CURRENT AFFAIRS – 26/09/2023

CURRENT AFFAIRS – 26/09/2023

CURRENT AFFAIRS – 26/09/2023

CURRENT AFFAIRS – 26/09/2023

Surety Bonds market fails to kick off

(General Studies- Paper III)

Source : The Indian Express

The government’s ambitious plan to launch the Surety Insurance Bonds market as an alternative to bank guarantees in infrastructure projects has faced significant challenges in the last three years.

  • Despite the launch of two basic level Surety Bonds (Bid Bonds) in December 2022, the Surety Bond market in India has not made significant progress.

Key Highlights

  • Insurance Companies’ Plans Hindered
    • Leading general insurers like New India Assurance, ICICI Lombard General Insurance, SBI General Insurance, and Bajaj Allianz General Insurance have expressed plans to issue Surety Bonds but have been unable to do so due to various obstacles.
    • It took almost three years to obtain approvals from the Insurance Regulatory and Development Authority of India (IRDAI) for Surety Bond products.
    • Technical challenges needed to be addressed to make Surety Bonds a safer and more profitable business for insurers.
  • Government’s Push for Adoption
    • Union Minister Nitin Gadkari, who oversees major infrastructure projects, is keen on developing the Surety Bonds market as an alternative to bank guarantees.
    • He believes it will reduce risks in construction projects and provide contractors with financial closure without relying solely on bank guarantees.
  • Foreign Reinsurance Branches’ Concerns
    • Leading foreign reinsurance branches (FRBs) involved in designing Surety Bond products for the Indian market have highlighted several challenges.
    • Buyers are reluctant to pay adequate premiums and provide collateral for policies, which are essential for selling Surety Bonds.
    • Extensive reinsurance support is needed, but there is no clarity on reinsurance options.
  • Legal Framework and Recourse
    • The Indian Contract Act and Insolvency and Bankruptcy Code do not recognize insurers’ rights at par with financial creditors.
    • Therefore, insurers lack recourse to recovery like banks in case of default.
  • Potential of Surety Bonds in India
    • Surety Bonds have a robust $20 billion market in advanced economies and can play a crucial role in India’s infrastructure development.
    • India is expected to spend around Rs 100 trillion on infrastructure through the National Infrastructure Pipeline in the next five years, creating a significant demand for Surety Bonds.
  • Definition of Surety Bonds
    • Surety Bonds are insurance policies that protect parties in a transaction or contract from potential financial losses due to a breach of contract or non-performance.
    • The issuing insurer provides a guarantee, for a premium, in case of a default in project execution.
    • They serve as risk mitigation tools, contributing to the smooth functioning of projects, especially in the infrastructure sector.

About Insurance Regulatory and Development Authority of India (IRDAI)

  • The Insurance Regulatory and Development Authority of India (IRDAI) is the regulatory body overseeing the insurance sector in India.
  • It was established by the government of India in 1999 through the Insurance Regulatory and Development Authority Act, 1999.
  • The primary purpose of IRDAI is to regulate and promote the insurance industry to ensure its growth and development while safeguarding the interests of policyholders.

What are foreign reinsurance branches (FRBs)?

  • Foreign Reinsurance Branches (FRBs) are branches or subsidiaries of foreign reinsurance companies that operate within a country’s borders.
  • These entities provide reinsurance services to primary insurance companies and other insurers operating in the local insurance market.
  • FRBs play a significant role in the insurance industry by offering additional capacity to absorb risk, thereby helping primary insurers manage their exposures.

What is reinsurance?

