 Welcome to the Hindu News Analysis by Shankar IAS Academy for the late 7th of March 2020. The list of news articles taken up for today's analysis is displayed here along with the page numbers of five different editions. We hand it in notes in PDF format and the time stamping of all the news articles taken up for today's analysis is available in the description section as well as in the comment section for the benefit of the smartphone users. Let us now start our analysis. These news articles are with reference to the reconstruction scheme of the Reserve Bank of India for Yes Bank. In this analysis, we shall see about the moratorium imposed on Yes Bank by the central government. Then we will see the draft Art Bay Reconstruction Scheme and then we will see the points raised by the author in this editorial which is titled as Banking on Bay Loads regarding this Yes Bank Moratorium. The syllabus that is relevant for the analysis of these articles are highlighted here for your reference. See on 5th of March 2020 that is day before yesterday under section 45 of Banking Regulation Act of 1949, the Reserve Bank of India has applied to impose a moratorium on Yes Bank to the central government. And accordingly on the same day, the Banking Division of the Department of Financial Services which comes under the Ministry of Finance issued a moratorium order. This moratorium period has started from the evening of 5th of March and it will continue till 3rd of April 2020. Further you need to note that under section 45 of Banking Regulation Act, the moratorium can also be extended. However, the total period of moratorium should not exceed 6 months. Now let us see why RBI has applied for moratorium to Yes Bank. Before that, no moratorium means a temporary prohibition of any activity. Now why RBI has applied for moratorium is, the financial position of Yes Bank has undergone a steady decline. This is largely because the bank was not able to raise the capital and address the potential loan losses. And another reason is that the bank also experienced serious governance issues. And then if you see the bank management indicated to RBI that it was in talks with various investors including few private equity firms and it told that the talks will be successful. But if you see they were not successful and there was no capital infusion into Yes Bank. And meanwhile, the Reserve Bank also gave enough opportunity for the bank to revive itself. They asked the Yes Bank's management to draw up a credible revival plan but nothing materialized. So on the one side there was no capital inflow and on the other side there was a regular outflow of liquidity. So money is not coming in but more money is going out from the bank's coffers. So considering all these developments, RBI came to a conclusion that in the absence of a credible revival plan and in the public interest and in the interest of banks depositors, it had no other alternative other than to apply to the central government for imposing a moratorium. Here moratorium mainly means two things. One, the government stays the commencement or continuance of all actions and proceedings against the Yes Bank banking company in this period. Secondly, the state proceedings against Yes Bank is subjected to seven conditions imposed on the bank by the central government. Like restrictions in making payment to the creditors, then making payment to the depositors in normal and extreme situations. Then conditions to repay the loans or advance as granted to the banking company by RBI or State Bank of India or by any other bank, etc. So we can see that it prohibits certain actions that the bank carries out. Now more importantly know that during such period of moratorium, for four reasons that I mentioned here, the Reserve Bank may prepare a scheme for the reconstruction of the banking company or for the amalgamation of a particular bank with any other banking institution. Now once the scheme is prepared, first a draft has to be issued by RBI to receive suggestions and objections from the concerned bank or from any banking company that is concerned in the amalgamation. And if you see the suggestions and objections, shall also be received from any members, depositors or creditors of the concerned bank and any banking company that is concerned in the amalgamation. After this, the Reserve Bank may make some modifications and a final scheme will be placed before the central government for its sanction. And the central government may sanction the scheme without any modifications or with such modifications as it may consider necessary. And know that such scheme as sanctioned by the central government shall come into force when the central government specifies the scheme on its behalf. This is done as per the provisions of the Banking Regulations Act of 1949. Now let us come back to the news article. This news article states that RBI has released the draft Yes Bank Limited Reconstruction Scheme 2020. And for this, suggestions and objections have been invited by 9th of March after which RBI will take a final view. Now the salient points of this draft reconstruction scheme is given here for your reference. See this news article talks about points 1, 2, 4, 6 and 7 from this picture. In the first point, the term authorized capital is mentioned. So now let us look at in brief about what is meant by authorized capital and how it differs from paid up capital. See the authorized capital of a company is the maximum amount of share capital for which shares can be issued by a company. And know that the authorized capital can be increased by the company. At any time with the shareholders approval and by paying additional fee to the register of companies. Whereas if you look at the