Archives
(PRELIMS & MAINS Focus)
THE DEPOSIT ISSUE: WHY BANKS ARE STRUGGLING TO LEND
Syllabus
Prelims & Mains – ECONOMY
Context: Banks are currently experiencing a deposit crunch, which is limiting their ability to extend credit.
Background: –
The Reserve Bank of India Governor Shaktikanta Das had, in July, raised concerns over slower deposit mobilisation compared to credit growth stating that as it may create structural liquidity issues.
Key takeaways
India is among the fastest-growing large economies of the world largely driven by the government’s elevated expenditure on infrastructure development.
While government capital expenditure has spurred the growth rate, job creation remains a concern with youth unemployment touching 17 per cent, as highlighted by the World Bank.
Private investment, measured by private Gross Fixed Capital Formation (GFCF), has been subdued, declining to a four-quarter low of 6.46 per cent in Q4FY24, down from 9.7 per cent in the previous quarter.
The Economic Survey 2023-2024 also highlighted that between FY19 and FY23, the share of private non-financial corporations in overall GFCF increased only by 0.8 percentage points from 34.1 per cent to 34.9 per cent.
In a worrying trend, S&P Global forecasted that year-on-year credit growth is set to decline during the current financial year to 14 per cent, compared to 16 per cent in the previous fiscal year.
One key reason for this is the reduced risk appetite from banks for lending to the private sector, which is the economy’s largest job creator.
S&P Global also said that “regulatory actions to tame unsecured lending” are also slowing credit growth. The RBI recently increased risk weights for unsecured loans which has moderated loan growth in this segment in recent months.
Widening Credit-Deposit Gap
A healthy credit growth rate is essential to maintain economic growth, especially in India where bank credit is a key component. However, for banks to extend credit, deposits must grow in tandem. But banks are currently experiencing a deposit crunch, which is limiting their ability to extend credit. This has led to a widening gap between bank deposits and credit growth.
Current and savings accounts (CASA) – the banks’ primary low-cost funding sources, account for 41 per cent of total deposits, down from 43 per cent last year.
Changing investment habit
The slowdown in deposit growth comes amid an outflow of household savings from banks to capital markets. Following the Covid pandemic, the Indian capital markets have seen a meteoric rise. However, economists say that the shift in households’ saving behaviour towards alternative saving instruments have not alone lowered bank deposits as a move to alternate saving instruments would still imply that the money finds its way into bank deposits.
“A shift in the savings portfolio of a household alone does not lead to a fall in deposits. It does, however, change the composition of deposits – for instance, a shift to CASA from term deposit or a move towards shorter tenure term deposits compared to longer tenure. This in turn could have an adverse impact on the money multiplier and the deposit creation process,” HDFC Bank said in a research report.
Low government spending in the run up to the election has also exaggerated the deposit problem in recent months. Government spending remained low in the run up to the elections over the last few months and this led to an increase in government cash balances with the RBI.
Source: Indian Express
NATIONAL INVESTIGATION AGENCY (NIA)
Syllabus
Prelims & Mains – POLITY
Context: To improve the information network on a national level against “organised criminals”, the National Investigation Agency (NIA) will make a database of gangsters, criminals running their gangs from behind jails, and their associates.
Background: –
Sharing some of the key features of the database, a source said it would have the latest photographs of the criminals, biometric details, interrogation report, their logistics provider, weapon suppliers, and harbourers.
Key takeaways
Established: 2008 under the NIA Act, 2008, in response to the 26/11 Mumbai terror attacks.
The NIA, with its headquarters (Hqrs) at New Delhi, has 18 Branch Offices in the country.
Mandate: Investigation and prosecution of offenses affecting national security such as terrorism, financing of terrorism, and related activities.
Special Jurisdiction: Unlike state police forces, the NIA can investigate and prosecute cases across states without special permission, overriding the federal division of powers in normal criminal law.
