Context: 

Banks have written off bad loans worth ₹14.56 lakh crore in the last nine financial years starting 2014-15.

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Current Status of Loan Write-off in India:

• Total Loan written off: ₹14.56 lakh crore
  • Loans Written-off by Category (Large Industries and Services): ₹7,40,968 crore
• Recovery in Written-off Loans by Scheduled Commercial Bank (SCBs):

• Net write-off loans by public sector banks: 

• Net write-off loans by private sector banks: ₹73,803 crore (RBI provisional data) in FY23

About Bad Loan and NPA:

• Bad Loan: A bad loan is that which has not been ‘serviced’ for a certain period. 
  • Servicing a loan is paying back the interest and a small part of the principal — depending on the agreement between bank and borrower.
• Non-Performing Asset (NPA):
  • All advances given by banks are termed “assets”, as they generate income for the bank by way of interest or installments. 
  • However, a loan turns bad if the interest or installment remains unpaid even after the due date.
  • A loan becomes an NPA when the principal or interest payment remains overdue for 90 days.
  • For agriculture, if principle and interest is not paid for two cropping seasons, the loan is classified as NPA.
  • Classifications of NPA:
    • Substandard Assets: Assets that have remained NPA for a period less than or equal to 12 months.
    • Doubtful Assets: An asset remained in the substandard category for a period of 12 months.
    • Loss Assets : An asset which is identified as a loss by the bank but not written off yet
  • Additional Terms: 
    • Gross Non-Performing Assets (GNPA): It is the summation of all the loans that have defaulted by individuals from financial institutions. 
      • GNPA ratio is defined as a percentage of GNPA with total assets.
    • Net Non-Performing Assets (NNPAs): It is calculated by subtracting provision for doubtful debt maintained by respective banks from GNPAs. 
      • The NNPAs ratio is defined as a percentage of NNPA with respect to total assets.

What is a loan write-off?

• A loan write-off occurs when a lender removes a loan from its books, no longer considering it as an asset due to borrower default. 
• Tax Liability Reduction: Writing off loans decreases the bank’s tax liability as the written-off amount is subtracted from profits.

Status of NPA:

• In financial year 2022, public sector banks in India reported a total of over 5.4 trillion Indian rupees in gross non-performing assets (NPA). 
• This was a decrease from the 7.3 trillion Indian rupees in 2019. 
• In contrast, private sector banks reported a decrease from two trillion Indian rupees to 1.8 trillion Indian rupees in financial year 2022 in gross NPAs.

Factors Behind the Surge in NPAs:

• Economic Factors Leading to NPAs:
  • Optimistic Economic Outlook: Many bad loans emerged during 2006-2008, a period of robust economic growth.
    • This led to riskier lending decisions without proper due diligence.
  • Global Economic Slowdown: Strong global growth pre-2008 Global Financial Crisis (GFC) was followed by a broader economic slowdown, affecting India too.
  • Structural Economic Inefficiencies: Project delays,  cost overruns, and regulatory processes create inefficiencies that contribute to NPA generation.
  • Increased NPAs in MSMEs: Gross NPAs of MSMEs rose by Rs 20,000 crore to Rs 1,65,732 crore as of September 2021 from Rs 1,45,673 crore in September 2020.
  • NPA under Pradhan Mantri MUDRA Yojana: 
    • The Micro Units Development & Refinance Agency (MUDRA) was launched on April 8, 2015 to provide loans up to Rs 10 lakh to non-corporate, non-farm, small and micro enterprises.
    • Bad loans under the MUDRA Yojana for all banks is 3.38 per cent of the total disbursements.
• Structural Reasons:
  • Lack of Identification: Lack of continuous monitoring in regulation resulted in evergreening loans instead of restructuring, delaying prompt action due to the inability to identify assets quickly.
  • Loss of Interest from Promoters and Banks: When project delays depleted promoters’ equity, they lost interest. This led to project restructuring delay or banker abandonment, resulting in “zombie” projects.
  • Weak Corporate Governance: Poor board quality with regard to due diligence, transparency, and accountability processes resulted in poor decision-making and ineffective credit utilization.
• Other Reasons:
  • Promoter Fraud: Fraud cases within public sector banks are on the rise, though smaller compared to overall NPAs. Lack of appropriate action against culprits might have led to fraudulent behavior.
  • Manipulation of Restructuring: Before the Insolvency and Bankruptcy Code, promoters had significant influence on restructuring. 
    • Promoters could convert bank lending to equity, benefiting from gains while shifting losses to banks.