paid up share capital, it refers to the amount of money for which shares were issued to the share holder for which payment was made by the share holder. And always know that paid up capital will be less than the authorized capital since a company cannot issue shares above its authorized capital. So this is one term. The second term which is mentioned is additional tier one capital. This term was mentioned when the rights and abilities of the reconstructed yes bank was discussed in this scheme. This scheme stated that the instruments qualifying as additional tier one capital issued by the yes bank under Basel 3 framework shall stand returned on permanently. That is, there will be a permanent reduction in the value of instruments that are qualified as additional tier one capital. So this will be reduced in order to offset the losses. Now in this context, let us see in brief about additional tier one capital and what does tier one capital mean in general? We know that for regulatory requirements, the total regulatory capital in a bank is divided into two, tier one capital and tier two capital. In tier one capital, there are two subcomponents. One is common equity tier one capital and the other is additional tier one capital. Some of the elements that are included as additional tier one capital for the Indian banks is given here for your reference. See tier one capital is also called as going concern capital. It means those capital which can observe losses without triggering bankruptcy of the bank. Now in contrast to tier one capital, tier two capital is called as gone concern capital. It means those capital which will observe losses only in situation of the liquidation of the bank. So this is a small difference between tier one and tier two capital. So this is all about the discussion of all these news articles related to the moratorium on yes bank. Now let us look at an editorial which is related to this issue. This editorial states that the prompt draft bailout proposal for yes bank is to be appreciated or commendable but it raises several questions. One of the questions is that why the bank was not earlier placed under the prompt corrective action framework of RBA. So what do we mean by prompt corrective action framework? See it is a framework under which the banks with weak financial metrics are put under watch by the Reserve Bank of India. So if the bank is not really performing well on certain parameters, then those banks will come under this prompt corrective action framework. See in 2017 RBA released a revised prompt corrective action framework. Under this revised framework, there are three key areas which will be monitored by RBA. One is the capital, second is the asset quality, third is the profitability. So for the capital, the capital to risk weighted assets ratio will be monitored. Then for the asset quality, the net non-performing assets of the bank will be monitored. So for profitability, the return on assets will be monitored. So as a part of this framework, RBA is specified certain regulated trigger points in terms of these three parameters. And if the banks hit the level of the trigger points that are set by the RBA, then RBA will initiate certain structured and discretionary actions. So this is about prompt corrective action framework in brief. Know that this framework is applicable only to the commercial banks. Now the author of this editorial states that Yes Bank should have been placed in this prompt corrective action framework before taking the draft scheme for reconstruction. Some experts say that Yes Bank's parameters did not trigger such an action. But if you see Yes Bank's parameters in the recent times are not found in the public domain because Yes Bank is yet to report the financials for the third quarter of the current financial year which is 2019-2020. So the author implies that then on what basis RBA can justify that PCA framework is not required for Yes Bank. Now the second question which author asks is that why SBI was selected as Investored Bank? That is why State Bank of India was selected as Investored Bank to invest in Yes Bank in order to bail out or to save up private bank at a time when the public sector banks are currently engaged in merging with the weaker public sector banks. Now the author questions the government that if it does not have any other options to proceed forward in addressing this Yes Bank issue. So these are some of the questions raised by the author in this editorial. In the conclusion the author states that while RBI and Centre as reacted or responded promptly for S Bank's required reconstruction, both RBA and the central government are required to carry out their tasks prudently and effectively in order to prevent such weaknesses from arising in the banking sector in the future. So these are some of the comments made by the author in this editorial related to the moratorium on Yes Bank. With this we come to the end of the analysis of the news articles related to the moratorium imposed on Yes Bank by the central government wherein we saw what do we mean by moratorium. Then we saw the draft RBA reconstruction scheme for the Yes Bank and in connection with this we saw certain terminologies like authorized capital, then additional tier one capital and other related terminologies. And finally we saw an editorial where the author has raised certain concerns regarding the government's decision to impose moratorium on Yes Bank. Now have a look at the practice question. Let us move on to the next news article. This news article is about the Indian Ocean Commission. So in this discussion let us look at this Indian Ocean Commission in detail. Know that Indian Ocean Commission is an intergovernmental organization. There