Daily Current Affairs for UPSC CSE
- Expected Loss based approach for provisioning against loan loss by bank
- Shukrayaan -1
- Martial Rape
- National Disaster
- Facts for Prelims
1 . Expected Loss based approach for provisioning against loan loss by bank
Context: The Reserve Bank of India (RBI) on released the Discussion Paper (DP) that aimed to comprehensively examine various issues and proposed a framework for the adoption of an expected loss-based approach for provisioning against loan loss by banks in India.
About the News
- The Reserve Bank of India (RBI) published a discussion paper on “loan loss provision”, proposing a framework for adopting an expected loss (EL)-based approach for provisioning by banks in case of loan defaults.
- Presently, banks are required to make loan loss provisions based on an ‘incurred loss’ approach, which used to be the standard globally till recently.
- The RBI’s proposal is based on the premise that the present “incurred loss”-based approach for provision by banks is inadequate, and there is a need to shift to the “expected credit loss” regime in order to avoid any systemic issues.
What is loan-loss provision?
- The RBI defines a loan loss provision as an expense that banks set aside for defaulted loans. Banks set aside a portion of the expected loan repayments from all loans in their portfolio to cover the losses either completely or partially. In the event of a loss, instead of taking a loss in its cash flows, the bank can use its loan loss reserves to cover the loss.
- Since the bank does not expect all loans to become impaired, there is usually enough in the loan loss reserves to cover the full loss for any one or a small number of loans when needed.
- An increase in the balance of reserves is called loan loss provision. The level of loan loss provision is determined based on the level expected to protect the safety and soundness of the bank.
What is the expected loss-based approach?
- Under this practice, a bank is required to estimate expected credit losses based on forward-looking estimations, rather than wait for credit losses to be actually incurred before making corresponding loss provisions.
Discussion paper on “loan loss provision”
In the discussion paper on expected loss (EL)-based approach for loan loss provisioning by banks explained that “To further enhance the resilience of the banking system, Reserve Bank proposes to amend the prudential regulations governing loan loss provisioning by banks to incorporate the more forward looking expected credit losses approach as against the extant ‘incurred loss’ approach,”
The key requirement under the proposed framework shall be for the banks to classify financial assets (primarily loans, including irrevocable loan commitments, and investments classified as held-to-maturity or available-for-sale) into one of the three categories – Stage 1, Stage 2, and Stage 3, depending upon the assessed credit losses on them, at the time of initial recognition as well as on each subsequent reporting date and make necessary provisions.
- Stage 1 assets are financial assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. For these assets, 12-month expected credit losses are recognised and interest revenue is calculated on the gross carrying amount of the asset.
- Stage 2 assets are financial instruments that have had a significant increase in credit risk since initial recognition, but there is no objective evidence of impairment. For these assets, lifetime expected credit losses are recognised, but interest revenue is still calculated on the gross carrying amount of the asset.
- Stage 3 assets include financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime expected credit loss is recognised, and interest revenue is calculated on the net carrying amount.
What are the benefits of this approach?
- The forward-looking expected credit losses approach will further enhance the resilience of the banking system in line with globally accepted norms.
- It is likely to result in excess provisions as compared to shortfall in provisions as seen in the incurred loss approach, RBI said in the discussion paper.
What is the problem with the incurred loss-based approach?
- The incurred loss approach requires banks to provide for losses that have already occurred or been incurred.
- The delay in recognising expected losses under an “incurred loss” approach was found to exacerbate the downswing during the financial crisis of 2007-09.
- Faced with a systemic increase in defaults, the delay in recognising loan losses resulted in banks having to make higher levels of provisions which ate into the capital maintained precisely at a time when banks needed to shore up their capital. This affected banks’ resilience and posed systemic risks.
- Further, the delays in recognising loan losses overstated the income generated by the banks which, coupled with dividend pay-outs, impacted their capital base because of reduced internal accruals — which too, affected the resilience of banks.
2 . Shukrayaan – 1
Context: P. Sreekumar, the Satish Dhawan Professor at the Indian Space Research Organisation (ISRO) and advisor to its space science programme, said that the organisation is yet to receive approval from the Indian government for the Venus mission and that the mission could as a result be postponed to 2031.
