Daily Current Affairs for UPSC IAS | 8th October 2021

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1.  Bad Bank in India- Need, Benefit, Challenges and Strategies

UPSC Syllabus: Mains – GS Paper III – Indian Economy
Sub Theme: Bad Bank in India | UPSC

The Union Budget 2021-22 had proposed to set up a Bad Bank in the form of Asset Reconstruction company (ARC) and Asset management Company (AMC) to solve the twin balance sheet problem of the Indian banks and kick start the credit creation in the Indian Economy. Recently, the Government has announced the formation of “National Asset Reconstruction Company Limited (NARCL)” and  “India Debt Resolution Company Ltd. (IDRCL)” to deal with the problem of NPAs.

Understanding the Twin Balance Sheet problem (TBS) and its impact

The Twin Balance sheet problem highlights that the balance sheets of the banks as well as companies are in bad shape. While, the balance sheet of the Banks is dominated by the higher NPAs, on the other hand, the balance sheet of the companies is dominated by higher debt levels and their inability to repay back loans. Such a TBS problem puts the economy into vicious economic cycle as seen below.

What is a Bad Bank?

The Bad Bank is a bank which takes over the NPAs of the other banks and hence leads to improvement in the their financial position. For example, lets say a Bank XYZ has total NPAs of around Rs 1000 crores. In accordance with RBI’s norms, the Bank here would be required to set aside certain percentage of its profits to cover the loss arising from such NPAs. This is referred to as Provisioning norms. Hence, the increase in the NPAs accompanied by higher provisioning requirements would severely constraint ability of the Bank to lend loans and hence affects its overall financial position. That is where, a Bad Bank comes into picture.

In this case, the Bad bank can take over NPAs worth Rs 1000 crores from Bank XYZ at say Rs 800 crores. Now, the Bad Bank can undertake restructuring of such loans or undertake any other mechanism to recover the NPA amount. As far as Bank XYZ is concerned, it is at least able to get Rs 800 crores. ( In the absence of Bad Bank, the Bank XYZ would not even recovered that much amount).

Idea of Bad Bank

Global Examples: Early adopter in 1990s- US (Melon Bank) and Sweden (Securum). Similarly, other countries such as Malaysia, Finland, Belgium, Indonesia etc. have set up Bad Banks.

India: The Economic Survey 2016-17 had proposed to set up Bad Bank, which should be called as Public Asset Rehabilitation Agency (PARA). The PARA should be funded and owned by the Government of India. Such a proposal was also put forward by the Indian Banks Association (IBA) recently in June 2020.

Difference between Bad Bank and National Asset Reconstruction Company Limited (NARCL):

The Bad Bank, initially proposed by the Economic Survey 2016-17 was to be set and owned by the Government. However, NARCL has been set up by banks themselves. So, one major difference is in nature of ownership. However, since the nature of role performed by them is same, the terms “Bad Bank” and “ARC” can be used interchangeably.

Note: The Asset Reconstruction Companies are registered with the RBI under the provisions of SARFAESI Act. The NARCL has been incorporated under the Companies Act and has applied to Reserve Bank of India for license as an Asset Reconstruction Company (ARC). Apart from NARCL, India Debt Resolution Company Ltd. (IDRCL) has been set up as Asset Management Company (AMC) to deal with NPAs.

Difference between ARC and AMC:

The ARC buys the Bad loans from the Banks and then transfers them to the AMC. The AMC would then carry out restructuring to recover the bad loans. The AMC would be manned by professionals who have necessary expertise in recovering the Bad loans. For example, they may have requisite capability to take over the management of the company (which has defaulted), revive the company, make it profitable and then sell it off to recover the NPAs.

In case of India, India Debt Resolution Company Ltd. (IDRCL) has been set up as AMC which will manage the asset and engage market professionals and turnaround experts.

How Bad Loans will be resolved through Asset Reconstruction Companies?