are five members in this Indian Ocean Commission and they are located in the western Indian Ocean. The countries are Comrose, Madagascar, Mauritius, Seychelles and French reunion. Know that this Indian Ocean Commission was created by the Port Louis declaration in the year 1982. Here know that Port Louis is the capital of the country of Mauritius. See Indian Ocean Commission was institutionalized in Seychelles in the year 1984 by an agreement called as Victoria Agreement and here know that Victoria is the capital of the country of Seychelles. And one more thing which you need to know is that all these islands were ruled by the French at some point in the history. Now the news is India has been approved as an observer state in the Indian Ocean Commission. And there are also some other observer states. They are the United Nations, then the European Union, then Malta, China and Japan. So now India is also an observer state in this Indian Ocean Commission and along with this the international organization of Francophonie is also an observer in this Indian Ocean Commission. Know that this organization is an international institution which consists of 54 members. It was formed in 1970. This organization was formed in order to strengthen and promote French language and universal values. So this is all about this Indian Ocean Commission in brief. Now what is the significance of this move of India going to be associated with Indian Ocean Commission as an observer state? First of all it will help India to strengthen its security ties with these countries in the Indian Ocean region. Know that the Mozambique Channel is known as the key choke point in the Indian Ocean. And know that another example is the state of Hormuz which is located between the Persian Gulf and the Gulf of Oman. See it is a choke point in the Middle East which is threatened by the U.S.-Iran tensions as we know. So all these maritime choke points located in the Indian Ocean region are regions of huge trade and if someone takes control of this then the global trade can be disrupted overall. And we know that there is China's influence in the Indian Ocean region which is increasing every day. So India becoming an observer state in the Indian Ocean Commission will help to increase India's naval presence in this region. So this is the significance of India joining as an observer state in this Indian Ocean Commission. So this is all about the discussion of this news article. Now have a look at the practice question. Let us move on to the next news article. Now let us look at an editorial. This editorial revolves around the effectiveness of the rate cut that has been announced by many central banks across the world due to the impact of COVID-19 on the world's economy. See we have been seeing many news articles in the recent days regarding this COVID-19 and we also told how COVID-19 is impacting the performance of the world economy. One main thing which we tell again and again is that this COVID-19 has originated from China. This COVID-19 was discovered first in China and it has heavily impacted the Chinese population. So China which is one of the biggest manufacturing economy in the world is severely affected and because of this the world's trade is also affected. And as a result the central banks across the world are going for a cut in their policy rate in order to boost the market sentiments. So in this editorial the author is discussing about the effectiveness of the rate cuts announced by the central banks across the world. So let us look at this editorial. The syllabus is given here for your reference. We know that monetary policy deals with controlling of money related aspects such as supply of money and interest rates in an economy. In India this function is carried out by the Reserve Bank of India. Some of the instruments of monetary policy are bank rates, report rates, reverse report rates, then your cash reserve ratio, then statutory liquidity ratio etc. Now we know that COVID-19 has affected the health, jobs and income of people across the world. Now when there is no money to be spent the demand in the economy automatically comes down. So this is the reason why the central banks are going for rate cuts. Now if there is a rate cut then it will increase the money supply in the economy and this will help to push the demand in one form. So this is the reason why many central banks across the world have cut their interest rates. For example the Central Bank of United States has cut its interest rate by almost 50 basis points which is a huge number and even countries like Australia, Malaysia have cut their rates and some more countries like Japan, England then the European Central Bank are all planning to cut the interest rates. So what the author is telling is that all these moves by the countries across the world will exert pressure on the Central Bank of India which is RBA to cut its own interest rate. The author says that expecting a rate cut by the RBA the bond yields on 10 year government securities fell by around 0.12%. Here you need to know how a cut in interest rate will affect the bond yields. First know that a bond yield is based on the bond's coupon payments that is the interest rate divided by its market price. So if the bond prices increase the bond yields will fall. Now the interest rate announced by the Central Bank and the bond prices have an inverse relationship. So all an interest rate will make the bond prices rise and if the bond prices increase the bond yields will fall. Similarly a rising interest rate will cause the bond prices to fall and because of this the bond yields will rise. So always the interest rates and the bond prices have an inverse relationship. So in this case