  • Reinsurance is a financial arrangement in which an insurance company, known as the reinsurer, agrees to take on some of the risks and liabilities of another insurance company, known as the ceding or primary insurer.
  • This process involves the transfer of insurance policies and portions of the associated risk from the primary insurer to the reinsurer.
  • Key aspects of reinsurance include:
    • Risk Transfer:
      • Reinsurance allows primary insurers to transfer a portion of their insurance risks to reinsurers.
      • By doing so, primary insurers can reduce their exposure to large losses or catastrophic events.
    • Risk Sharing:
      • Reinsurance is a mechanism for sharing risks among multiple parties.
      • The reinsurer assumes some of the financial responsibility for covered losses, effectively spreading the risk across different entities.
    • Capacity Enhancement:
      • Reinsurers provide additional capacity to primary insurers.
      • This enables primary insurers to underwrite more policies or higher-value policies than they could on their own.
    • Financial Stability:
      • Reinsurance helps primary insurers maintain financial stability, especially in the face of significant claims.
      • Reinsurers reimburse the primary insurer for covered claims, reducing the impact on the primary insurer’s balance sheet.
    • Premium Income:
      • Reinsurers earn premiums from primary insurers for assuming their risks.
      • This premium income contributes to the reinsurer’s revenue and profitability.

Reinsurance Companies in India

India has several reinsurance companies that operate in the country’s insurance industry.

  • General Insurance Corporation of India (GIC Re):
    • GIC Re is the national reinsurer of India and holds a dominant position in the Indian reinsurance market.
    • It was established in 1972 and is headquartered in Mumbai, Maharashtra.
    • GIC Re offers a wide range of reinsurance products and services, including property, casualty, marine, aviation, and life reinsurance.
  • New India Assurance Company (NIACL):
    • New India Assurance is one of the leading general insurance companies in India.
    • It operates a reinsurance division that provides both treaty and facultative reinsurance solutions to primary insurers.
    • NIACL has a strong presence in international reinsurance markets as well.
  • Agriculture Insurance Company of India Limited (AIC):
    • AIC specializes in providing reinsurance support for crop and agriculture-related insurance schemes in India.
    • It works closely with government agencies to offer comprehensive coverage for farmers.

Monsoon starts withdrawing from India

(General Studies- Paper I)

Southwest monsoon begins its withdrawal

This year’s monsoon begins its withdrawal

Source : TH

The India Meteorological Department has reported a delayed withdrawal of the southwest monsoon from India.

  • The withdrawal began on September 25, eight days later than the normal date of September 17.
  • This marks the 13th consecutive year of a delayed monsoon withdrawal.
  • The monsoon’s retreat from northwest India is significant for the region’s agricultural production, particularly the Rabi crop.

Key Highlights

  • Impact on Agriculture
    • The delayed monsoon withdrawal can have significant implications for agriculture in northwest India.
    • The extended rainy season can affect the planting and growth of Rabi crops, which are sown during the post-monsoon period.
    • A delayed withdrawal means that the region may experience prolonged rainfall, potentially leading to waterlogging and crop damage.
    • Farmers often rely on the timely withdrawal of the monsoon to begin their Rabi crop cultivation.
  • Monsoon Season in India
    • The southwest monsoon is a crucial weather phenomenon in India, bringing much-needed rainfall for agriculture and replenishing water resources.
    • It typically arrives in Kerala around June 1 and gradually covers the entire country by July 8.
    • The monsoon’s withdrawal from northwest India usually begins around September 17 and is completed by October 15.
    • Any delay in this process can disrupt agricultural schedules and impact crop yields.
  • Consecutive Years of Delayed Withdrawal
    • The consecutive years of delayed monsoon withdrawal indicate a changing weather pattern in the region.
    • Climate scientists and meteorologists are closely monitoring these trends to better understand the long-term implications for India’s agriculture and water resources.
    • The delayed withdrawal is a reminder of the complex challenges posed by climate variability and the need for adaptive strategies in agriculture.

What is Retreating Monsoon?