Step 1: The ARC would buy NPAs from the Banks. The Money is paid to the Banks in the form of Cash and Security Receipts. 15% of money is paid in form of Cash and 85% in form of Security Receipts (SR). The SARFAESI Act provides for the issuance of Security Receipts.

Step 2: Decrease in NPAs on Banks’ Balance Sheets–> Lower Provisioning–> Capital gets unlocked–> Increase in Credit Creation–> Economic growth.

Step 3: The ARC recovers the NPA either through Debt restructuring or sale of mortgaged assets.

Step 4: The ARC makes the payment for the security receipts after deducting its management fee.

Role of the Government

The Government has decided to give guarantee worth Rs 30,000 crores on the payment of security receipts by the NARCL. If the NARCL is unable to sell the bad loan, or sold it at a loss, then the government guarantee will be invoked and the difference between what the bank was supposed to get and what the NARCL was able to raise will be paid from the Rs 30,000 crore that has been provided by the government.

Why a new ARC has been proposed to be established?

Presently, there are around 10-15 ARCs, out of which only 3-4 ARCs are well capitalised to take over NPAs worth Rs 500 crores. However, the total NPAs concentrated in 70 large accounts is high as 2-2.5 lakh crores. Obviously, we could have strengthened the existing ARCs to solve this. But, the Government believes that a new ARC without any legacy issues would be well equipped to handle this.

Pros and Cons of Bad Bank

Way Forward

Based upon the Global experiences in countries such as US, China, Sweden etc., we need to adopt following strategies to ensure success of NARCL:

Well-Capitalised NARCL: Successful Bad Banks across the world were well-capitalised, which in turn enabled them to take up on the NPAs. Hence, NARCL needs to be well-capitalised to take over NPAs worth Rs 2 lakh crores.

Finite Tenure: Once it is set up, bad bank should have finite tenure within which it should be able to resolve the NPAs. If it continues to exist in perpetuity, it would discourage Banks from exercising due caution in giving loans (Moral Hazard).

Realistic valuation of NPAs: Usually, Banks recover only around 10-15% of the fully provisioned loans and haircuts is as high as 85-90%. Hence, Banks should transfer NPAs to NARCL at realistic value.

Time Bound Resolution of NPAs: Delays in recovery of NPAs would lead to delay in payment of Security Receipts to the Banks and hence adversely affect their financial position.

Professional Expertise: Considering the fact that most of the private ARCs have remained unsuccessful, the NARCL and IDRCL need to have highest level of professional expertise and calibre to solve NPA mess in a time bound and efficient manner.

Reforms in PSBs:  The setting up of Bad Bank without focussing on reforms in PSBs would mean that the fundamental problems that led to NPAs in first place continue to remain. Hence, recommendations of P.J. Nayak Committee on setting up of Banking Investment Committee has to be expedited. Similarly, as rightly pointed out by Economic Survey 2016-17, there is need to focus on 4 R’s of PSBs: Reform, Recognition, Recapitalization, and Resolution.


2.  Role of Digital Technologies in Agriculture- Benefits and Challenges

UPSC Syllabus: Mains – GS Paper III – Indian Economy
Sub Theme: E-tech for Farmers | UPSC

Digital Technologies such as ICT, Artificial Intelligence, Big Data, IoT etc. can play a transformative role in modernising agriculture, make it more Industrialised and usher in constructive disruption.

The Government has adopted number of digital initiatives such as E-NAM, AGMARKNET, ATMA, Kisan Call Centres, Kisan Suvidha app etc. These  initiatives can reduce the input costs, enhance productivity and increase prices received by farmers.

However, adoption of digital technologies faces multi-faceted challenges:

Fragmented landholdings reduce the scope of technology scale up, leading to poor cost effectiveness.

Poor affordability: High-priced technology is unaffordable for small and marginal farmers.

Long gestation period: Adoption and penetration of technology is slow process.

