Page 1

RBI MANDATES BANKS TO IMPLEMENT BASEL-IV

New Delhi: Many Indian banks will face significant capital shortfalls after RBI issued a circular stating all banks need to follow the Basel-IV norms proposed by the Basel Committee on Banking Supervision (BCBS) within a year. Ahead of the implementation of the stringent capital requirements under the Basel-IV regime, the Reserve Bank had amended a slew of previous regulations on the same, helping banks shore up their capital buffers and improve liquidity coverage ratios. The current state of the suggested changes includes a mix of consultation papers and finalized standards that would rework the approach to risk-weighted assets (RWA) and possibly internal ratings, as well as set regulatory capital floors. The situation of NPAs have remained stalemate despite the implementation of Basel III four years ago. Basel III made amendments which widened the assets of banks such as the holding excess Cash Reserve Ratio (CRR), excess G-secs holdings in Statutory Liquidity Ratio (SLR); and also excess g-secs under marginal standing facility (MSF), which could be included in the stock of liquid assets. The newly appointed governor, Raghuram Rajan who is serving his second term as governor said that, “If banks do nothing to mitigate their impact, these rules will require about INR 20 lakh crores in additional capital, while reducing the banking sector’s return on equity by 80 basis points. This is a game changer for the Indian banking industry. However, the impact of Basel “IV” will be much greater than initially anticipated. Banks will need to raise more capital, and will likely have to take some unconventional measures to comply. The repercussions will vary, depending on banks’ geography and business model, and will require actions tailored to the individual bank’s circumstances. Whilst Basel III focused on the reform of regulatory capital, Basel IV changes the approaches for the calculation of RWA, regardless of risk type and irrespective of whether standardized approaches or internal models are used. The new standardized model defines five aspects for calculation of RWA segregating it as Capital floors, Credit Risk, Market risk, Operational Risk


and Other Risks. Various potential phase-in arrangements were agreed upon previously. The phase in started from 2019 with buffers kept at 50, 55, 60, 65, 70 per cent per year respectively each year eventually settling at 72.5% based on the new standardized approach. For credit risk, revised standardized approach including broadly revised risk weights and additional diligence requirements are provided. Constraints are put up on the use of internal models for credit portfolios and calculation of Credit Value Adjustment. New rules are defined for securitization of RWA and simple, transparent and comparable STC securitizations. Restrictions are kept for the trading books with additional approaches for calculation of Exposure at Default (EAD) for derivative instruments. Use of defined metrics as “Unbiased Business Indicator” is suggested as a measure of operational risk exposure combined with the collection and analysis of historical data loss. Collectively, the changes will require banks to re-examine capital consumption across their business lines and potentially adjust their pricing and product offerings. The revised framework will therefore have an impact on firms’ strategy and business models. RBI expects that it will also result in some redistribution of capital in the system. The capital floors are likely to be the main focus area for the larger banks, while smaller institutions will have to consider particularly carefully what infrastructure and technology enhancements will be needed to handle the increased volume and granularity of data required under the more complex standardized approaches. While final rules are still pending, banks should create transparency based on the expected rules, already define mitigating actions, and start implementing “no-regret” measures to appropriately manage the new rules as well as expectations of rating agencies and investors.

CHINA BANS FOSSIL FUEL VEHICLES

Beijing: China, the world’s largest economy, plans to cut off all sales of combustion-engine automobiles. The world’s biggest vehicle market, responsible for around 30 percent of global passenger vehicle sales has finally taken the decision to ban on the production and sale of fossil fuel cars in a major boost to the production of electric vehicles as the country seeks to ease pollution. The bold move comes as the government struggles to respond to public outcry in major Chinese cities struggling with crippling air pollution. China was already among the premier nations