  • The retreating monsoon in India, also known as the northeast monsoon or post-monsoon season, is the period when the southwest monsoon winds, which bring the rainy season, start withdrawing from the Indian subcontinent.
  • This transition occurs during the later part of the year, typically from September to December.
  • Southwest Monsoon Season (June to September):
    • During the summer months, India experiences the southwest monsoon season.
    • Warm, moist air masses from the Indian Ocean are drawn towards the Indian subcontinent due to the temperature difference between the land and sea.
    • These winds bring heavy rainfall to different parts of India, replenishing water sources and supporting agriculture.
  • Onset of Retreating Monsoon (September):
    • As the summer season ends, the landmass of India starts cooling down.
    • The temperature difference between the land and the sea begins to decrease.
    • Additionally, the presence of high-pressure systems over northern India and low-pressure areas over the southern Indian Ocean starts to reverse.
  • Reversal of Winds:
    • During the retreating monsoon, there is a reversal of wind direction.
    • The prevailing wind pattern shifts from onshore (coming from the sea towards the land) to offshore (moving away from the land towards the sea).
  • Northeast Trade Winds:
    • The retreating monsoon is characterized by the dominance of northeast trade winds.
    • These winds blow from land to sea and are relatively dry.
    • They are often referred to as “northeasterlies.”
  • Impact on Rainfall:
    • As the monsoon winds withdraw and the northeast winds take over, rainfall decreases significantly in most parts of India.
    • However, some areas in the southeastern coastal regions, like Tamil Nadu and Andhra Pradesh, experience rainfall during this season due to the influence of the retreating monsoon.

In Image: Direction of retreating (withdrawal of) monsoon from India.

Children, a key yet missed demographic in AI regulation

(General Studies- Paper II and III)

Children, a key yet missed demographic in AI regulation

Source : TH

India is set to host the first-ever global summit on Artificial Intelligence (AI) in October.

  • India chairs the Global Partnership on Artificial Intelligence (GPAI) and will host the GPAI global summit in December.
  • AI is projected to add $500 billion to India’s economy by 2025, accounting for 10% of the GDP.

Key Highlights

  • Call for Ethical AI Framework:
    • Prime Minister Narendra Modi called for a global framework on the ethical expansion of AI.
    • India’s vast data generation capacity provides an opportunity to set an example for the Global South in AI policy.
    • Regulators must address AI’s impact on children and adolescents.
  • Regulating AI for Children:
    • AI regulation should align incentives to address issues like addiction, mental health, and safety for children.
    • Data-driven AI services may exploit children, leading to issues like body image problems, misinformation, cyberbullying, and more.
    • Parents’ online activities also impact children, necessitating tools to manage unintended consequences.
  • Addressing Bias and Discrimination:
    • India’s diverse population faces intersectional identities across gender, caste, religion, and more.
    • AI can amplify real-world biases, affecting marginalized children and adolescents.
    • India’s data protection law’s approach to children and AI may need improvement.
  • International Best Practices and Adaptation:
    • Learning from international best practices, such as UNICEF’s guidance for child-centered AI, can help Indian regulation.
    • Regulation should adapt to the varying developmental stages of children from different age groups.
    • Research on the benefits and risks of AI for Indian children can inform an Indian Age Appropriate Design Code for AI.
  • Incorporating Children’s Inputs:
    • Institutions for regular dialogue with children can incorporate their perspectives on AI benefits and threats.
    • Establishing an institution similar to Australia’s Online Safety Youth Advisory Council could be beneficial.
    • AI regulation should prioritize standards, strong institutions, and best practices for openness, trust, and accountability.

What is Global Partnership on Artificial Intelligence (GPAI)?