Key Features:
Investigative Scope: The NIA can investigate and prosecute offences under the Acts specified in the Schedule of the NIA Act. NIA deals with offenses related to:
Terrorism under Unlawful Activities (Prevention) Act (UAPA)
Bomb blasts, hijacking, human trafficking, cyber terrorism, and counterfeit currency
Special Acts like the Atomic Energy Act, 1962, and Anti-Hijacking Act, 2016 etc
Powers: Similar to a state police force but operates across states. It also has the power to investigate matters referred by the central government or with cross-border implications.
NIA Amendment Act, 2019 focussed on three main areas:
OFFENCES OUTSIDE INDIA: The original Act allowed NIA to investigate and prosecute offences within India. The amended Act empowered the agency to investigate offences committed outside India, subject to international treaties and domestic laws of other countries. The amended section reads: “Where the Central Government is of the opinion that a Scheduled Offence has been committed at any place outside India to which this Act extends, it may direct the Agency to register the case and take up investigation as if such offence has been committed in India.” The NIA special court in New Delhi will have jurisdiction over these cases.
WIDENED SCOPE OF LAW: The Schedule originally had The Atomic Energy Act, 1962, The Unlawful Activities (Prevention) Act, 1967, and The Anti-Hijacking Act, 1982, among other entries. The amendment has allowed the NIA to investigate, in addition, cases related to (i) human trafficking, (ii) counterfeit currency or banknotes, (iii) manufacture or sale of prohibited arms, (iv) cyber-terrorism, and (v) offences under the Explosive Substances Act, 1908.
SPECIAL COURTS: The 2008 Act constituted Special Courts for conducting the trial of offences under the Act. The 2019 amendment allowed the central government to designate Sessions Courts as Special Courts for the trial of scheduled offences under the Act. The central government is required to consult the Chief Justice of the High Court under which the Sessions Court is functioning, before designating it as a Special Court. State governments too, may also designate Sessions Courts as Special Courts for the trial of scheduled offences.
Federalism Debate: The NIA’s jurisdiction sometimes raises questions about the balance of power between the center and states, as law and order is a state subject under List II of the 7th Schedule of the Indian Constitution.
Source: Indian Express
VENUS
Syllabus
Prelims – SCIENCE & TECHNOLOGY
Context: India is set to expand its space exploration efforts beyond the Moon and Mars, as the Union Cabinet approved the Venus Orbiter Mission (VOM) on Wednesday, 18 September.
Background:
The ‘Venus Orbiter Mission’ aims for better understanding of the Venusian surface and subsurface, atmospheric processes and influence of Sun on Venusian atmosphere.
About Venus
Second planet from the Sun and often referred to as Earth’s “twin” due to its similar size and mass.
Rotation: It has a retrograde rotation, meaning it rotates in the opposite direction to most planets, including Earth.
Brightness: Venus is the third brightest object in the sky after the Sun and the Moon.
One day on Venus is longer than its year; Venus takes about 225 Earth days to complete one orbit around the Sun. A day on Venus (one full rotation) takes about 243 Earth days, which is longer than its year.
Atmosphere: Dense and composed mostly of carbon dioxide (~96%), with thick clouds of sulfuric acid, making it the hottest planet in the solar system due to the runaway greenhouse effect.
Surface temperature: Averages around 465°C, hot enough to melt lead.
The atmospheric pressure on Venus is 92 times greater than Earth’s at sea level
No liquid water: Extremely dry surface due to high temperatures and pressure.
Volcanism: The surface of Venus is dominated by volcanic features and has more volcanoes than any other planet in the Solar System. It has a surface that is 90% basalt, and about 65% of the planet consists of a mosaic of volcanic lava plains, indicating that volcanism played a major role in shaping its surface.Direct geological evidence of recent volcanic activity has been observed on the surface of Venus .
Space Missions and Exploration:
The Soviet Union, United States, European Space Agency and Japan have conducted missions to Venus.