there was a speculation that there will be a rate cut and because of this the bond prices has increased which has led to the fall in the bond yields. This is the reason why the author is telling that expecting a rate cut by the RBA bond yields on 10 year government securities fell by 0.12%. Now the author tells that RBA's decision on rate cuts has to be based on the inflation levels in the economy and the author questions if such a rate cut will solve the present issue. We know that COVID-19 has not just affected the demand side but the supply side as well. As we initially saw China the most affected country by the virus is known as the factory of the world because most of the industries across the world are dependent on the raw and intermediary products from China. So now a fall in production in China has impacted the global supply chain especially if you see the supply of cell phone components and then bulked drugs and even auto components. Now due to this fall in production the United Nations Conference on Trade and Development has estimated that the global merchandise exports could shrink by 50 billion dollars. Now if you look at the total merchandise exports globally it is 19.48 trillion dollars as of 2018. Now this estimated amount which is 50 billion may appear to be small but the author tells that it could just be the beginning of a bigger problem. So what the author tries to tell is that the rate cut may help to boost the demand but it will solve only the demand side of the problem. The supply side issues will not be solved. So the author tries to conclude that the rate cut announcements by the central banks across the world will solve only the demand side of the issue. Here the author is of the opinion that under pressure RBI may go for tools similar to its operation twist and long term repo operations instead of rate cuts. Know that operation twist of RBI is about the buying and selling of the government securities and in case of long term repo operations the objective is to ensure long term liquidity in the commercial banks. If you remember we have discussed in detail about this operation twist in our 20 December 2019 the Hindu news analysis and about LTRO recently in our third March analysis. So we request our viewers to have a look at both these videos in order to have a better subject clarity. So what the author tries to tell is that Indian industries especially pharmaceuticals, electronics and automobiles which are heavily dependent on Chinese inputs are bound to take a hit and if the developed economy such as US falls into recession then our export industry will be hit and this will have a huge impact on our GDP as our exports account for almost 20 percentage of our GDP. And also when interest rates are falling across the developed world then investors will be looking at the developing economies like India where they'll try to invest more because the returns would be more. So the author tells that RBI will face a challenge not to cut the rate in order to attract the foreign investments. And one more good thing is that right now India has a lower oil import bill and this will reduce our current account deficit. We know that deficit means expenditure is more than the receipts. If you see there is one more news article even today in the business column which tells that due to less demand for oil the oil prices have reduced to a larger extent and because of lower oil prices now India's oil import bill will be lower. So this will help reduce our current account deficit and innovate will also help keep our forex reserve stable as highlighted in this news article. Finally the author tells that this crisis gives an opportunity for India. The author tells that India should focus more on localizing our supply chains instead of depending on China for imports. It can make use of initiatives like Make an India and the author also tells that the global supply chain needs an alternative to China. So if Indian policymakers and industrialists are working together they can make India the alternative factory of the world. So this is all about the discussion of this editorial. In this editorial the author has tried to ponder upon the effectiveness of the rate cuts announced by some of the central banks across the world. He concludes that it will address only the demand side of the problem and in the later part of the editorial the author tries to give certain suggestions for India to become an alternative to China in being a supply chain centric nation. Let us move on to the next news article. This news article talks about the intervention by the Supreme Court in deciding on the constitutionality of certain provisions of the Foreign Contribution Regulation Act of 2010 and the Associated Foreign Contribution Regulation Rules of 2011. See a petition was filed by the Indian Social Action Forum to declare certain provisions of the Act and the Rules as unconstitutional. For this petition the Supreme Court has given the judgment. In its judgment the Supreme Court has stated that the central government can't declare an organization as political for using legitimate forms of dissent in aiding a public cause and by declaring an organization as a political organization it should not deprive the organization from receiving foreign funds. So let us look at this issue in detail the syllabus that is relevant to the analysis of this news article is given you for your reference. See initially the Foreign Contribution Regulation Act of 1976 was enacted later this Act was repealed and we have the Foreign Contribution Regulation Act of 2010 now. This Act has been enacted to ensure that parliamentary institutions, political associations and academic and other voluntary organizations may