Lack of enabling policy: Adoption of technologies through subsidy is yet to gain momentum.

Poor skill sets among the farmers make adoption of technologies difficult.

Other reasons include poor extension, lack of access to credit, poor internet penetration etc.

The Dalwai panel has highlighted Digital technologies as the key enabler for doubling Income levels of the farmers. Going forward, these constraints and challenges should be addressed at the earliest so that Agriculture sector reaps the benefits of ICT.


3.  Role of PRIs in Disaster Management- Benefits and Strategies

UPSC Syllabus: Mains: GS Paper II: Polity & Governance
Sub Theme: Role of PRIs in Disaster Management | UPSC

Context: In the present situation, government agencies take sole responsibility for disaster preparedness, rescue, relief and reconstruction activities without providing adequate scope for local participation. Not only has this increased people’s dependence on the government machinery but it has also diminished the capacity of local communities to cope with natural disasters. The lack of disaster preparedness and mitigation planning at the local level, especially at the Gram Panchayat level, gives rise to considerable problems in the management of disasters.

Importance of Local Governments to tackle Disasters

  • Gram Sabhas not only provide a platform to discuss ideas and opinions for grassroot development, but also engages with frontline workers (ASHA, MGNREGA etc.) to understand the problems at hand.
  • During COVID pandemic, Panchayati Raj Institutions (PRIs) played a remarkable role in providing essential leadership to ensure welfare and regulatory functions at ground level with community partnership.
  • For instance, during the nationwide lockdown, PRIs set up containment zones, arranged transport, identified buildings for quarantining people and provisioned food for the incoming migrants.
  • PRIs organised community-based surveillance systems involving village elders, the youth and self-help groups (SHGs) to keep a strict vigil in quarantine centres and monitor symptoms in households. Their role in mobilising citizens for COVID-19 vaccination is also exemplary.
  • PRIs also helped in effective implementation of welfare schemes like MGNREGA and the National Rural Livelihood Mission. This quickened the pace of recovery while ensuring support to the vulnerable population.

Fifteenth Finance Commission’s Report – Empowering Panchayati Raj Institutions for Disaster Preparedness and Management

  • Role of panchayats is crucial in mobilising community participation in an institutionalised manner. Involvement of Panchayats can benefit in the following way:
  • It can provide a quick response to disaster events – whether natural or man-made;
  • It can help in sensitising people to deal with such disasters;
  • Minimise people’s dependence on state and central government for rescue and relief operations.
    • Panchayats should be made the Nodal Agency for relief and rehabilitation to tackle disasters. It will improve planning, coordination and monitoring thereby improving overall relief and rehabilitation interventions.
    • PRIs can play a pro-active role in all stages of disaster management – covering prevention, mitigation, preparedness, response, restoration, rehabilitation reconstruction work.
    • Involvement of panchayats will lead to enhanced effectiveness of disaster related activities – rescue operations and arranging temporary shelters; distributing immediate relief in the form of money, food grains, medical care, clothes, tents, vessels, drinking water and other necessities; restoration, rehabilitation and reconstruction efforts of damaged villages and towns; crop protection measures and livestock management; health and sanitation measures; organising health camps and so on.
    • State Governments should allocate some reasonable amount out of the allocation made for STATE DISASTER RESPONSE FUND (SDRF) and STATE DISASTER MANAGEMENT AUTHORITY (SDMF) to districts – for Panchayats to undertake several risk mitigation activities far more effectively.


  • Financial mechanisms would strengthen a decentralised approach to disaster management.   


Other Recommendations (Article)           

  • It is crucial to include disaster management chapters in Panchayat Raj Acts and make disaster planning and spending part of Panchayati Raj development plans and local-level committees. This will ensure citizen-centric mapping and planning of resources.
  • Conducting regular location-specific training programmes for the community and organising platforms for sharing best practices will strengthen individual and institutional capacities.
  • Community based disaster management plans will help to tap traditional wisdom of local communities which will complement modern practices.