  • The Global Partnership on Artificial Intelligence (GPAI) is an international initiative aimed at fostering collaboration and setting the global agenda for the responsible and ethical development and use of artificial intelligence (AI).
  • GPAI was launched in June 2020 and is a multi-stakeholder initiative that brings together leading nations and organizations from around the world to address the challenges and opportunities posed by AI.
  • GPAI was initially proposed by Canada and France at the 2018 G7 summit.
    • It was officially launched in June 2020.
  • GPAI is hosted by the Organisation for Economic Co-operation and Development (OECD).
  • Mission:
    • GPAI aims to bridge the gap between AI theory and practice.
    • It supports research and applied activities related to AI that are of direct relevance to policymakers.
    • The partnership brings together experts from various sectors, including industry, civil society, governments, and academia.
  • Objectives:
    • GPAI focuses on addressing the challenges and opportunities presented by AI and provides a platform for international collaboration on AI-related issues.
    • It emphasizes ethical and human-centered AI development.
  • Founding Members:
    • GPAI started with fifteen founding members, which include Australia, Canada, France, Germany, India, Italy, Japan, Mexico, New Zealand, the Republic of Korea, Singapore, Slovenia, the United Kingdom, the United States, and the European Union.
  • Expansion:
    • Since its launch, GPAI has seen the addition of several new member countries, including Czechia, Israel, Argentina, Belgium, Brazil, Denmark, Ireland, The Netherlands, Poland, Senegal, Serbia, Sweden, Spain, Turkey, and more.
    • UNESCO also joined the partnership as an observer.
  • Membership Pending:
    • Some countries, including Austria, Chile, Finland, Malaysia, Norway, Slovakia, and Switzerland, have been invited to join GPAI, but their membership is pending approval.

War in Caucasus

(General Studies- Paper II)

War in the Caucasus

Source : TH

Azerbaijan’s swift military recapture of Nagorno-Karabakh, an Armenian-populated enclave within its borders, reflects shifting power dynamics in the Caucasus region.

  • This conflict, influenced by American, Russian, and Turkish interests, has deep historical roots dating back to the final days of the Soviet Union.

Key Highlights

  • Historical Background
    • Nagorno-Karabakh, with a majority Armenian-Christian population, sought to break away from the Shia-majority Azerbaijan through a referendum.
    • It was initially controlled by Armenian separatists, supported by Armenia.
    • In 2020, Azerbaijan, with backing from Turkey, engaged in a conflict with Armenia, which has a defense treaty with Russia.
    • Azerbaijan captured a significant portion of Nagorno-Karabakh, and Russia brokered a ceasefire.
  • Changing Geopolitical Landscape
    • Two major geopolitical shifts played a role in Azerbaijan’s recent actions.
    • Turkish Support:
      • Turkey aimed to assert a more prominent role in the Caucasus region and threw its support behind Azerbaijan, providing political and military backing.
    • Russian Focus on Ukraine:
      • Russia’s involvement in the Ukraine conflict diverted its attention and resources from the Caucasus, weakening its influence in the region.
      • Armenia, a Russian ally, expressed dissatisfaction with Moscow’s lack of action in safeguarding the ceasefire.
    • Azerbaijan’s Actions
      • Facing economic challenges due to a blockade of the Lachin Corridor, Azerbaijan promised to lift the blockade but established a checkpoint to control goods and medicine flow.
      • This led to an attack on Stepanakert, forcing Armenian separatists to surrender control of Nagorno-Karabakh to Baku.
    • The Path Forward
      • While Nagorno-Karabakh is internationally recognized as part of Azerbaijan, historical mistrust and violence complicate the situation.
      • The Armenian population has a deep historical memory and remains wary of changes in the status quo.
      • Azerbaijan now has an opportunity to integrate Nagorno-Karabakh peacefully but must ensure equal rights and autonomy for the Armenian population.
      • Failure to do so could lead to prolonged local resistance and further complications in controlling the enclave.