About the News
- ISRO’s Venus mission, called Shukrayaan I, was expected to be launched in December 2024. The idea was born in 2012; five years later, ISRO commenced preliminary studies after the Department of Space received a 23% hike in the 2017-2018 budget. The organisation sought payload proposals from research institutes in April 2017.
- Optimal launch windows from Earth to Venus occur once around every 19 months. This is why ISRO has ‘backup’ launch dates in 2026 and 2028 should it miss the 2024 opportunity. But even more optimal windows, which further reduce the amount of fuel required at liftoff, come around every eight years.
What is Shukrayaan –1 / Venus Mission?
- To study the atmosphere, aeronomy and science of the surface of the hottest terrestrial planet in the Solar System, The Indian Space Research Organisation (ISRO) is planning to send a spacecraft to orbit venus for feasibility and aeronomy purposes.
- The spacecraft is called Shukrayaan. This terminology comes from “Shukra”, a Sanskrit word representing the planet Venus in Indian Astronomy and Hindu Astrology.
- Shukrayaan I will be an orbiter mission. Its scientific payloads currently include a high-resolution synthetic aperture radar and a ground-penetrating radar.
- The mission is expected to study Venus’s geological and volcanic activity, emissions on the ground, wind speed, cloud cover, and other planetary characteristics from an elliptical orbit.
- The satellite will be launched from GSLV Mark-II, a heavy satellite launch vehicle used frequently by ISRO in its Chandrayaan and Mangalyaan Missions.
Formidable challenges in the mission includes
- Venus has crushing air pressure at its surface, which is 90 times more than Earth’s, and its atmosphere is highly toxic and filled with Sulphuric Acid that cause a powerful greenhouse effect.
- Its heat and temperature surpass that of Mercury, the first and nearest planet to the Sun.
- The 475 Degrees Celsius temperature is more than enough to melt lead.
- Thirdly, there is an optimum requirement for High-Resolution Equipment to penetrate the swirling gaseous clouds in the atmosphere.
- As of 2020, the Soviet Union, United States, European Space Agency and Japan have conducted missions to Venus.
- Upcoming missions include – DAVINCI and VERITAS by NASA, Venera – D by Russia and EnVision by ESA
3 . Martial Rape
Context: The Supreme Court sought the Centre’s response on a batch of petitions related to criminalisation of marital rape. A bench led by Chief Justice of India DY Chandrachud and comprising Justices PS Narasimha and JB Pardiwala asked the Union government to file its response on the issue by February 15. The final hearing on the pleas would commence from March 21, the CJI said.
About Marital rape
- Marital rape refers to rape committed when the perpetrator is the victim’s spouse.
- The Indian Penal Code (‘IPC’) in Section 375 criminalises the offence of rape.
- It is an expansive definition which includes both sexual intercourse and other sexual penetration such as oral sex within the definition of ‘rape’.
- However, in Exception 2, it excludes the application of this section on sexual intercourse or sexual acts between a husband and wife. Thus, a wife under Indian law does not have recourse under criminal law if a husband rapes her.
- While the law does not criminalize marital rape, a specific form of marital rape is criminalized, i.e., non-consensual sexual intercourse when the wife and husband are living separately on account of judicial separation or otherwise.
About Karnataka High Court verdict
- The Karnataka Government has supported the prosecution of a husband in a case for marital rape. The State has filed an affidavit in the Supreme Court supporting a Karnataka High Court judgment which sustained the charges framed against a husband under Section 376 IPC for forcible sex with wife.
- The Karnataka High Court had in its ruling held that the exemption of the husband on committing rape cannot be absolute, as no exemption in law can be so absolute that it becomes a license for the commission of a crime against society.
About Delhi High Court verdict
- In May 2022, a division bench of the Delhi High Court gave a split verdict on the criminalisation of marital rape. Justice Rajiv Shakdher, who headed the bench, struck down Exception 2 to Section 375 as being violative of Articles 14, 15, 19(1)(a) and 21 of the Constitution.
- Justice C. Hari Shankar, however, chose to disagree with the opinion given by Justice Shakdher. He held that the second exception to Section 375 does not violate Article 14, and is based on an intelligent differentia, having a rational nexus with the object both of the impugned Exception as well as Section 375 itself. He further held it does not violate Articles 19(1)(a) and 21. He held that none of the grounds on which a statute could be struck down existed in the present case. He added that the court could not substitute its subjective value judgment for that of a democratically elected government.