to implement the policies regarding the phasing out of fossil fuel vehicles. China had already announced that automakers that wanted to manufacture fossil fuel-powered cars first must produce low-emission and zero-emission cars to attain a new energy vehicle score. The government is in the process of creating incentive programs for companies that make efforts to develop efficient electric vehicles. In 2019, carmakers were enforced to produce a total of 20% or more electric vehicles, and 40% or more by 2020 which increased to 75% last year, a move led by president Xi Jinping back in 2019. At a time where natural energy has been taking the market by storm this move isn’t a surprise. Solar and wind energy are now advancing on exponential curves with solar installation rates are doubling, and photovoltaic-module costs are falling by about 30 per cent when compared to two years ago. Using this China has been able to successfully grab the opportunity to define the global plug-in vehicle market and has already become a hotbed of development, with numerous manufacturers already clamored strong footholds in the Chinese plug-in vehicle market. Honda, Nio, and Volkswagen have already produced dozens of models of EVs with the cars getting more and more efficient every year. BYD, who was an early adopter of EV manufacturer has established itself as an industry leader in the market. It leads Chinese electric car sales thanks to several consumer models that are already quite popular in the country, supported by an ever-growing suite of fleet offerings. The move also further enhances China to cut oil imports, which are a constant drag on its economy. Shifting money flowing out of the country for fuel imports to domestic renewable electricity generation has only made the deal that much sweeter. UK and France will soon be joining China in achieving the goals of complete phase-out of internal combustion vehicles which is expected to be completed within 2026. India also has plans to end gas and diesel car sales by 2030, while the global leader in EVs Norway, which now has close to 80 percent of new hybrid, electric or hydrogen registered vehicles plans to end all gas and diesel sales by 2025. It is just one of many remarkable developments around EVs recently. The past year has seen trumpet blast after trumpet blast heralding the arrival of an EV revolution sooner than most analysts expected. How fast that revolution will unfold is the source of much dispute and uncertainty. And it matters a great deal to oil demand, electricity demand, greenhouse gas emissions, air pollution, and global trade flows.


TURKEY AND EU AGREE ON A DIFFERENTIATED UNION

Paris: Turkey's path to EU membership started two years after the bloc's formation, in 1959, when it first applied to join the European Economic Community (EEC). Since then, Turkey has signed the Ankara Treaty in 1963 with EEC, submitted a formal request for full membership in 1987, joined the customs union with the EU in 1996, became an EU candidate in 1999, and finally, in 2005 the accession negotiations started. Turkey had been waiting for its accession to the EU for decades now. While a full accession was becoming less likely every year after ties between Turkey and Europe worsened amid mass arrests and firings carried out by Erdogan's government following a July 2016 coup attempt. The relations were deteriorated further after authorities in several countries prevented Turkish ministers from holding political rallies to court emigrants' votes in a referendum to expand the president's powers. Additionally, discussions over Turkey's human rights records, liberties and democracy created skepticism in many European capitals always presented a problem. For Turkey, EU accession was bigger than just a foreign policy issue as it was a key political goal that had the power to create a change in various areas of policy. As described in the Turkish Industry and Business Associations’ declaration for Europe Day 2017, the accession process became the driving force behind Turkey's transformation through reform. It had also served positively in Turkey's relations with other regions, it had become economically appealing and a reference for democracy for emerging countries. The EU accession was an opportunity in terms of fundamental democratic reforms, a liberal environment and technical regulatory alignment. Despite the volatile nature of Turkey’s relationship with EU, over the last few years there had been a belated European awakening to Turkey’s strategic value. The foreign and security policy, energy and the economy with the issue of migration and the so called refugee crisis over the past few years, all things were pointing to Turkey’s strategic importance. With the politics of fear and instincts of border closure dominating, Turkey seemed like a “patty” between the burger to solve the problem between peaceful and prosperous Europe and a war ravaged Middle East. The rise of Euroscepticism within the core group of EU was one of the major reason for the inclusion of Turkey.


The deal includes free movement of labor and people between Turkey and EU in addition to the Customs Union agreed upon previously. Turkey in other words, would progressively integrate in the EU without participating in the most federal elements such as Eurozone, an eventual genuine European Common Asylum System (ECAS) or Permanent Structured Cooperation (PESCO). The EU’s recommitment towards Turkey and Turkey’s convergence with the EU would also enhance the Union’s outreach and clout the eastern and southern neighborhoods benefiting both the parties.

INDIA TO LEGALISE SAME-SEX MARRIAGE

New Delhi: In a historic move, India is set to become the latest country to approve gay marriage, after the Supreme Court on Sunday signed off on a new constitution that defines marriage as “the consensual union of two people, regardless of gender”. Over the past decade, LGBT people have gained more and more tolerance in India, especially in big cities. Nonetheless, most LGBT people in India remain in the closet, fearing discrimination from their families, who may see homosexuality as shameful. India’s about-face on gay rights has been in train for decades. It all started in 2006, when India’s influential elite sent an open letter demanding that Section 377, a 158-year-old colonial-era law


criminalising sexual activities be scrapped. Among these were people like author Arundhati Roy, Nobel laureate Amartya Sen, poet Vikram Seth, and journalist Rajdeep Sardesai. On 24 August 2017, the Supreme Court of India in its landmark judgement held that Right to Privacy is a fundamental right protected under Article 21 and Part III of the Indian constitution. But the judgement did not uphold the decriminalisation of same sex marriages. In October 2017, a group of citizens proposed a draft of a new Uniform Civil Code that would legalise same-sex marriage to the Law Commission of India. Since then, it has been a long struggle to turn it into reality.

