28 July 2020: The Indian Express Editorial Analysis
1) Stress test-
- Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.
- A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or in arrears. A loan is in arrears when principal or interest payments are late or missed. A loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet his obligations.
- Regulatory capital is the minimum capital requirement as demanded by the regulators; it is the amount a bank must hold in order to operate. A regulator's primary concern is that there is sufficient capital to buffer a bank against large losses so that deposits are not at risk, with the possibility of further disruption in the financial system being minimized. Regulatory capital could be seen as the minimum capital requirement in a “liquidation / runoff” view, whereby, if a bank has to be liquidated, whether all liabilities can be paid off.
- Capital Adequacy Ratio is also known as Capital to Risk Assets Ratio, is the ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements. It is a measure of a bank's capital.
- In March 2020, the Reserve Bank of India had announced a moratorium(postpone) on the repayment of all term loans for both businesses and households, to ease their burden during the period of the lockdown.
- Initially allowed for a period of three months, it was subsequently extended till the end of August 2020.
FINANCIAL STABILITY REPORT:
- Data from the RBI’s latest financial stability report shows that at the end of April around half of the customers of scheduled commercial banks, accounting for half of the outstanding bank loans, opted to avail of the relief measures extended.
- Public sector banks shouldered a disproportionate burden of the moratorium with roughly two-thirds of borrowers availing of the facility, as opposed to less than half in the case of private banks.
- In subsequent months, as economic activity picked up following the relaxations of the restrictions, there has been an improvement in the situation, with those availing of this facility dropping steadily.
- According to the financial stability report, NPAs were on a downward trajectory before the COVID shock.
- While the economic slowdown is likely to adversely impact banks’ non-performing assets, greater clarity on the bank’s asset quality will emerge only once the moratorium period ends.
- While this is still some time away, the RBI has conducted a series of stress tests to project the possible impact of the economic shock on bank balance sheets.
- According to its estimates, banks’ gross NPAs may rise to 12.5 per cent by March 2021, up from 8.5 per cent in March 2020, if the economy contracts by 4.4 per cent this year.
- However, if the contraction worsens to 8.9 per cent, which some analysts are projecting, bad loans could rise to 14.7 per cent.
- Public sector banks are likely to witness a larger spurt in bad loans than their private sector counterparts, though the impact on the NBFCs/HFCs is also expected to be substantial.
- In the extreme scenario, five banks are unlikely to meet the minimum capital requirements, underlining the urgent need for banks to raise capital.
EXTENDING THE MORATORIUM:
- Owing to its fiscal constraints, the government is unlikely to recapitalise banks to the extent required.
- However, there is the possibility of the RBI extending the moratorium period or opting for a one-time restructuring of loans, especially for the stressed sectors.
- The latter will push back the requirement of banks having to raise additional capital.
- Prodding(pushing) banks to ramp(increase) up lending despite data indicating their unwillingness to take on the credit risk in the economy, could further adversely affect their balance sheets.
- This weakness in the financial sector could slow down the economic recovery.
RBI’s financial stability report underlines weakness that must be addressed, or it could slow down economic recovery.
2) Securing caregivers-
- On Sunday, Joginder Chaudhary, a junior resident doctor at Delhi’s Baba Saheb Ambedkar Hospital, lost his month-long battle with the novel coronavirus.
- That he was only 27, reportedly an athletic person without any co-morbidity(illness), speaks of the unpredictable ways of the virus — young people, especially those who do not suffer any chronic ailments, are generally deemed(considered) less vulnerable to COVID-19.
NO GOVERNMENT DATA:
- Chaudhary was placed under home quarantine initially, but the young physician’s condition deteriorated(worsened) after he complained of breathing difficulties.
- The capital’s medical fraternity had come together to pool in money for their colleague’s treatment at a private medical facility.
- But financial insecurity is just one of the risks that many workers at the frontline of the battle against the coronavirus — especially nurses and junior medicos like Chaudhary — face.
- Reports have indicated insufficient protective gear, failure to receive timely treatment, deviation from safety protocols and unexpected deterioration of condition — like in the case of the young Delhi doctor — as reasons for doctors’ deaths.
- But there is no government data on the healthcare workers who have succumbed(died) to the coronavirus.
RISKS FACED BY FRONTLINE WORKERS:
- According to the Indian Medical Association (IMA), the pathogen has claimed nearly 100 physicians, and 10 nurses. The association admits that these figures could be an underestimate.
- The head of its Kochi chapter, R Jayadevan, has compiled a report, “100 Doctors’ Deaths in India During the Times of COVID-19,” which puts the toll at 108.