How NPAs affect banks?

• Financial Performance: NPAs result in uncollected loan principal and interest, causing financial losses for banks. This affects their revenue and overall profitability.
• Capital Base: Banks need to set aside provisions for NPAs, eroding their capital base. This can challenge their ability to meet regulatory capital requirements.
• Liquidity Strain: Setting aside funds as provisions for NPAs affects banks’ liquidity, limiting their lending capacity and credit availability in the economy.
  • The lack of liquidity prevents banks from lending and it may slow down the economy leading to unemployment, inflation, bear market, etc.
  • High Interest Rate: To maintain their profit margins, banks will be forced to increase interest rates which again hurt the economy.

Laws and Provisions related to NPAs:

• The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002: It allows banks and financial institutions to seize collateral and sell them to recover dues without court intervention.
• Insolvency and Bankruptcy Code (IBC), 2016: It Offers a framework for time-bound resolution of stressed assets and supports creditors.
  • Establishes National Company Law Tribunal (NCLT) and Insolvency and Bankruptcy Board of India (IBBI) to oversee the process.
• Bad Banks (2017):  A bad bank separates risky and non-performing assets from a financial institution. It is also known as Asset Management Company (AMC).
  • Former Interim Finance Minister introduced the idea of National ARC on the recommendation of the Sunil Mehta-led Committee.
  • India’s first ever bad bank is National Asset Reconstruction Ltd (NARC). It purchases bad loans from banks, and sells them to distressed debt buyers.
    • It is majorly controlled by PSBs, to acquire stressed loan assets above Rs 500 crore each amounting to about Rs 2 lakh crore in phases.
  • India Debt Resolution Company Ltd (IDRCL) as an ARC sells stressed assets in the market.
• Prompt Corrective Action Framework:
  • RBI launched PCA in 2002 for early intervention in struggling banks.
  • Aim: To monitor and assist banks facing undercapitalization due to poor asset quality or loss of profitability.
  • 2017 Review: The framework was reassessed in 2017 based on recommendations from the Financial Stability and Development Council and the Financial Sector Legislative Reforms Commission.
  • Parameters include:
    • Capital to Risk Weighted Assets Ratio (CRAR)
    • Net Non-Performing Assets (NPA)
    • Return on Assets (RoA)
• Gross NPAs of PSBs have declined to ₹4.28 lakh crore as on March 31, 2023 from ₹8.96 lakh crore as on March 31, 2018.

Way Forward:

• Time-Bound Resolution: Introduce a sunset clause for resolution through Bad Banks to ensure timely action. 
• Asset Maintenance: Establish a suitable mechanism within Bad Banks to fund the maintenance of asset quality during the resolution process.
• Strengthened Resolution Oversight: Set up more panels similar to the one by Indian Banks’ Association (IBA) to oversee resolution plans.
  • IBA has set up a six member panel to oversee resolution plans of lead lenders.
• Swift Recapitalization: Infuse additional capital into banks in a single installment to expedite recapitalization. 
• Transparency: Continue transparent NPA recognition to maintain accurate data on bad loans.
• CIBIL Score: Utilize CIBIL scores to assess loan eligibility, ensuring responsible lending.
  • Defaulters’ Information Circulation: Actively share information about defaulters to prevent them from obtaining further loans.
• Alternative Dispute Resolution Mechanisms: Promote the use of Debt Recovery Tribunals and Lok Adalats for quicker settlements.

News Source: The Hindubisinessline

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Context:

• As per studies conducted on river dolphin, population of Gangetic river dolphin in the mainstream Ganga is known to be stable, although there has been decline in tributaries. 

