Current Affairs Week 6 February 2016 GS - 3 Raj Malhotra’s IAS Study Group, Chandigarh

Economy Related Issues NPAs Raj Malhotra’s IAS Study Group, Chandigarh

What are NPAs All advances given by banks are termed “assets”, as they generate income for the bank; however Loan turns bad if the interest or installment remains unpaid even after the due date and turns into a non performing asset, or NPA, if it remains unpaid for a period of more than 90 days Raj Malhotra’s IAS Study Group, Chandigarh

How Assets became NPAs Companies Over-expanded (in the hope that India would scale double- digit growth rates) Policy logjam in infrastructure Slowing domestic growth because of an uncertain world economy Willful defaulters and manipulative bank managements Raj Malhotra’s IAS Study Group, Chandigarh

Way Out SARFAESI ACT 2002 (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) The Act provides three alternative methods for recovery of NPAs – i. Securitisation ii. Asset Reconstruction (ARCs) iii. Enforcement of Security without the intervention of the Court Raj Malhotra’s IAS Study Group, Chandigarh

Corporate debt restructuring (CDR) (easing the debt conditions of borrowers) 5/25 scheme (to refinance the loan every 5-years for 25 years) Strategic debt restructuring (SDR) (transferring equity to lenders) Raj Malhotra’s IAS Study Group, Chandigarh Way Out

ARCs : (Govt.’s ARC – NAMCO to be established) JLF Norms : (to have D- SIBs as mandatory members of JLF core team) SMA Mechanism : (Special Mention Accounts) Raj Malhotra’s IAS Study Group, Chandigarh Way Out

DEBT RECOVERY TRIBUNALS : For speedy recovery of dues in cases where the loan amount is Rs. 10 lakhs and above Insolvency and Bankruptcy Bill : (TK Vishwanath Committee) Raj Malhotra’s IAS Study Group, Chandigarh Way Out

Economy Related Issues Yuan Devaluation Raj Malhotra’s IAS Study Group, Chandigarh

What is Devaluation Official lowering of the value of a country's currency by which the monetary authority formally sets a new exchange rate This is with respect to a foreign reference currency Should not be confused with Depreciation Raj Malhotra’s IAS Study Group, Chandigarh

Why did China devaluate Yuan Raj Malhotra’s IAS Study Group, Chandigarh

Global Reasons Trade Competitiveness As a response to South Korean and Japanese moves Raj Malhotra’s IAS Study Group, Chandigarh

Failure of domestic market to maintain growth High internal debt levels To push Import Substitution (because of costlier imports now after devaluation) Domestic Forces Raj Malhotra’s IAS Study Group, Chandigarh

Positive Rupee Depreciated (may push Indian Exports) Cheaper Chinese goods (may help global industry because of cheaper imports) Impact on India Raj Malhotra’s IAS Study Group, Chandigarh

May hurt some Indian Exports May hurt some domestic industries May impact FDI in India May be inflationary (as Rupee will depreciate and some imports may get costlier) Negative Raj Malhotra’s IAS Study Group, Chandigarh

Extend protection against dumping Focus on Ease of doing business RBI can help manage exchange rate volatility China’s inclusion in IMF’s SDR may prevent it from similar moves in future Way Ahead Raj Malhotra’s IAS Study Group, Chandigarh

UNTIL NEXT WEEK Subscribe to our Youtube Channel to view the video for this RMISG