIs were investors (beyond a threshold) or even served as senior managing officials of these funds. The circular delegates the task of identifying high-risk jurisdictions, with tighter KYC norms, on custodian banks.

•Last week, SEBI called AMRI’s warning as “preposterous and highly irresponsible”. Yet, by the weekend the H.R. Khan Committee set up by SEBI recommended changes that may be made to the regulator’s directive, addressing most of the concerns raised by the FPIs. The panel’s report clarified that NRIs, OCI card-holders and resident Indians can manage the investments of any FPI registered with SEBI and, more importantly, hold up to 50% of an FPI’s assets under management. This has removed any ambiguity and provided relief to foreign investors who were left guessing how the term ‘majority’ — as stated in the April circular — would be determined by SEBI while applying the beneficial ownership test. The committee said the deadline for complying with the circular, which was already extended from August 31 to December 31, must be extended further, and funds with investments breaching the final thresholds that the regulator decides upon should be granted 180 days to unwind positions. SEBI has now announced public consultations before it finalises these norms, and in the process created some breathing space for such funds to remain invested on Dalal Street. No one should have a grouse with attempts to curb round-tripping of illegal domestic wealth into the Indian market through the foreign investments route. But treating all FPIs with Indian-origin managers as potential conduits of illicit money is unwise. SEBI could have managed all of this as an independent regulator had it held a timely dialogue with stakeholders before framing these norms, as it usually does. Such policy uncertainty and sharp about-turns will do little to enhance India’s credibility among global investors.

📰 Bankruptcy court should be the final option: Rajan

‘Loan renegotiation to be done under its shadow, not in it’

•Former RBI Governor Raghuram Rajan is of the view that bankruptcy court should be the final option and loan renegotiation should be done under its shadow, not in it.

•“Banks and promoters have to strike deals outside of bankruptcy, or if promoters prove uncooperative, bankers should have the ability to proceed without them,” he said in a note prepared for the Parliament Estimates Committee at the request of its chairman Dr. Murli Manohar Joshi.

•Dr. Rajan’s statement assumes significance in the backdrop of the ongoing resolution of 20 power sector NPA accounts where there’s a tussle on between the RBI and banks.

•In a different context, the former RBI governor blasted those who were saying that the RBI was responsible for the slowdown in credit and the economy because of its push to recognise NPAs, calling such claims “ludicrous”.

Cleanup not the problem

•“Cleanup was part of the solution, not the problem,” he said, pointing out how public sector banks had started soft-pedalling on loans to industry, agriculture and MSMEs since April 2014, well before the cleanup process began in the second half of fiscal 2015. (see graphs). This was even as they pushed hard on personal and housing loans, where the NPAs were low.

•“The slowdown is best attributed to over-burdened public sector bank balance sheets and growing risk aversion in public sector bankers,” he said, pointing out that private banks had not slowed down on their lending to industry. Their aversion was also visible in the way they slowed down on accepting deposits relative to their private sector peers.

•Conceding that the RBI “should probably have raised more flags about the quality of lending in the early days of banking exuberance,” Dr. Rajan said that with the benefit of hindsight, the RBI should not have agreed to forbearance.

•He also defended the much-criticised asset quality review initiated by him during his tenure, saying that it was necessary because banks were simply not recognising bad loans, not following uniform procedures for recognition, and not making adequate provision for loans that had stayed as NPAs for a long time.

•Looking ahead, Dr. Rajan said that governance of public sector banks had to be improved by professionalising boards and depoliticising appointments by handing it over to the Banks Board Bureau. He suggested introduction of outside talent into top management of PSBs given the talent deficit they faced.

📰 SC orders status quo on RBI’s February 12 circular

SC orders status quo on RBI’s February 12 circular
Proceedings against defaulting power companies not to commence

•The Supreme Court on Tuesday ordered status quo on the implementation of a February 12 circular of the Reserve Bank of India which mandates insolvency proceedings for a debt servicing default beyond 180 days.

•A Bench of Justices Rohinton F. Nariman and Indu Malhotra transferred the cases against the RBI circular pending in various High Courts and agreed to hear them together in November.

•Meanwhile, the apex court ordered that insolvency proceedings should not commence against the defaulting power companies.

•The circular, in a bid to efficiently realise bad loans, is part of a revised RBI framework. Power firms have argued that the provision was unfair as their debt repayment capacity was directly linked to revenue from power distribution companies and availability of coal, a natural resource closely regulated by the State.

•The circular had said the revised framework was meant for resolution of stressed assets in the economy. “In view of the enactment of the Insolvency and Bankruptcy Code, 2016, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets,” the RBI had said.

•If a resolution was not found by August 27, NPA accounts were to be sent to bankruptcy courts. Banks have exposure of about ₹1.74 lakh crore to stressed power assets.

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