Azerbaijan and Armenia: Historical Background

  • The conflict between Azerbaijan and Armenia is a long-standing and complex issue centeredaround the Nagorno-Karabakh region, an ethnically Armenian enclave located within Azerbaijan’s borders.
  • The roots of the conflict can be traced back to the early 20th century, but the modern phase of the conflict began in the late 1980s with rising tensions and demands for Nagorno-Karabakh’s secession from Azerbaijan.
  • Ethnic Composition:
    • Nagorno-Karabakh has a predominantly Armenian population but was placed under Azerbaijani control during the Soviet era.
    • This demographic composition became a source of conflict.
  • Eruption of Armed Conflict:
    • In the late 1980s and early 1990s, ethnic clashes escalated into a full-scale war between Armenia and Azerbaijan.
    • The conflict resulted in significant casualties and the displacement of hundreds of thousands of people.
  • Ceasefire and Status Quo:
    • A ceasefire agreement brokered by Russia in 1994 ended the active phase of the conflict.
    • Nagorno-Karabakh remained under Armenian control, and a buffer zone, including seven Azerbaijani districts surrounding Nagorno-Karabakh, came under Armenian control.
  • Frozen Conflict:
    • For over two decades, the conflict remained in a “frozen” state, with occasional flare-ups and skirmishes along the line of contact.
    • Numerous peace negotiations, mediated by the Organization for Security and Cooperation in Europe (OSCE) Minsk Group, made little progress.
  • 2016 Escalation:
    • In April 2016, there was a significant escalation in violence, resulting in casualties on both sides.
    • However, a ceasefire was eventually restored.
  • 2020 Conflict:
    • The most recent major escalation occurred in September 2020, when heavy fighting broke out in Nagorno-Karabakh.
    • Azerbaijan, with Turkish support, launched an offensive and recaptured significant territory.
    • A ceasefire agreement, brokered by Russia, ended the fighting but left Nagorno-Karabakh’s status largely unresolved.

About Organization for Security and Cooperation in Europe (OSCE)

  • The Organization for Security and Cooperation in Europe (OSCE) is an intergovernmental organization focused on promoting peace, security, stability, and cooperation among its member states.
  • It is the world’s largest regional security organization, spanning North America, Europe, and Asia.
  • Founding:
    • The OSCE traces its origins to the Cold War era when the Conference on Security and Cooperation in Europe (CSCE) was established in 1975.
    • The CSCE was created to improve relations between Western and Eastern European countries during the Cold War.
  • In 1995, the CSCE underwent a transformation and became the Organization for Security and Cooperation in Europe (OSCE) to reflect its expanded role and broader membership.
  • Membership:
    • The OSCE has 57 participating states, including most countries in Europe, several in Asia, and two in North America (the United States and Canada).
    • It encompasses a wide geographical area.
  • Institutions and Bodies:
    • The OSCE has various institutions and bodies, including the Permanent Council, the Forum for Security Cooperation, and the Office for Democratic Institutions and Human Rights (ODIHR).
    • The ODIHR plays a crucial role in election observation and human rights monitoring.
  • Conflict Prevention and Resolution:
    • The OSCE is actively involved in conflict prevention, crisis management, and conflict resolution efforts.
    • It has played a role in addressing conflicts in various regions, including the Balkans and the South Caucasus.
  • Chairmanship:
    • The OSCE operates on a rotating chairmanship, with each participating state taking on the role of chair for a one-year term.
    • The chairmanship sets priorities and leads the organization during its tenure.

About Organization for Security and Cooperation in Europe (OSCE) Minsk Group

  • The Minsk Group was created in 1992 by the OSCE, an international organization focused on promoting security, stability, and cooperation in Europe.
  • It was named after the Belarusian capital, Minsk, where its first meeting took place.
  • The primary goal of the Minsk Group is to mediate a peaceful settlement of the Nagorno-Karabakh conflict.
  • It seeks to facilitate negotiations and encourage the parties involved to reach a mutually acceptable solution.
  • Co-Chairmanship: The Minsk Group operates under a co-chairmanship format.
    • It has three co-chair countries:
      • Russia
      • France
      • United States

Philippines to remove floating barrier placed by China

(General Studies- Paper II)

Philippines removes China’s barrier in disputed shoal

Source : TH

The Philippines has vowed to remove a floating barrier placed by China’s coast guard at Scarborough Shoal in the South China Sea.

  • Scarborough Shoal is a disputed area, and its control has been a subject of contention between the Philippines and China.
  • The roots of the dispute trace back to historical claims and competing territorial assertions in the South China Sea.