NASA’s Mariner 2 was the first spacecraft to visit any planet beyond Earth when it flew past Venus on Dec. 14, 1962. NASA is planning two new missions to Venus: VERITAS, and DAVINCI.
ESA’s Venus Express has provided insights into Venus’s atmosphere and magnetic field.
Akatsuki (Japan) studied Venus’s climate, cloud formation, and weather patterns from orbit around Venus. Late April, 2024, Japan reported that it had lost contact with the spacecraft.
Scientific Importance:
Atmospheric Studies: Venus helps scientists study the greenhouse effect and its implications for climate change on Earth.
Astrobiology: In 2020, traces of phosphine gas, which could potentially indicate microbial life, were reported in Venus’s upper clouds, sparking renewed interest in astrobiology.
Comparative Planetology: Studying Venus is essential for understanding why two planets (Earth and Venus) with similar sizes and compositions evolved so differently.
Source: PIB
DAIRY SECTOR IN INDIA
Syllabus
Mains – GS 3
Context: Union Home and Cooperation Minister launched ‘White Revolution 2.0’, along with an action plan on the formation and strengthening of two lahks new Multipurpose Primary Agriculture Cooperative Societies, dairy and fishery cooperatives, and a standard operating procedure on ‘cooperation among cooperatives’.
Background: –
To revolutionize India’s dairy industry, the National Dairy Development Board (NDDB), chaired by Verghese Kurien (‘Father of White Revolution in India’), was established in 1965. It was inspired by the successful “Anand Pattern” and launched the White Revolution, also known as Operation Flood in 1970, connecting rural milk producers with urban consumers through dairy cooperatives. It transformed the dairy-deficient nation into the global leader in milk production.
Dairy Sector in India:
India is the world’s top milk producer, with production having reached 230.58 million tonnes during 2022-23. In 1951-52, the country produced just 17 million tonnes of milk.
The top 5 milk-producing states are Rajasthan (15.05%), Uttar Pradesh (14.93%), Madhya Pradesh (8.6%), Gujarat (7.56%) and Andhra Pradesh (6.97%). They together contribute 53.11% of total Milk production in the country.
The average yield is, however, only 8.55 kg per animal per day for exotic/ crossbred animals, and 3.44 kg/ animal/ day for indigenous/ nondescript animals.
The national per capita availability of milk is 459 grams/ day, which is higher than the global average of 323 g/ day; this number, however, varies from 329 g in Maharashtra to 1,283 g in Punjab.
About 63% of the total milk production comes to the market; the remaining is kept by producers for their consumption.
About two-thirds of the marketable milk is in the unorganized sector. In the organized sector, cooperatives account for the major share.
India’s export of dairy products was 67,572.99 Metric Ton (MT) to the world worth USD 284.65 Mn during the year 2022-23.
Issues/Challenges related to the Dairy Sector in India:
India has significantly lower milk yield per animal compared to the global average which can be due to poor quality feed and fodder, traditional cattle breeds, and lack of proper veterinary care.
The overall health and quality of livestock are affected due to issues such as diseases, lack of proper breeding practices, and insufficient healthcare facilities.
Adulteration of milk remains a persistent issue due to difficulties in quality control.
There is a lack of regulations to ensure the quality of feeds which results in using of substandard feeds available in the market.
It faces challenges due to a lack of infrastructure such as the lack of a robust cold chain that results in spoilage of milk and dairy products, especially in regions with inconsistent power supply.
Milk producers often receive low purchase prices compared to market rates, leading to disparities in profit distribution within the value chain.
There is a lack of awareness, education, and training among farmers that impedes the implementation of advanced practices such as artificial insemination, efficient feeding methods, and disease management.
Measures/Initiatives taken by the Government for the Promotion of Dairy Sector:
Rashtriya Gokul Mission was launched in 2014, to enhance the productivity and genetic improvement of indigenous cattle.
The National Programme for Dairy Development (NPDD) has been in place since 2014 and aims to build or strengthen infrastructure for the production of high-quality milk as well as for the procurement, processing, and marketing of milk and milk products through the State Cooperative Dairy Federation.