About Gangetic River Dolphin:

• The Ganges river dolphin can only live in freshwater and is essentially blind.
• They hunt by emitting ultrasonic sounds, which bounces off of fish and other prey, enabling them to “see” an image in their mind.
• Distribution: Seven states namely, Assam, Uttar Pradesh, Madhya Pradesh, Rajasthan, Bihar, Jharkhand and West Bengal.
• Habitat: The upper Ganga River (in Uttar Pradesh), Chambal River (Madhya Pradesh and Uttar Pradesh), Ghaghra and Gandak Rivers (Bihar and Uttar Pradesh), Ganga River, from Varanasi to Patna (Uttar Pradesh and Bihar), Son and Kosi rivers (Bihar), Brahmaputra from Sadia (foothills of Arunachal Pradesh) upto Dhubri (on the Bangladesh border) and Kulsi River, a tributary of the Brahmaputra River, form ideal habitats for the Ganges river dolphin.
• Protection Status:
  • IUCN Status: Endangered 
  • Wild Life (Protection) Act, 1972: Schedule I.

Government Efforts for conservation of Gangetic  River Dolphin:

• Gangetic river dolphin has been designated as the National aquatic Animal of India.
• The Ministry has included Gangetic river dolphin as one of the 22 critically endangered species for providing financial assistance to States under the Centrally sponsored scheme ‘Development of Wildlife habitats’.
• Important habitats of Gangetic river dolphin along the Ganges river has been notified as Protected Areas, such as Vikramshila Dolphin Sanctuary, Bihar.
• A comprehensive action plan (2022-2047) has been developed to ensure well being of the river dolphin and aquatic habitats, the role of various stakeholders and line Ministries have been identified.

Other River Dolphins around World:

• Indus River Dolphin: Now found only in the lower parts of the Indus River in Pakistan and in River Beas, a tributary of the Indus River in Punjab, India.
• Amazon river Dolphin: Unique freshwater species found only in the rivers of South America. 
• Irrawaddy Dolphin: found in marine, brackish, and freshwater environments throughout southeast Asia.
• Yangtze finless porpoise: Only freshwater porpoise in the world. It can only be found in China’s Yangtze River, the longest river in Asia.
• Tucuxis: Overlap in range with Amazon river dolphins inhabiting the central region of the Amazon river basin

News Source: PIB

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Context: 

• Various initiatives have been launched by the local population in order to save the dying Deepor Beel.

About Deepor Beel:

• It is one of the critical wetlands of the Brahmaputra Valley in lower Assam and the state’s lone Ramsar site (declared in 2002), besides being a significant area for resident and migratory birds. 
• It has also been a patch for the elephant movement for ages and the 4.14 square kilometre area of the beel has been declared a wildlife sanctuary.
• Threat: Despite being a wetland protected by law, it is subjected to several anthropogenic threats, including that from a railway track that runs parallel to the wetland and a waste yard in its periphery.

Simang:

• Simang is a collective initiative by six women under which they have successfully transformed the invasive weed, water hyacinths into beautiful artefacts and yoga mats. 
  • Water hyacinths can rapidly multiply within a week, making it a persistent problem for the ecosystem.
• Initiative has provided employment to 38 women from the community. 
• During COVID-19 pandemic, Simang was able to provide a livelihood to its employees who process raw materials from the Deepor Beel and weave the products in their own handloom.

Kumbhi Kagaz:

• It focuses on ecologically restoring Deepor Beel while simultaneously creating alternative livelihoods for the locals of Keotpara. 
• The initiative converts water hyacinths into 100 per cent biodegradable, chemical-free handmade papers. 
• Kumbhi Kagaz efforts have significantly improved the growth of makhana (prickly water lily) in the wetland, which has high commercial value.

News Source: DTE

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Context:

• The government’s North East Venture Fund (NEVF) has invested in 37 startups since its launch in 2017 as per Minister of Development of the North East Region.