Key Highlights

  • Philippine Response to the Barrier
    • The Philippines considers the 300-meter-long barrier installed by China’s coast guard as “illegal and illegitimate.”
    • The barrier was erected at the entrance to the lagoon at Scarborough Shoal, a location that holds strategic significance for Filipino fishermen.
    • Philippine officials argue that the barrier violates the traditional fishing rights of their fishermen in the area.
    • The Philippines has condemned this installation and plans to take appropriate actions to have it removed.
  • China’s Perspective
    • China asserts that Scarborough Shoal and its adjacent waters are part of its “inherent territory,” and Beijing claims indisputable sovereignty over the region.
    • China has maintained its stance that Scarborough Shoal falls under its jurisdiction and that any foreign vessels entering the area without permission are infringing on its territorial sovereignty.
  • Long-standing Territorial Disputes in the South China Sea
    • The South China Sea has been a focal point of territorial disputes involving China and several other countries, including the Philippines, Vietnam, Malaysia, Brunei, and Taiwan.
    • These disputes revolve around conflicting claims to various islands, reefs, and waters within the South China Sea.
    • China’s expansive territorial claims in the region have often led to tensions and confrontations.
  • International Arbitration and U.S. Involvement
    • In 2016, an arbitration tribunal established under the United Nations Convention on the Law of the Sea (UNCLOS) ruled in favor of the Philippines, upholding its rights in the South China Sea.
    • However, China refused to recognize this arbitration decision and continued to assert its territorial claims.
    • The United States has been involved in the South China Sea issue, conducting patrols to challenge China’s claims and promote freedom of navigation in the region.
  • S.-Philippine Treaty Obligations
    • The United States, as the oldest treaty ally of the Philippines in Asia, has indicated its commitment to defending the Philippines if its forces, ships, and aircraft come under attack, including in the South China Sea.
    • This underscores the strategic importance of the region and the potential for international involvement in disputes in the South China Sea.

Scarborough Shoal and the dispute

  • Territorial disputes between China and the Philippines related to Scarborough Shoal in the South China Sea have been a longstanding and contentious issue.
  • China’s Claims:
    • China asserts sovereignty over Scarborough Shoal, which it refers to as Huangyan Island.
    • China argues that historical documents and records show its presence and control over the area dating back centuries.
    • It also includes Scarborough Shoal within its “nine-dash line” territorial claim.
  • Philippines’ Claims:
    • The Philippines, on the other hand, claims sovereignty over Scarborough Shoal, which it refers to as Panatag Shoal.
    • The Philippines argues that it has historical evidence and geographical proximity to support its claim.
    • It also argues that the shoal falls within its exclusive economic zone (EEZ) as defined by the United Nations Convention on the Law of the Sea (UNCLOS).
  • 2012 Scarborough Shoal Standoff:
    • In 2012, a major standoff occurred between China and the Philippines over Scarborough Shoal.
    • The tension began when the Philippine Navy attempted to arrest Chinese fishermen accused of illegal fishing in the area.
    • China responded by sending maritime law enforcement vessels to the shoal, effectively preventing the arrest of the fishermen.
    • The standoff lasted for several weeks and escalated diplomatic tensions between the two countries.
    • It ended without a resolution, with both sides agreeing to withdraw their vessels simultaneously.
  • Philippines’ Arbitration Case:
    • In 2013, the Philippines initiated an arbitration case against China under UNCLOS to challenge China’s claims and actions in the South China Sea, including its occupation of Scarborough Shoal.
    • In 2016, an arbitral tribunal established under UNCLOS ruled in favor of the Philippines on several key issues, including Scarborough Shoal.
    • The tribunal determined that Scarborough Shoal is a rock rather than an island, and therefore, it does not generate an exclusive economic zone.
    • This ruling invalidated China’s claims to the shoal.
  • China’s Rejection of the Ruling:
    • China rejected the arbitral tribunal’s ruling and has not complied with it.
    • China continues to maintain a presence around Scarborough Shoal and restricts access to the area by Filipino fishermen.