INDIA’S WATER CRISIS TURNS INTO REALITY

New Delhi: In a major crisis, as many as 21 major cities of India have run out of water and are set to face ‘day zero’— a term that got popular after the major water crisis in Cape Town in South Africa. Population growth and a record drought, perhaps exacerbated by climate change, is sparking India’s most dramatic urban water crises, as 21 major cities including New Delhi, Bangalore and Mumbai have run out of water. Local authorities have already warned the residents that they will be increasingly likely to face "Day Zero." That's the day, previously projected for mid-April but now mid-July, when the city says it will be forced to shut off taps to homes and businesses because reservoirs have gotten perilously low—a possibility officials now consider almost inevitable.


Apart from these 21 major cities, many other cities in the states of Punjab, Haryana, Karnataka and Tamil Nadu are at an alarming stage of development of groundwater. The situation has become worse with an increase in the population growth rate of these cities. The main reasons behind over-extraction of groundwater in these cities are over-reliance of citizens on groundwater due to lack of storage capacity of water, poorly defined legal framework of groundwater that rests the ownership of groundwater with the landowners, and lower pricing of urban water. The per-capita water storage capacity of India is near 225 cubic metres, which is far below than our neighbour China, which has a storage capacity of 1,111 cubic metres per-capita. Most cities in India have seen unplanned growth, whereas master plans are being superimposed without future resource considerations. There are no provisions for rainwater harvesting and water conservation structures in these plans, which led to the overemphasis on groundwater in these cities. Moreover, the rights of groundwater extraction with the landowners and lower prices of water have resulted in groundwater mining in Indian cities. In order to redress the current situation, Indian policy-makers had to take some tough decisions. These included proper pricing of water, introducing a central groundwater Bill that gives the ownership of groundwater to a particular government agency, and undertaking construction of water-related infrastructure that can increase the storage capacity in India. But a strong impact of these initiatives is yet to be seen. Currently, the impact of water shortage can not only be seen in India but other parts of the world as well. Cities like Beijing, Cairo, Jakarta, Moscow and Mexico City are also witnessing this seemingly irreversible trend of shrinking water resources primarily due to climate change. Fresh water scarcity has been the defining global crisis of the 21st century. Water was labelled “the next oil” because of its importance to economic growth and a decade ago, analysts had also warned of future water wars. With nearly 600 million Indians facing high-to-extreme water stress – where more than 40 percent of the annually available surface water is used every year – and about 200,000 people dying every year due to inadequate access to safe water, the situation is likely to worsen as the demand for water will exceed the supply by 2050.


INDIAN INFRASTRUCTURE MARKET TO OVERTAKE JAPAN

Mumbai: With large residential and non-residential projects that were in pipeline almost at the completion stage, the Indian infrastructure market is set to overtake Japan this year. India’s infrastructure market is the third-largest in Asia and is forecasted to overtake Japan’s in nominal value terms by the end of first quarter this year. The road to this achievement was not as smooth as it was expected. Although demonetisation acted as a bottleneck in the development in construction activity in 2016 as most construction workers wages were paid in cash, robust growth returned in 2017 as work resumed on the large pipeline of infrastructure, residential and non-residential projects in the country. At the same time, the operating environment of India’s construction industry remained immensely challenging, with major infrastructure projects commonly incurring delays and cost overruns. The then Modi government had made some progress in addressing underlying issues in the sector, such as streamlining the land-acquisition process in some states, though the slow pace of reform meant that the market remained relatively risky. The Government had also initiated several programs aimed at improving logistics, and building affordable housing, which contributed to growth being witnessed in the construction industry. Reforms to foreign investment laws under Make in India initiative had made it easier for international companies to invest and participate in India's infrastructure projects. The infrastructure market still continues to remain dominated by domestic companies, which have significant home market advantages, owing to their experience with the complex regulatory environment in India. India is likely to maintain the same strong growth over the next five years and with such a development, it is expected to overtake Japan in nominal GDP by 2025 to emerge as the world's third largest economy, much earlier than the economists predicted.