North East Venture Fund (NEVF):

• NEVF, which is the first and the only dedicated Venture Fund for the North Eastern Region is gaining popularity among Start-Ups and young entrepreneurs. 
• The Venture Fund Scheme launched by the Ministry of Development of North Eastern Region (DoNER) intended to promote growth of business ventures and skill development in the region.
• The fund targets to invest in Start-Ups and unique business opportunities to provide resources for new entrepreneurships.

News Source: Financial Express

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• A new research claimed to be the first climate-adjusted sovereign credit rating has found links between the creditworthiness of countries and the impact of climate change. 

More about the news:

• A team of economists at UEA and Cambridge used artificial intelligence (AI) to simulate the economic effects of climate change on Standard and Poor’s (S&P) ratings for 108 countries over the next 10, 30 and 50 years and by the end of the century.

Key Highlights from the Research:

• If emissions aren’t reduced, around 59 countries might experience a decline in their sovereign credit ratings, including India. 
• Over the next decade, there could be a rise in global corporate debt. 
• According to research from the University of East Anglia and the University of Cambridge, countries like Chile, Indonesia, China, and India could see a two-notch drop, while the United States, Canada, and the United Kingdom could also experience a two-notch or one-notch reduction. 
• The results showed that many national economies can expect downgrades unless action is taken to reduce emissions. 
• The study suggested adherence to the Paris Climate Agreement, with temperatures held under a two-degree rise, would have no short-term impact on sovereign credit ratings and keep the long-term effects to a minimum. 

Significance: The research contributes to bridging the gap between climate science and real-world financial indicators. 

Sovereign Credit Rating:

• Sovereign credit rating is an independent assessment of the creditworthiness of a country or sovereign entity. 
• Significance: It can give investors insights into the level of risk associated with investing in the debt of a particular country, including any political risk.
  • At the request of the country, a credit rating agency will evaluate its economic and political environment to assign it a rating. 
• Various entities involved in credit rating in India include CRISIL, ICRA, Fitch Ratings, etc.

News Source: DTE

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Context:

• West African bloc ECOWAS is set to hold discussions about Niger after the junta defies the deadline.

About ECOWAS(Economic Community of West African States):

• The Economic Community of West African States is a regional political and economic union of fifteen countries located in West Africa.
• Goal: To achieve “collective self-sufficiency” for its member states by creating a single large trade bloc by  building a full economic and trading union.
• Origin: The union was established on 28 May 1975, with the signing of the Treaty of Lagos, with its stated mission to promote economic integration across the region.
• Members: The 15 members of the ECOWAS are Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

Sub-regional blocks of ECOWAS:

• West African Economic and Monetary Union is an organisation of eight, mainly French-speaking, states within ECOWAS which share a customs union and currency union.
•  West African Monetary Zone (WAMZ): It was established in 2000, comprises six mainly English-speaking countries within ECOWAS which plan to work towards adopting their own common currency, the eco.

Significance of ECOWAS: 

• Geographic: The bloc represents West Africa’s regional cooperation as envisaged in the Treaty of the African Economic Community.
• Economic: It promotes economic cooperation among member states in order to raise living standards and promote economic development. 
• Strategic: ECOWAS has worked to address security issues by developing a peacekeeping force for conflicts in the region with member states occasionally sending joint military forces to intervene in the bloc’s member countries at times of political instability and unrest.

News Source: DTE

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Context:

Recently, the Parliament has passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 to amend the Mines and Minerals (Development and Regulation) Act, 1957.

Key Features of Mines and Minerals (Development and Regulation) Amendment Bill, 2023:

Why did the need arise to amend the Mines and Minerals (Development and Regulation) Act, 1957?

• Enhance Private Sector Participation:  The new Bill seeks to bring exploration processes in India at par with that of developed countries by getting private sector capacity into exploration.
  • For Example: In Australia, private mining firms called junior explorers, engage in risk-taking by putting their expertise and limited financials into explorations to find potential mines and accelerate the pace of exploration.

Issues with the Bill’s proposals:

• Lack of Clarity:  The explorer would not know how much revenue they will receive as the auction premium would be known only when a mine is successfully auctioned.
• Revenue Generation for Private Exploration Companies: The primary way of generating revenue for a private company that has an exploration license would be a share of the premium paid by the miner, which would come only after a successfully discovered mine is auctioned and operationalised. 