  • Allocation of Fund – Although the Disaster Management Act provides for District Disaster Response Fund and District Disaster Mitigation Fund, allocation and utilisation of funds for each panchayat especially for disaster management will be difficult to achieve.
  • Amendment of DMA – To make Panchayats Nodal Agency for relief and rehabilitation to tackle disasters in an institutionalised manner, Disaster Management Act needs to be amended.


  • Need to make disaster management a part of Panchayati Raj Act of respective states.
  • Introducing “Disaster Management” in 11th Schedule of the Indian Constitution as part of Article 243G which empowers Panchayats to take initiatives for preparation of plans for economic development and social justice.
  • While preparing the draft development plan by District Planning Committee under Article 243ZD(3), aspects of natural and man-made disasters must be included as part of plan. For this, there is a need to amend Article 243ZD(3).
  • Disasters generally adversely affect the most vulnerable namely women, Scheduled Castes and Scheduled Tribes. It is hence ideal to have these sections of the community involved in the decision making at the pre-disaster phase and post-disaster phases of disaster management.
  • The pre-disaster aspects would comprise prevention, mitigation and preparedness while the post-disaster aspects would involve response, rehabilitation, reconstruction and recovery.


4. Nobel Prize in Physics

UPSC Syllabus: Prelims: Science & Technology
Sub Theme: Nobel Prize in Physics | UPSC

The Royal Swedish Academy of Sciences has decided to award the Nobel Prize in Physics 2021 “for ground-breaking contributions to our understanding of complex physical systems”

Complex systems are characterised by randomness and disorder and are difficult to understand. Complexity arises when there are many, many interacting pieces in the system, with each moving in an independent way. The deceptively easy-looking problem of water rushing out of a tap is notoriously difficult to understand as to when it makes a transition from simple streamlined flow to a complex turbulent flow.

The Nobel winners this year have handled such complex systems and developed tools to get meaningful, quantitative results out of them.

  1. Physics Nobel prize this year has been award to a trio of researchers:

One half went to Syukuro Manabe of Princeton University, U.S., and Klaus Hasselmann of the Max Planck Institute for Meteorology, Hamburg, Germany, for their work in climate science.

  • Syukuro Manabe demonstrated how increased levels of carbon dioxide in the atmosphere lead to increased temperatures at the surface of the Earth. In the 1960s, he led the development of physical models of the Earth’s climate and was the first person to explore the interaction between radiation balance and the vertical transport of air masses. His work laid the foundation for the development of current climate models.
  • Klaus Hasselmann developed a way to generate useful “signals” from the random noise-like variations of the weather.

He created a model that links together weather and climate, thus answering the question of why climate models can be reliable despite weather being changeable and chaotic. He also developed methods for identifying specific signals, fingerprints, that both natural phenomena and human activities imprint in the climate. His methods have been used to prove that the increased temperature in the atmosphere is due to human emissions of carbon dioxide.

  1. The other half of the prize has been given to Giorgio Parisi from the Sapienza University of Rome, Italy “for the discovery of the interplay of disorder and fluctuations in physical systems from atomic to planetary scales”
  • Around 1980, he discovered hidden patterns in disordered complex materials. His discoveries are among the most important contributions to the theory of complex systems. They make it possible to understand and describe many different and apparently entirely random materials and phenomena, not only in physics but also in other, very different areas, such as mathematics, biology, neuroscience and machine learning.
  • His work has helped solve problems in mathematics, biology and neuroscience; for instance, how memory is stored in networks of nerve cells.

What ties together the seemingly disparate works — the climate science work one hand and theoretical condensed matter physics work on the other — is that both describe complex physical systems.

Physics is often thought of as a science of simple systems. Even rocket science, which inspires awe for its grandeur and accuracy, is mostly the study of so-called simple systems.


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