In Image: Image showing territorial claims of various countries.

Territorial disputes in the South China Sea

  • Territorial disputes in the South China Sea are a complex and contentious issue involving overlapping territorial claims by multiple countries in this strategically important region.
  • The South China Sea is a body of water in Southeast Asia, bordered by several countries, and it is rich in natural resources.
  • The primary countries involved in the disputes are China, the Philippines, Vietnam, Malaysia, Brunei, and Taiwan.
  • “Nine-Dash Line”:
    • China’s most controversial claim is the “nine-dash line,” a demarcation line that encircles almost the entire South China Sea.
    • This line, which China has used to claim sovereignty over various features and waters within it, has been rejected by international law.
  • Exclusive Economic Zones (EEZs):
    • UNCLOS allows coastal states to claim EEZs extending 200 nautical miles from their coastlines.
    • Within these zones, countries have special rights to explore and exploit natural resources.
    • Several countries in the South China Sea region claim EEZs that overlap, leading to conflicts over fishing rights and resource exploration.
  • Spratly Islands:
    • The Spratly Islands, a group of small islets, reefs, and atolls in the South China Sea, are at the center of many disputes.
    • Multiple countries, including China, the Philippines, Vietnam, Taiwan, and Malaysia, claim various parts of the Spratlys.
    • Some of these features have been occupied and militarized.
  • Paracel Islands:
    • The Paracel Islands, another group of disputed islands, are claimed by both China and Vietnam.
    • China has controlled the Paracels since a brief conflict with Vietnam in the 1970s.
  • Scarborough Shoal:
    • Scarborough Shoal, also known as Panatag Shoal in the Philippines and Huangyan Island in China, has been a site of contention between the Philippines and China.

Indian banks set to draw more global investment, says S&P Global

(General Studies- Paper III)

Banks to attract more global investment, says S&P Global

Source : TH

Indian banks are becoming increasingly attractive to global investors seeking better returns due to factors such as higher credit growth, improved margins, and stable asset quality, according to a report by S&P Global Market Intelligence.

  • The total market value of foreign institutional investors’ (FIIs) holdings in Indian banks has been on the rise.
  • As of June 30, these holdings amounted to ₹8.36 trillion, up from ₹7.71 trillion a year earlier.
  • This marks a significant increase from ₹6.73 trillion in June 2020.

Key Highlights

  • Concentration in Private-Sector Banks:
    • The majority of FII holdings, accounting for 93.5% of the total value as of June 30, were concentrated in India’s largest private-sector banks.
    • Key investments by FIIs include ICICI Bank Ltd., HDFC Bank Ltd., and Kotak Mahindra Bank Ltd.
    • The market value of FIIs’ holdings in Indian private-sector banks increased to ₹7.82 trillion as of June, compared to ₹7.29 trillion a year earlier.
    • In June 2020, the value stood at ₹6.37 trillion.
  • State-Owned Banks’ Holdings:
    • In contrast, the market value of FIIs’ holdings in Indian state-owned banks was ₹541 billion as of June, up from ₹422 billion a year earlier.
  • Top Foreign Investors:
    • Leading the list of foreign investors in Indian banks by market value is U.S.-based Capital Research and Management Co., followed by BlackRock Inc. and Singapore’s GIC Private Ltd.

What is Foreign Institutional Investors (FIIs)?

  • Foreign Institutional Investors (FIIs) are entities, typically large financial institutions, investment funds, or organizations, based in foreign countries that invest in the financial markets of another country.
  • These investors actively participate in a nation’s stock and bond markets, bringing in significant amounts of foreign capital.
  • Market Impact:
    • The entry and exit of FIIs can have a significant impact on the financial markets of the host country.
    • Large-scale investments by FIIs can boost stock prices and increase market liquidity, while their withdrawals can lead to market downturns.
  • Economic Impact:
    • FIIs can influence a country’s economy in various ways.
    • Their investments can lead to increased foreign exchange reserves, stimulate economic growth, and create jobs.
    • However, sudden capital outflows by FIIs can also pose challenges to a nation’s economic stability.