Dairy Entrepreneurship Development Scheme (DEDS) is being implemented by the Department of Animal Husbandry, Dairying, and Fisheries to create self-employment opportunities in the dairy industry by providing financial assistance to individuals for setting up small to medium-scale dairy ventures.
The National Animal Disease Control Programme (NADCP) is a flagship scheme launched in 2019 for the control of Foot and Mouth Disease and Brucellosis by vaccinating 100% of cattle, buffalo, sheep, goat, and pig population.
National Livestock Mission (NLM) launched by the Ministry of Agriculture, aims to ensure sustainable development of the livestock sector, including dairy farming by focusing on increasing the productivity of livestock, improving their health, and providing support for fodder and feed resources.
White Revolution 2.0:
It revolves around cooperative societies, which were also the bedrock of Operation Flood five decades ago.
The bulk of the funding for White Revolution 2.0 will come through the National Programme for Dairy Development (NPDD) 2.0, a new central sector scheme under the Department of Animal Husbandry and Dairying.
Under the scheme, financial assistance will be provided to set up village-level milk procurement systems, chilling facilities, and training and capacity-building.
The National Dairy Development Board (NDDB) has drawn up an action plan to establish about 56,000 new multipurpose dairy cooperative societies over the next five years and to strengthen 46,000 existing village-level DCSs by providing more advanced milk procurement and testing infrastructure.
Source: PIB
CREDIT DEFAULT SWAPS (CDS)
Syllabus
Prelims – ECONOMY
Context: Securities and Exchange Board of India (SEBI) announced that mutual funds can now sell credit default swaps (CDS) citing the need to aid liquidity growth in corporate bond market, according to its latest circular.
Background: –
The move follows RBI’s directive in 2022 to provide revised regulatory framework for debt derivatives. So far, only buying CDS’s were permitted. Allowing both purchase and sale of the instrument will improve flexibility for MFs.
About Credit Default Swap (CDS)
Credit Default Swap (CDS) is a financial derivative that allows an investor to transfer the credit risk of a debt instrument, such as a bond, to another party.
A CDS is essentially a contract between two parties: the buyer and the seller. The buyer of the CDS makes periodic payments to the seller in exchange for protection against the default of a debt instrument, such as a bond or loan.
How Does a CDS Work?
Premium Payments: The buyer pays regular premiums to the seller, similar to an insurance policy.
Credit Event: If the underlying debt instrument defaults or a specified credit event occurs (e.g., bankruptcy, failure to pay), the seller compensates the buyer.
Compensation: The compensation typically includes the face value of the debt instrument and any unpaid interest.
Illustration:
Imagine Company X has issued a bond worth ₹100 crore. An investor, Investor A, has purchased the bond but is concerned that Company X might default on its debt obligations. To mitigate this risk, Investor A buys a CDS from Bank B, a financial institution willing to take on this credit risk.
Investor A (Protection Buyer) pays a regular premium to Bank B (Protection Seller) for insuring the bond issued by Company X (Reference Entity).
If Company X continues to make payments on the bond, Investor A will continue paying the premium, and the CDS will expire without being triggered.
If Company X defaults on its bond, Bank B will compensate Investor A for the value of the loss (say ₹100 crore or a part of it depending on the terms).
Key Uses of CDS
Hedging: Investors use CDS to hedge against the risk of default on debt instruments they hold.
Speculation: Traders can speculate on the creditworthiness of a company or country by buying or selling CDS.
Risks and Criticisms:
Counterparty Risk: If the CDS seller (e.g., Bank B) itself becomes insolvent, the buyer of the CDS (e.g., Investor A) may not receive the payout even if a default occurs.
Market Instability: During the 2008 financial crisis, CDS contracts exacerbated the instability as financial institutions struggled to honor CDS payouts.
