There are two aspects to the news- knowing the headline and understanding the intricacies of it. We at The Connectere focus on both. While The First Forum edition gives a brief about the headlines, The Weekly Analysis Edition is meant to educate the reader on what do various news mean and what are their intricacies. This initiative is meant to educate the reader on how to understand the important news. In the Twenty Second Edition we are covering the following news:

1. What has COVID pain done to banking?  
2. Beirut Explosion
3. Belarus’ dance of democracy
4. 3rd Bi-Monthly RBI Monetary Policy 2020-21
5. Air India plane crash in Kozhikode

Private Equity

What has COVID pain done to banking?

COVID has created deep pain but we must resist consistently choosing borrowers over lenders because credit is not a gift or a subsidy; it has to be repaid. We must persist with our multi-year five-pillar strategy to sustainably raise our Credit to GDP ratio from 50% to 100%. Encouraging anybody to incur debt which cannot be repaid, would be mocking the very concept of development and elimination of poverty.
Due to COVID, unreasonable requests like interest waivers, endless moratorium extensions, blanket one-time restructurings, fudging accounting, reducing capital adequacy, 24-month IBC suspension, etc. are coming up and it’s breeding a blame game that insists the problem pertains to personalities, not structure.
The last 20 years have given three lessons: Giving loans is easier than getting them back, disallowing accounting fudging and restructuring would have saved Rs 7 lakh crore because banks would have run out of capital and government banks need more than capital.
India’s five pillar strategy is useful in balancing financial inclusion and stability.

  • Bank competition: India has 95 scheduled commercial banks today but we need many more banks because capital should be chasing Indian banking given its high net interest margins, high market cap to book value ratios, and massive addressable market yet, the RBI’s on-tap licencing has few applications pending.
  • Private bank governance: Private banks are only 30 per cent of deposits but 80 per cent of bank market capitalisation, 77 per cent of incremental deposits, and 77 per cent incremental loans. They must move from a jaagir (perpetual private fiefdom) to amaanat (trustees that hand over in better condition to the next generation).
  • Government bank governance: Over 10 years, government companies have sunk from 30 % of India’s market capitalisation to 6 % and government banks mirror this decline.
  • RBI’s regulation and supervision: The RBI should boldly re-imagine its current mandate, structure and technology because of the importance of statutory auditors, ethical conduct, shareholder self-interest, and risk management.
  • Non-bank regulatory space: Progress in payments, MSME lending, and consumer credit suggest that non-banks are important for financial inclusion therefore they need more regulatory space and supervision. Our credit to GDP ratio is embarrassing and the bad loan problem is unaffordable but progress is underway – foreign exchange reserves are at a high and interest rates at a low and borrower rate transmission is improving. Bank and NBFC accidents have seen orderly resolution and the RBI is calibrating an exit strategy for emergency COVID measures.

Beirut Explosion

If you have come across the latest viral video of a massive explosion then you must be aware that it shook the Lebanese capital of Beirut on 4th August, Tuesday. The explosion took place near Beirut’s port and central district, close to many highly-populated areas.

The explosion tore through the city, flipping cars, shattering glass and causing some homes to crumble and was even felt in Cyprus, around 240 km away. It has resulted in an estimated 3 to 5 billion US dollars’ worth of damage. At least 158 people were killed in the blast and another 6,000 wounded with the death toll expected to rise. Half of Beirut’s population have homes that are unliveable for the foreseeable future.

Initially the explosion was blamed on a major fire at a warehouse for firecrackers near the port but on Wednesday morning, the Prime Minister said that about 2,750 metric tons of ammonium nitrate, a highly explosive material, had been stored at the port for the past six years “without preventive measures.” The Russian-owned ship had stopped in Beirut due to financial difficulties and unrest among the crew – and never left again

The director of Lebanese customs had apparently written to legal authorities six times requesting for the dangerous cargo be removed from the port, but the requests went unheeded. However, experts believe that the blast could have been caused by more than just ammonium nitrate.

Trump, Australian Prime Minister Morrison and Russian President Vladimir Putin all have offered support and assistance. French President Emmanuel Macron said “rescue and aid” were on the way to Lebanon, and Israel has formally extended humanitarian medical assistance. The United Kingdom said it would send medical and search and rescue experts to help, along with 5 million pounds. Egypt has also set up a field hospital. Middle Eastern neighbours including Qatar, Kuwait, the UAE and Iraq will also send field hospitals, medical supplies and oil to Lebanon. France’s ties with Lebanon are centuries old, therefore while many viewed Macron’s visit as an aid to a country wracked with debt, many saw it as patronizing. It exposed France’s central challenge: how to help a country in crisis, where French economic ties run deep, without interfering in its internal affairs.

On Saturday several thousand people took to the streets, with police firing tear gas at stone-throwing protesters and some demonstrators storming government ministries. Protesters have been demanding action from the government amid the economic crisis the country was already mired in even before the tragedy. Now, the prime minister has said that he will ask for early elections as it might be the only way out of the crisis.

On Monday 10th  August, Lebanon’s entire government has resigned due to the explosion. The announcement came after the violent demonstrations in the country over the blast.

Lebanese President Michel Aoun accepted the resignation of the prime minister’s government on Monday and asked it to stay on in a caretaker capacity until a new cabinet is formed, a televised announcement said.