- The data in this report shows that being young, and apparently healthy, is no guarantee against COVID mortality, especially for doctors and nurses.
- The average age of those claimed by the virus is around 56, according to the report.
- More than 55 per cent of the doctors who have died at the frontlines of the battle against the disease are below 60 years of age.
- And, more than a fifth of the doctors who have lost their lives to COVID are below the age of 40. The average age of the nurses who have died fighting the virus is less than 50.
- There is an urgent need to look beyond IMA data. The association’s figures do not include AYUSH and homeopathic doctors as well as ASHA workers.
- With the virus now spreading beyond metros and big cities, to places where an allopathic doctor is not always at hand, the risks faced by such healthcare workers cannot be overstated.
- It’s imperative, therefore, that government and professional medical bodies put their heads together to compile a mortality(death) register of healthcare workers.
- That could be the first step towards a scientific understanding of the deaths of medical professionals due to COVID, in order to prevent them.
- Healthcare workers, on the frontlines of the battle against the virus, need greater care and support.
3) India and Democracy's Ten-
GS 2- Effect of policies and politics of developed and developing countries on India’s interests
- In a widely noted and strongly criticised speech late last week, the US Secretary of State, Mike Pompeo, laid out two definitive propositions on China.
- One is that nearly five decades of US engagement with China have arrived at a dead-end.
- In the other, Pompeo recognised that the US can’t address the China challenge alone and called for collective action.
- He mused(consider) on whether “it’s time for a new grouping of like-minded nations, a new alliance of democracies.”
- Pompeo, however, insisted that tackling China is very unlike the “containment of Soviet Union”. It is “about a complex new challenge that we’ve never faced before.
- The USSR was closed off from the free world. Communist China is already within our borders”.
- Both propositions are of consequence to India.
- For, they signal the breakdown of the relationship between the world’s two most important powers that has shaped Asian geopolitics and the global economy in the last five decades.
- They also reflect on the need to create new frameworks to cope with emerging global challenges.
- That one of those powers, China, is a large neighbour of India and the other, America, is India’s most important partner makes the new context rather different from the Cold War between the US and the Soviet Union.
- Pompeo has drawn attention to the unique nature of contemporary Chinese political structure — the so-called party-state.
- In China, the Chinese Communist Party dominates the state organs, including the army. Hence Pompeo’s references to the “CCP regime” in China.
- Although the term, “Indo-Pacific”, was invented by the Democrats, the party platform sticks to the idea of “Asia-Pacific”.
- But it also hails the “Pacific Century” and promises to “invest in our strategic partnership with India — the world’s largest democracy, a nation of great diversity, and a growing Asia-Pacific power.”
- While India must pay close attention to the unfolding China debate in the US, it must also note the structural changes in American engagement with China over the last two decades.
- America’s political and institutional sentiment in favour of rearranging the bilateral economic relationship with China, resisting Beijing’s expansionism, and countering its influence in operations at home has gained steady ground.
- So has the idea of working with like-minded countries, especially large democracies, to balance China.
- Delhi will certainly demur(protest) at Pompeo calling the group an “alliance”. It would rather have it described as a “coalition of democracies”.
- Over the last many years, India has become comfortable with the idea of a political partnership with the world’s leading democracies.
- The NDA government led by Atal Bihari Vajpayee joined the Clinton Administration’s initiative to build a global “Community of Democracies”.
- The UPA government supported George W Bush’s democracy promotion fund at the United Nations.
- An Asian quadrilateral of democracies was very much part of the conversation between Delhi and Washington during the Obama years.
- Delhi has revived the security dialogue among the Quad (including Canberra, Tokyo and Washington).
- It is also actively engaged with Washington on the “Quad Plus” dialogue to address the challenges posed by the coronavirus by drawing other countries like New Zealand, South Korea, and Vietnam (as the current chair of ASEAN).
- Delhi has also welcomed President Trump’s initiative to convene an expanded gathering of the G-7 leaders in Washington later this year.
- Australia, South Korea and India are expected to join the meeting. Some are calling it the Group of Ten Democracies.
- While many Democrats have criticised Trump’s G-10 proposal, Biden expressed interest in convening a global democracy summit in the first few months of his presidential tenure.
- The idea of democracies working together has an enduring appeal for the US.
- That India figures in this American vision is relatively new. So is Delhi’s readiness to reciprocate(give back).
- Constructing a global coalition of democracies will take much work and quite some time.
- But engaging with that initiative, amidst the rise and assertion of China, should open a whole range of new possibilities for Indian foreign and security policies.