Supreme Court Petitions
- The Supreme Court is all set to begin hearing a batch of petitions questioning Exception 2 to Section 375 (rape) of the Indian Penal Code (‘IPC’), which provides immunity to the husband from being prosecuted for raping his wife.
- This exception states that sexual intercourse or sexual acts by a man with his own wife, the wife not being under fifteen years of age, is not rape. In common parlance, this exception is referred to as protecting ‘marital rape’.
- A three-judge bench comprising Chief Justice of India (‘CJI’) Dr. D.Y. Chandrachud and Justices P.S. Narasimha and J.B. Pardiwala directed all lawyers appearing on behalf of the various parties to collaborate with the two nodal counsels appointed by the court, by supplying them with such documentary and other material on which they seek to place reliance during the course of the submissions.
- There are three sets of petitions before the bench.
- The first is an appeal filed by a husband against the Karnataka High Court’s judgment on March 23, 2022, upholding the framing of charge against him under Section 375 of the IPC.
- The second is a batch of appeals arising from the split verdict of the Delhi High Court on May 11, 2022, and the last is writ petitions filed under Article 32 of the Constitution challenging the marital rape exception.
4 . National Disaster
Context: Responding to the Supreme Court’s decision of refusing to entertain a petition seeking to declare the Joshimath crisis as ‘national disaster’, and asking the petitioners to approach the Uttarakhand High Court, Atul Sati, convener of the Joshimath Bachao Sangharsh Samiti, said that his ‘apprehension’ was proved true.
What is national disaster?
- As per the Disaster Management Act, 2005, “disaster” means a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area. A natural disaster includes earthquake, flood, landslide, cyclone, tsunami, urban flood, heatwave; a man-made disaster can be nuclear, biological and chemical.
How can any of these be classified as a national disaster?
- There is no provision, executive or legal, to declare a natural calamity as a national calamity. In reply to a question in Parliament during the recent monsoon session, MoS (Home) Kiren Rijiju said, “The existing guidelines of State Disaster Response Fund (SDRF)/ National Disaster Response Fund (NDRF), do not contemplate declaring a disaster as a ‘National Calamity’.”
- In March 2001, then MoS (Agriculture) Shripad Naik had told Parliament that the government had treated the 2001 Gujarat earthquake and the 1999 super cyclone in Odisha as “a calamity of unprecedented severity”
How does the government classify disasters/calamities?
- The 10th Finance Commission (1995-2000) examined a proposal that a disaster be termed “a national calamity of rarest severity” if it affects one-third of the population of a state.
- The panel did not define a “calamity of rare severity” but stated that a calamity of rare severity would necessarily have to be adjudged on a case-to-case basis taking into account, inter-alia, the intensity and magnitude of the calamity, level of assistance needed, the capacity of the state to tackle the problem, the alternatives and flexibility available within the plans to provide succour and relief, etc.
- The flash floods in Uttarakhand and Cyclone Hudhud were later classified as calamities of “severe nature”.
What happens if a calamity is so declared?
- When a calamity is declared to be of “rare severity”/” severe nature”, support to the state government is provided at the national level. The Centre also considers additional assistance from the NDRF.
- A Calamity Relief Fund (CRF) is set up, with the corpus shared 3:1 between Centre and state. When resources in the CRF are inadequate, additional assistance is considered from the National Calamity Contingency Fund (NCCF), funded 100% by the Centre.
- Relief in repayment of loans or for grant of fresh loans to the persons affected on concessional terms, too, are considered once a calamity is declared “severe”.
- The Supreme Court asked the Uttarakhand High Court to consider grievances regarding relief and rehabilitation for people affected by the Joshimath land sinking incident with “reasonable dispatch” if the issue is raised before it.
- A Bench led by Chief Justice of India D.Y. Chandrachud said the apex court ought not to intervene when the Uttarakhand High Court was already seized of a broad range of issues concerning the Joshimath land sinking.
- “Substantial overlap emerges between the Supreme Court and Uttarakhand High Court proceedings,” the apex court said in its order.