What is the difference between FIIs and FDI?

Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI)) are two distinct categories of investors in the financial markets.

  • FIIs (Foreign Institutional Investors):
    • FIIs primarily engage in portfolio investment.
    • They invest in financial assets such as stocks, bonds, and other securities with the objective of generating returns through capital appreciation, interest, and dividends.
    • FIIs do not seek to acquire significant ownership stakes or control in the companies they invest in.
    • They are passive investors and do not participate in the management of the companies.
  • FDI (Foreign Direct Investment):
    • FDI involves making investments in businesses or physical assets in a foreign country with the intention of establishing a lasting interest and a significant degree of influence or control over the operations of the invested entity.
    • FDIs are typically made to engage in productive activities, such as setting up subsidiaries or joint ventures.
    • FDI involves acquiring substantial ownership stakes, often a significant minority or majority interest, in a foreign business entity.
    • This allows FDI investors to actively participate in decision-making and management.

RBI asks banks to display information on borrowers linked to SARFAESI Act

(General Studies- Paper I)

Banks told to display information on borrowers linked to SARFAESI Act

Source : TH

The Reserve Bank of India (RBI) has issued a directive to Regulated Entities (REs), which includes commercial banks and Non-Banking Finance Companies (NBFCs), aimed at enhancing transparency in the financial sector.

  • Under the directive, REs are required to display information about borrowers whose secured assets have been taken into possession by the REs.
  • This action is carried out under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

Key Highlights

  • The RBI has instructed REs to upload this borrower information on their official websites in a prescribed format.
  • This information should include details about borrowers whose assets have been seized under SARFAESI.
  • REs are mandated to publish the first list of such borrowers on their websites within six months from the issuance of the circular.
  • After the initial disclosure, the list should be updated on a monthly basis.

About Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002

  • The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is aimed at addressing the issue of non-performing assets (NPAs) and enabling banks and financial institutions to recover dues from borrowers who have defaulted on their loans.
  • The SARFAESI Act was enacted by the Indian government in 2002 to provide a legal framework for banks and financial institutions to recover their dues without having to go through lengthy and often cumbersome legal procedures.
  • The primary objective of the SARFAESI Act is to expedite the process of recovery of outstanding loans by empowering banks to take possession of the secured assets of the borrower and sell them without the intervention of the court.
  • This act provides banks with greater flexibility and power to deal with NPAs.
  • Key Provisions:
    • The act defines various key terms, including “borrower,” “secured creditor,” “secured asset,” and “debt.”
    • These definitions are crucial for the proper understanding and implementation of the act.
    • Enforcement of Security Interest:
      • The act empowers secured creditors (typically banks and financial institutions) to enforce their security interest in the event of a default by the borrower.
    • Notice to Borrower:
      • Before taking any action under this act, the secured creditor must serve a notice to the borrower demanding repayment of the outstanding debt.
      • The notice should specify the amount payable and provide the borrower with an opportunity to rectify the default.
    • Possession and Sale of Secured Assets:
      • If the borrower fails to comply with the notice, the secured creditor can take possession of the secured assets.
      • The act allows for the sale or transfer of these assets by the secured creditor.
    • Central Registry:
      • The act established the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), which maintains records of all transactions related to securitization and reconstruction of financial assets.
    • Safeguards:
      • The act also provides safeguards to protect the interests of borrowers.
      • Borrowers have the right to appeal to the Debt Recovery Tribunal (DRT) against actions taken by the secured creditor.
      • The act specifies the procedure for filing appeals and the role of the DRT in adjudicating disputes.
    • Impact:
      • The SARFAESI Act has had a significant impact on the banking and financial sector in India.
      • It has made it easier for financial institutions to recover bad loans, which has contributed to the overall health of the banking system.
      • However, it has also been a subject of debate and criticism, particularly regarding concerns about borrower rights and the potential for misuse.