function for the benefit of India. Now if these institutions and associations receive funds from other countries their functions may become detrimental to India's interests. So in order to have a check this particular Act was enacted. Now if you look at section 3 one of this Act it bans the following entities from accepting foreign contributions. One such entity is the Organization of Political Nature. Now if you look at section 5 one of this Act it empowers the government to brand any organization as of political nature based on its activities. And for this purpose we have the Foreign Contribution Regulation Rules of 2011 which defines the guidelines to the government for declaring an organization as of political nature. Under this we have Rule 3 to be specific Rule 3-6 where it tells that any organization which habitually engages in common forms of political action like Band or Hartal or Rasta Roko or Rail Roko or Jail Bharo in support of public causes also can be declared as an organization of political nature. So if an organization is declared as an organization of political nature section 5-3 of this Act tells that such an organization shall make a representation to the central government. So once the notice is issued by the central government within 30 days from the rate of notice the organization can make a representation to the central government and section 5-4 of this Act tells that if the central government considers it appropriate it can forward the representation to any authority to report on such representation. Now the Indian Social Action Forum which filed a petition in the Supreme Court is of the opinion that section 5-1 gives unbridled power to the government in declaring an organization as political and it is also of the opinion that Rule 3-6 is vague and possibly misused. And also if you see under section 5-3 it tells that the representation can be made to any authority. So the exact authority is not specified. So this forum challenged the above provisions as violative of Article 14, Article 19, Clause 1 and Article 19, Clause 3 of the Indian Constitution. Now in this context the Supreme Court has delivered the verdict it has said that any organization engaging in legitimate forms of dissent like Band or Hattal or Rasta Roko or Rail Roko or Jail Bharo without any political objectives then such organizations cannot be barred from receiving foreign contributions. And any organization that supports the cause of a group of citizens who are agitating for their rights cannot be penalized and deprived from receiving foreign funds. So this was the verdict given by the Supreme Court. Here the Supreme Court also said that any organization taking part in active politics or party politics should be barred from receiving foreign funding. Then it also stated that mere threat of misuse cannot be a reason for holding a law unconstitutional. This is all about the discussion of this news article. To summarize we saw the important provisions of foreign contribution regulation act of 2010 and the associated foreign contribution regulation rules of 2011 which deal with the political organization. Let us move on to the next news article. This news article is with reference to the recent amendment made to the schedule to the Environment Impact Assessment Notification of 2006. In this context we will see what exactly the amendment means in this analysis. The syllabus that is relevant to the analysis of this news article is highlighted here for your reference. As we know the developmental projects are classified into two broad categories in the EAA notification. This classification is based on the spatial extent of potential impacts and potential impacts of the projects on human health and natural and man-made resources. Accordingly we have category A and category B projects. We can see the projects that fall under these categories in the schedule of the Environment Impact Assessment Notification of 2006. If one goes through the schedule one can understand that if the extent of potential impacts on human health natural and man-made resources are to be huge such projects come under category A. So category A projects are those that require prior environmental clearance from the central government in the Ministry of Environment Forests and Climate Change. This decision of the union government will be based on the recommendations of an expert appraisal committee which is constituted by the central government. Now if you look at category B projects they are those projects for which the prior environmental clearance is required from the State or the Union Territory Environmental Impact Assessment Authority which again is constituted by the central government as per section 3 of this EAA notification. And this authority shall base its decision on the recommendations of a State or Union Territory level expert appraisal committee. And under this category B there are two subcategories. One is category B1 and category B2. Now if you look at category B2 it includes those projects for which environment impact assessment report is not required. And category B2 projects do not require scoping process and they are also exempted from public consultation as per section 7 of this EAA notification. But what happened on 16th January 2020 on this day the central government modified the schedule of this 2006 notification as a result oil and gas exploration projects which were earlier categorized as category A projects were modified as category B2 projects. Now what does this mean? This means here after the prior environmental clearance need not be obtained from the Union Ministry but it shall be obtained from the State Environment Impact Assessment Authority for the oil and gas exploration