- The petition alleged that the incident in Joshimath was connected to the National Thermal Power Corporation’s (NTPC) Tapovan hydro-based power project and unregulated constructions affecting ecology of the area. It had sought NTPC to provide insurance coverage to the people living in vulnerable areas. The petition had asked the court to set up a committee to protect the geography and ecology of the area.
- The case in the Uttarakhand High Court had sought a restraint on hydropower projects until early warning systems were established. The petitioners in the High Court had also sought a review of the hydropower projects in the upper reaches of Uttarakhand, the Supreme Court order observed.
- Joshimath, the gateway to famous pilgrimage sites like Badrinath and Hemkund Sahib and international skiing destination Auli, is reported to be sinking gradually with huge cracks developing in houses, roads, and fields there.
5 . Facts for Prelims
Global Composite Purchasing Managers
- The composite Purchasing Managers’ Index (PMI) is an indicator of economic health for manufacturing and service sectors.
- The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.
- Each country PMI survey for the manufacturing or service sector is based on questionnaire responses from panels of senior purchasing executives (or similar) at over 400 companies.
- The composite PMI is a number from 0 to 100.
- A PMI above 50 represents an expansion when compared with the previous month.
- A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change.
- As per Global Composite Purchasing Managers’ Index report (January 2023), new export orders have been contracting for the tenth successive month in December. The forecasts indicate downturn in global economic activity and trade
Indian Council of World Affairs (ICWA)
- The Indian Council of World Affairs was established in 1943 by a group of Indian intellectuals as a think tank.
- It was registered as a non-official, non-political and non-profit organisation under the Registration of Societies Act 1860
- By an Act of Parliament in 2001, the Indian Council of World Affairs has been declared an institution of national importance.
- The Vice President of India is the ex-officio President of ICWA.
- It is devoted exclusively for the study of international relations and foreign affairs.
- Historic international conferences like ‘Asian Relations Conference‘ in 1947 under the leadership of freedom fighter Sarojini Naidu and ‘United Nations and the New World Order‘ in 1994 have been held by this think tank.
- The Objects of the Council : The Indian Council of World Affairs Act, 2001 lays down the objectives of the ICWA. Section 13 of the Act lists the objectives as :
- To promote the study of Indian and international affairs so as to develop a body of informed opinion on international matters.
- To promote India’s relations with other countries through study, research, discussions, lectures, exchange of ideas and information with other organisations within and outside India engaged in similar activities.
- To serve as a clearing house of information and knowledge regarding world affairs.
- To publish books, periodicals, journals, reviews, papers, pamphlets and other literature on subjects covered under clauses (a) & (b).
- To establish contacts with organisations promoting objects mentioned in this section.
- To arrange conferences and seminars to discuss and study the Indian policy towards international affairs.
- To undertake such other activities for the promotion of ideas and attainment of the above-mentioned objects.
- Exoplanets are planets that orbit other stars and are beyond our solar system. According to NASA, to date, more than 5,000 exoplanets have been discovered. Scientists believe that there are more planets than stars as each star has at least one planet orbiting it.
- Exoplanets come in a host of different sizes. They can be gas giants bigger than Jupiter or as small and rocky as Earth. They are also known to have different kinds of temperatures — boiling hot to freezing cold.
- If an exoplanet is too close to the star, it might be too hot to sustain liquid water. If it’s too far, it might only have frozen water. When a planet is at a distance that enables it to have liquid water, it is said to be in the “Goldilocks zone”.
- With the launch of the Webb telescope, scientists believe that they would now be able to better study exoplanets as it is the only telescope that is capable of characterising the atmospheres of Earth-sized planets orbiting distant stars.
Memorandum of Procedure
- The MoP is the official playbook agreed upon by the government and the judiciary on the appointment of judges. It is a crucial document that governs the collegium system of appointing judges.
- Since the collegium system evolved through a series of ruling by the Supreme Court, and is not based on legislation, the MoP is the bedrock of the process of appointments.
- Three decisions of the SC, the First Judges Case (1981), Second Judges Case (1993), and Third Judges Case (1998), form the basis of the peer-selection process for the appointment of judges.
- The MoP was sought to be re-negotiated after the SC on October 16, 2015 struck down the constitutional amendment that had brought in the National Judicial Appointments Commission (NJAC).