BANKING CRISIS: CAG REPORTS SLAM NDA GOVERNMENT, CONGRESS DEMANDS PM'S RESIGNATION

New Delhi, April-2023: Three key CAG reports were tabled in Parliament on Friday indicting the government of causing a combined loss of crores of rupees to the national exchequer. The CAG released a report on NDA government political influence upon Scheduled Commercial Banks involvement in preferential lending to corporate and Investigation Bureau’s(IB) sting operation which unearthed the lobbying done by Corporate Giants like Reliance Industries, Adani Group. It further stated that these private firms are likely to gain Rs 1.86 lakh crore from the preferential lending done by banks. It also stated that the hollowness in the transparency of banking system resembled the NPA crisis (2015-19). Ironically the first term of NDA government was credited with resolving the NPA crisis which was then considered the crisis situation in Banking System. The second CAG report flays about the hundreds of suspicious transactions in the records of some of the top lenders to these conglomerates like ICICI Bank, YES Bank. Reacting to the CAG reports, minister of state in Prime Minister's office S.Tarun Biswas claimed that the allegations against the ruling party were baseless. Meanwhile, the Congress demanded resignation of the government alleging that scams in the Jan Dhan Yojana, Banking Sector had exposed the "loot and plunder" of the country. " The opposition party sought Finance Minister's resignation as soon as CAG released its report. Government is badly exposed by the three CAG reports on Banking Crisis, suspicious transactions. The magnitude of these scams, according to the CAG report, is between Rs 1.6 and 1.86 lakh crore," UPA spokesperson Shashi Tharoor told reporters outside Parliament.


RISE OF “SHEHZADA”? IS RAHUL GANDHI’S UPA GOING TO WIN ELECTIONS? The Congress-led United Progressive Alliance was placed in a commanding position to form the next government, according to all exit polls released on Monday though the number of Lok Sabha seats it is projected to bag varied from 249 to 340. According to the India TV-C voter survey, the UPA is poised to bag a majority in the Lok Sabha with 289 seats while the Congress is expected to win 210 seats on its own. According to poll, The BJPled NDA was set to win just 107 seats, mainly due to increase in discontent among the voters after more than half a dozen scams which got unearthed in the last two years. When Conducted DEC 2022 – JAN 2023 DEC 2022 – JAN 2023 Jan-23 Feb-23 Apr-23

Polling Organisation/Agency

Sample Size

India Today-CVoter

21,792

ABP News-Nielsen

64,006

CNN-IBN-LoknitiCSDS

18,591

ABP News-Nielsen NDTV- Hansa Research

35,045 24,000

UPA

NDA

Left

Other

23%

34%

43%

23% 36% (INC 27%) 20%

31% 28% (BJP 34%) 46

5%

41%

4% 5%

32% 30%

25.60% 34.50%

39.90%

The News 24 Chanakya exit poll predicted a clean sweep for the Congress with 291 seats, making it capable of forming the government on its own, which according to some analysts sounded like too optimistic expectations knowing the negativity still voters have towards Congress and allies. The survey also says, with its partners, the Congress is predicted to bag 340 seats. The BJP is expected to be at an all-time low with only 57 seats while the NDA is predicted to get to 70. According to the ABP News-Nielsen survey, the UPA will comfortably form government by crossing the 272 mark. It predicted the UPA would win 271 seats while the NDA is not likely to cross even 120. According to this survey, the Congress will gain hugely in Punjab, Karnataka and Maharashtra, Uttar Pradesh.


The Times Now-ORG exit poll did not give a clear majority to the UPA but predicted 148 seats for the NDA and 249 for the UPA. It projected a clean sweep for the Congress and its prime ministerial candidate Rahul Gandhi up north, with the party predicted to win 52 seats in Uttar Pradesh and six seats in Delhi. The CNN-IBN-CSDS-Lokniti survey projected the UPA would bag about 276 seats while the NDA would not cross the three-figure mark. It projected strong showings by the Congress in Uttar Pradesh, with 45 to 53 seats, and in Maharashtra, where the BJP Shiv Sena alliance looked set to bag 33 to 37 seats.

SIBM Bengaluru Times  
SIBM Bengaluru Times  
Advertisement