Daily Quiz: UPSC Prelims Marathon (Economy) – July 14, 2020

When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment.

• The Department of Investment and Public Asset Management (DIPAM) which comes under the Finance Ministry defines Strategic disinvestment as follows:
• “Strategic disinvestment would imply the sale of a substantial portion of the Government shareholding of central public sector enterprises (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.”
• The Cabinet Committee on Economic Affairs (CCEA) approves the strategic divestment of government holdings.

The Reserve Bank of India (RBI) on June 7, 2019 issued a new framework for resolution of bad loans, replacing the previous norms quashed by the Supreme Court in April, offering a 30-day gap for stress recognition instead of the one-day default earlier.

• The new norms replaces all the earlier resolution plans such as the framework for revitalising distressed assets, corporate debt restructuring scheme, flexible structuring of existing long-term project loans, strategic debt restructuring scheme (SDR), change in ownership outside SDR, and scheme for sustainable structuring of stressed assets (S4A), and the joint lenders’ forum with immediate effect.
• The central bank said lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA).
• Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default.
• The central bank said once a borrower is reported to be in default by any lenders, financial institutions, small finance banks or NBFCs, the lenders shall undertake a prima facie review of the borrower account within 30 days from the day of default.

The RBI has slapped restrictions on Punjab and Maharashtra Cooperative Bank Ltd (PMC Bank).It has also appointed an administrator and superseded its board of directors.

• The PMC had been placed under ‘directions’ of the Reserve Bank of India (RBI) for six months, after irregularities had been found in lending.
• The RBI has issued directions in exercise of powers vested in it under sub section (1) of Section 35 A of the Banking Regulation Act, 1949, read with Section 56 of the Banking Regulation Act, 1949 (AACS).

The functions of the DICGC are governed by the provisions of ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961’ (DICGC Act) and ‘The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961’ framed by the Reserve Bank of India in exercise of the powers conferred by sub-section (3) of Section 50 of the said Act.

Banks covered by Deposit Insurance Scheme are:

• All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks.
• Co-operative Banks – All eligible co-operative banks as defined in Section 2(gg) of the DICGC Act are covered by the Deposit Insurance Scheme.
• All State, Central and Primary co-operative banks functioning in the States/Union Territories which have amended their Co-operative Societies Act as required under the DICGC Act, 1961, empowering RBI to order the Registrar of Co-operative Societies of the respective States/Union Territories to wind up a co-operative bank or to supersede its committee of management and requiring the Registrar not to take any action for winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the RBI, are treated as eligible banks.
• At present all Co-operative banks are covered by the Scheme. The Union Territories of Lakshadweep and Dadra and Nagar Haveli do not have Co-operative Banks.

RBI’s Prompt Corrective Action (PCA) Framework is a set of guidelines for banks that are weak in terms of identified indicators including – poor asset quality, insufficient capital and insufficient profit or losses.

• The Reserve Bank of India initiated the Scheme of Prompt Corrective Action (PCA) in 2002 to discipline banks when they report poor and risky financial performance.
• PCA is a policy action guideline (first in May 2014 and revised effective from April 1, 2017) if a commercial bank’s financial condition worsens below a mark.
• The PCA framework specifies the trigger pointsor the level in which the RBI will intervene with corrective action. This trigger points are expressed in terms of parameters for the banks.

The parameters that invite corrective action from the central bank are:

• Capital to Risk weighted Asset Ratio (CRAR)
• Net Non-Performing Assets (NPA)
• Return on Assets (RoA) and
• Leverage ratio

Bimal Jalan Committee was set up to review the economic capital framework of the RBI.

• Its mandate was to review global best practices followed by the central banks in making assessment and provisions.
• It has suggested that the framework may be periodically reviewed after every five years.
• The panel recommended to align the central bank’s accounting year with the financial year which could reduce the need for paying interim dividend.
• The panel also suggested a clearer distinction between the two components of economic capital — realized equity and revaluation balances — mainly because of the volatile nature of the revaluation balances.

The central bank has three different funds that together comprise its reserves. These are the Currency and Gold Revaluation Account (CGRA), the Contingency Fund (CF) and the Asset Development Fund (ADF).

• Of these, the CGRA is by far the largest and makes up the significant bulk of the RBI’s reserves.
• The fund, which in essence is made up of the gains on the revaluation of foreign exchange and gold, stood at ₹6.91 lakh crore as of financial year 2017-18.
• The CGRA has grown quite significantly since 2010, at a compounded annual growth rate of 25%.
• The CF is the second biggest fund, amounting to ₹2.32 lakh crore in 2017-18.
• It is designed to meet contingencies from exchange rate operations and monetary policy decisions and is funded in large part from the RBI’s profits.
• The ADF makes up a much smaller share of the reserves.

According to the National Commission of Farmers 2007, the term “FARMER” will refer to a person actively engaged in the economic and/or livelihood activity of growing crops and producing other primary agricultural commodities and will include all agricultural operational holders, cultivators, agricultural labourers, sharecroppers, tenants, poultry and livestock rearers, fishers, beekeepers, gardeners, pastoralists, non-corporate planters and planting labourers, as well as persons engaged in various farming related occupations such as sericulture, vermin-culture, and agro-forestry. The term will also include tribal families / persons engaged in shifting cultivation and in the collection, use and sale of minor and non-timber forest produce.

The Tamil Nadu Government has introduced a Bill in the Legislative Assembly seeking to declare the Cauvery delta region a Protected Special Agriculture Zone (PSAZ).

• The Bill said, since certain non-farming activities were adversely affecting agriculture in the region, threatening the State’s food security, “to protect the agriculture in this region, it is proposed to prohibit certain activities in the region.”
• The Bill also sought to establish a 30-member Tamil Nadu Protected Agricultural Zone Authority headed by the Chief Minister to advise the government on various measures to protect and improve farming activities to increase farm production and farm productivity to serve the interest of farmers.
• The proposed PSAZ would comprise of Thanjavur, Tiruvarur and Nagapattinam districts and five blocks each in Cuddalore and Pudukkottai districts.
• These areas have been listed under the First Schedule of the Act, to which the government may add or omit any area in the future.
• The government has identified zinc smelter; iron ore process plants, copper smelter, aluminum smelter, tannery, and ship breaking industries among others as industries that adversely affect agriculture developments in the PSAZ. This list in the Second Schedule of the Act too, is subject to omission and addition subsequently.

The MIEWS Dashboard and Portal is a ‘first-of-its-kind’ platform for ‘real time monitoring’ of prices of tomato, onion and potato (TOP) and for simultaneously generating alerts for intervention under the terms of the Operation Greens (OG) scheme.

• This portal is a novel initiative of MoFPI leveraging IT tools and furthering the goals of Digital India.
• The portal would disseminate all relevant information related to TOP crops such as Prices and Arrivals, Area, Yield and Production, Imports and Exports, Crop Calendars, Crop Agronomy, etc in an easy to use visual format.