Source: The Hindu
QUANTUM TECHNOLOGY
Syllabus
Prelims & Mains – SCIENCE & TECHNOLOGY
Context: The Department of Science and Technology has invited proposals from start-ups engaged in quantum technologies under the National Quantum Mission, which aims to support, nurture and scale up scientific and industrial R&D in quantum technology.
Background: –
Apart from being a new field, quantum technology is one of the most important interdisciplinary areas, with wide applications in science, research, healthcare, communication, security, and many other sectors.
What is Quantum Technology
Quantum Technology is used as an umbrella term for the technological advancements that are specifically governed by the principles of quantum mechanics at its core – a fundamental aspect of quantum physics that deals with the behaviour of atomic and subatomic particles.
It was observed that the principles of classical physics (which includes Newtonian mechanics, electromagnetism, and classical thermodynamics) were not able to explain many important phenomena of atomic and subatomic particles, which were wave-particle duality, quantum superposition, quantum entanglement, and Heisenberg’s Uncertainty Principle.
This inadequacy of classical physics led to the development of quantum mechanics, a new field in physics that revolutionised our understanding of the quantum world. Further developments in quantum mechanics were translated into real devices for applications.
Together (theories and devices), they made up what we call quantum technology. To be precise, quantum technology exploits the principles of quantum mechanics, which include superposition, quantum entanglement, and interference to achieve greater efficiency in large-scale computations.
Principles of Quantum Mechanics
(a) Superposition:
In classical computing, the fundamental unit for computation is a ‘bit’, represented by either ‘0’ or ‘1’. A bit can only take either of these two values because these are the only possibilities. In contrast, quantum computing uses ‘qubit’ (or quantum bit) as its fundamental unit. Unlike classical bits, qubits can exist in a superposition of both ‘0’ and ‘1’ (described by a linear combination of ‘0’ and ‘1’ and represented through the probabilities of the qubit being in the ‘0’ or ‘1’ state when measured).
This unique feature helps in finding multiple solutions to complex algorithms by scanning through a vast number of possibilities simultaneously and coming to the solution with the least error.
(b) Entanglement:
It is a phenomenon that explains how two subatomic particles get linked to each other irrespective of distance such that a level of change in one particle gets reflected on the other. This intriguing property can help in preventing security breaches in quantum communication by entangling qubits of sender and receiver.
(c) Interference:
It is a wavelike superposition of subatomic particles’ states that affect the probabilities of states of these particles when measured. While entanglement is a phenomenon between two particles, interference is an effect of many particles surrounding each other. Interference can be constructive as well as destructive which makes it suitable for use in quantum algorithms for improving accuracies by suppressing less probabilistic outcomes and amplifying high probabilistic outcomes.
Source: Indian Express
Practice MCQs
Daily Practice MCQs
Q1.) With reference to the National Investigation Agency (NIA), consider the following statements:
The NIA has the authority to investigate and prosecute offenses across states without the need for special permission from state governments.
The NIA Amendment Act, 2019 empowered the agency to investigate offenses committed outside India.
The NIA can investigate cases related to human trafficking, counterfeit currency, and cyber-terrorism under the NIA Act, 2008, as originally enacted.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2, and 3
Q2.) With reference to Venus, consider the following statements:
Venus rotates in the same direction as most planets in the solar system, including Earth.
The surface temperature on Venus is higher than that of Mercury due to a runaway greenhouse effect.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Q3.) With reference to quantum technology, consider the following statements:
Quantum entanglement enables secure communication by linking qubits of the sender and receiver, ensuring that any change in one qubit is reflected in the other, irrespective of the distance.
In classical computing, a bit can exist in a superposition of ‘0’ and ‘1’, allowing for faster computation.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Comment the answers to the above questions in the comment section below!!
ANSWERS FOR ’ 23rd September 2024 – Daily Practice MCQs’ will be updated along with tomorrow’s Daily Current Affairs
ANSWERS FOR 21st September – Daily Practice MCQs
Answers- Daily Practice MCQs
Q.1) – b
Q.2) – a
Q.3) – b