projects. So who constitutes this authority? Is it the State Governments or the Union Government? This holds the answers to the question why the State Governments are raising concerns over the recent amendment. This is because the State Governments do not have final say in constituting this authority. They can only forward the names and the Central Government constitutes that authority. So while the category A projects are given prior environmental clearance by the Union Ministry it is not the State Governments that give prior environmental clearance to category B2 projects rather an authority that is constituted by the Central Government. Secondly here after for such oil and gas exploration projects the process of scoping public consultation and the Environment Impact Assessment Report are not required. But only the prior environmental clearances required from the State Environment Impact Assessment Authority. It is mainly for these reasons the people along with environmentalists and the State Governments are against the Union Government because the Union Government has eliminated public consultation as a rule in the hydrocarbon or oil and gas exploratory projects. So as a result this downgrading from category A to B2 is being seen as a deadly blow to the participatory governance and the bottom to top governance. And the environmentalists are also asking how does the government which earlier classified exploratory projects as category A because of the potential impacts has now classified them into category B2 projects. So these are some of the points with respect to the analysis of this news article. To summarize we have seen about the impacts of the recent amendment made to the schedule to the 2006 Environment Impact Assessment Notification where certain projects like oil and gas exploratory projects have been categorized as category B2 from the earlier category of category A. Now have a look at the practice question let us move on to the practice questions discussion session look at this first question two statements are given and you need to choose the correct statements look at the first statement it tells that with respect to suspension of banking business by a banking company the order of moratorium is made by the central government the statement is correct it is as per the Banking Regulation Act of 1949 as per this act on the application of moratorium from RBA the central government can issue an order of moratorium. So the first statement is correct look at the second statement it tells that the prompt corrective action framework of RBA is applicable not only to cooperative banks but also to non-banking financial companies. Now this statement is incorrect because the prompt corrective action framework is applicable only for the commercial banks and not for other banks like cooperative banks or non-banking financial companies etc. So the correct answer to this question is option A1 only. Now look at the second question the question is about Indian Ocean Commission two statements are given again and you need to choose the incorrect statements look at the first statement it tells that IOC that is the Indian Ocean Commission is an intergovernmental organization of 22 countries bordering the Indian Ocean this statement is incorrect now don't confuse this statement because it is the Indian Ocean Rim Association or IORA which has 22 member states and 9 dialogue partners know that Indian Ocean Commission has only five member countries. So it is a five member organization the five countries are Comoros, Madagascar, Mauritius, Seychelles and French reunion as we just saw during the discussion India has become an observer state in this Indian Ocean Commission. So India is not a founding member of this Indian Ocean Commission so the second statement also goes wrong since both the statements are wrong the correct answer is option C both 1 and 2 since the question demands you to choose the incorrect statements. Now look at this question two statements are given and you need to choose the correct statements look at the first statement it tells that the state-level environment impact assessment authorities in India are constituted by appropriate state governments this statement is incorrect because the state-level environment impact assessment authorities are constituted by the central government but the names are forwarded by the concerned state governments as per section 3 of the environment impact assessment notification of 2006. So the first statement is incorrect now look at the second statement it tells that at present offshore oil and gas development and production projects do not require prior environmental clearance from the concerned state-level environment impact assessment authorities this statement is correct because during our discussion we saw that offshore oil and gas exploration projects have been categorized under B2 which requires prior environmental clearance from the concerned state-level environment impact assessment authority whereas if you look at offshore oil and gas development and production projects they come under category A projects which means they require prior environmental clearance only from the central government in this case it is the union minister of environment forests and climate change so the second statement is actually correct here the correct answer to this question is option B2 only with this we come to the end of the analysis of all the news articles taken up for today's discussion and also the practice questions discussion session if you like the video press the like button comment and share and do subscribe to Shankar IAS Academy YouTube channel for latest videos and updates stay focused and motivated friends thank you