Mining Sector in India:

• Number of Mines: As of FY22, the number of reporting mines in India were estimated at 1,425, of which reporting mines for metallic minerals were estimated at 525 and non-metallic minerals at 720.
• Increase in Mining GDP: As per data from the Ministry of Statistics and Programme Implementation (MOSPI), India’s mining GDP increased from Rs. 739.90 billion (US$ 8.98 billion) in the fourth quarter of 2020 to Rs. 913.03 billion (US$ 11.09 billion) in the first quarter of 2021.
• Production of Various Minerals:
  • Iron ore:India’s iron ore production stood at 250 MT in FY22, an increase of 23% compared with 204 MT in FY21.India ranks fourth globally in terms of iron ore production.
  • Coal:India’s overall coal production has seen a quantum jump to 893.08 MT in FY23 as compared to 728.72 MT in FY19 with a growth of about 22.6%.
  • Steel: India’s crude steel production stood at 71.3 MT in FY23

Image Credits:ibef

Government Initiatives: 

• National Mineral Exploration Policy: It aims at making available geoscientific data of world standards in the public domain. 
• The Mines and Mineral Development and Regulation Act (MMDR): It was amended in 2015 and then in 2016 to make the process of allocation of mineral blocks more transparent and competitive through auction.
  • Mineral Conservation and Development (Amendment) Rules 2021: These rules are  regarding conservation of minerals, systematic and scientific mining, and development of minerals in the country for environment protection.
• Production Linked Scheme: In 2022, PLI Scheme for domestic production of specialty steel has been approved with an outlay of Rs.6,322 crore (US$ 762.4 million) by the Cabinet.
• District Mineral Foundation (DMF): It has been established in 622 districts of 23 States and a total of Rs. 71,128.71 Crore (US$ 8.5 billion) has been collected till October 2022.
  • At least 60 percent of the DMF funds are earmarked for high-priority areas, including: drinking water supply, environment preservation and pollution control measures, healthcare, education.

Challenges:

• Lack of Advanced Technology: Deep seated resources or minerals located in eco-sensitive areas have not been considered for mining due to lack of advanced and eco-sensitive technology. 
  • For example, the Jharia coal block, which has large coking coal resources that can help meet steel industry coking coal demand, is un-utilised due to the ongoing fire.
• Red Tapism: Long clearance time for different licenses and limitations like captive use also hamper mining output. 
  • For example, in India it takes 4+ years to get a mining lease, compared to less than a year for other major mining countries such as Brazil, Chile, the US and Canada.
• Global Market Fluctuations: The mining sector is influenced by global market demand and prices, making it susceptible to economic fluctuations and geopolitical events.
• Infrastructure Challenges: Many mining areas lack basic infrastructure such as electricity, water supply, and healthcare, affecting the quality of life for local communities.
• Skill Shortages: There is a shortage of skilled workforce in the mining sector, which impacts the efficiency and safety of operations.
• Social Issues: Mining areas may experience social issues such as labor disputes, inadequate working conditions, and conflicts with local communities over resource access and benefits.

Way Forward:

• Addressing the Skilled Labour Gap: Proactively address the mining skilled labor gap by augmenting capacity in educational institutions and partnering with industry, HRD ministry or the National Skill Development Council.
• Adherence to Laws: Mining companies need to understand the economic value of the resource and avoid any wastage of valuable minerals. It is critical to ensure that all the rules from exploration stage to mine closure stage are followed.
• Consistent Policy: For restoring investor confidence, the government should ensure that no retrospective changes are made in the policy of allotment, taxation and general administration.
• Collaboration with Stakeholders: Foster collaboration among government, industry, academia, and local communities to ensure holistic development and responsible mining practices.
• Community Engagement: Prioritize local community involvement, ensuring fair compensation, employment opportunities, and sustainable development in mining regions.
• Adoption of Sustainable Practices: Emphasize environmentally friendly mining practices, ensuring minimal ecological impact and proper land reclamation after mining activities.

News Source: The Hindu

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