Diab made the announcement in a televised address to the nation on Monday, saying he has come to the conclusion that corruption in Lebanon is “bigger than the state”.  Diab said is taking “a step back” so he can stand with the people “and fight the battle for change alongside them.” “This crime” was a result of endemic corruption, Diab added, and called for the trying those responsible for the deadly blast.

Belarus’ dance of democracy

The world is shifting towards democracy, countries all over the world are shifting towards democracy and its various forms take Nepal and Myanmar for example, however, there is one nation in Europe led by a man so powerful he is often described as the last standing dictator or Europe. Alexander Lukashenko the current President of Belarus is also its dictator. In 2010, for example, when the president of Belarus was seeking a fourth term of office, a number of his opponents were arrested and charged with organising mass disorder on polling day. But there is one lady, who is ready to put everything on line and challenge Lukashenko’s power and stand in the upcoming election against the all powerful leader. A lady whose husband has been put behind bars due to trumped up charges, Svetlana Tikhanovskaya’s ordeal is no ordinary one.
Ms Tikhanovskaya has turned the election into the biggest challenge to Mr Lukashenko’s autocracy since he took power in 1994. She has one main policy: the holding of proper, free and fair elections within six months. Backed by the supporters of two other barred candidates, she has held rallies that have been among the largest in Belarus since the collapse of the Soviet Union. Her movement has adopted a 1970s freedom song taken from the Polish Solidarity movement. It also has a symbol – a slipper – which stands for the need to stamp out corruption.
Mr Lukashenko has scandalised many of his citizens by refusing to impose a lockdown during the coronavirus pandemic, advising instead that drinking vodka and going to the sauna would ward off the disease. The Belarusian economy has stagnated for a decade, corroding the government’s reputation among blue-collar workers and in the provinces. Unprecedented domestic turbulence comes as the president’s relations with Moscow have deteriorated after a refusal to form a unified state with Russia. Last week, Mr Lukashenko claimed Russian mercenaries were being sent to Belarus to subvert Sunday’s election.
As a charged campaign reaches its climax, Mr Lukashenko is responding in time-honoured fashion. Anti-riot troops have been told they must not permit street protests. State television has pointedly broadcast images of water cannon and troops practising counter-demonstration measures.
Even though Ms Tikhanovskaya is well aware of the fact that she will not emerge victorious in the state managed elections the fact that she put everything on line to contest these elections is laudable. A system of democracy that fails to provide a free and fair choice to its citizens is a pseudo-democracy. A state where the citizens are not allowed to choose their leaders and the leader itself is an egocentric despot is not the marker of a happy state. The world is changing, it is advancing towards a better future and it is hence important that people be treated as human beings at least whose voices of dissent are not silenced and are not thought of as farm animals whose only purpose is it to fill the pockets of those who seem to own them.

Small firm effect

3rd Bi-Monthly RBI Monetary Policy 2020-21

 We will talk about the 3rd Bi-monthly monetary issued by Reserve Bank of India(RBI) for August and September 2020.
The Monetary Policy Committee of India is responsible for fixing the benchmark interest rate in India. The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
The committee comprised six members- three officials of the RBI and three nominated by the government of India. The Governor of Reserve Bank of India is the chairperson ex officio of the committee. The current mandate of the committee is to maintain 4% annual inflation until March 31,2021 with an upper tolerance of 6% and a lower tolerance of 2%.
The Repo Rate remains unchanged at 4% and Reverse Repo Rate also unchanged at 3.35%. The stance was also said to be accommodative.
The Monetary Policy Committee has warned that food prices could rise in the near term, because of problems in the supply chain as a fall out of the COVID pandemic.  It also expects overall inflation to stay high in near term because of costly petrol and diesel prices.
“A more favourable food inflation outlook may emerge as the bumper rabi harvest eases prices of cereals, especially if open market sales and public distribution offtake are expanded on the back of significantly higher procurement. Nonetheless, upside risks to food prices remain. ”

Other main announcements include

  1. Setting up of a committee under chairmanship of KV Kamath.
  2. To allow Restructuring of MSME Debt until March 31,2021’, Restructuring to be implemented by March 2021.
  3. To Increase Permissible Loan to Value for gold loans to 90%.
  4. To put in incentive framework for banks in the flow of priority sector credit. Priority sector status being given for lending to Startups.
  5. Real GDP Growth to remain in Negative Zone in the 1st Half and Overall FY21.

Also a major judgement came to enhance the safety of cheque payments, RBI has decided to introduce a mechanism of Positive Pay for all cheques of value Rs 50,000 and above.  This will cover approximately 20% and 80% of total cheques by volume and value, respectively.
Under the Positive Pay system, An account holder shares the details of issued cheque to bank like Cheque number, cheque date, Payee name, account number, amount etc. Along with an image of the front and reverse side of the cheque, before handing it over to the beneficiary.


Air India plane crash in Kozhikode

Before understanding the Airplane crash, lets understand the concept of table-top runways.
Table-top runways are constructed on  a hilly or an elevated terrain and are built in a way that there is a trench or valley at the front and back of the length of the runway.  Therefore, an accurate landing is very important. The table-tops are very tricky and known to be extremely challenging even for the best pilots.
The table top runways also have a problem of access roads around the airfield, which may need to be used in case of aircraft accidents. The narrow and winding roads can delay and hinder the rescue operations.
There are a total of five table-top runways in India which are Mangalore in Karnataka, Kozhikode in Kerala, Lengpui in Mizoram, Shimla in Himachal Pradesh and Pakyong in Sikkim.
The tragic accident in Kerela when a plane attempting to land amid heavy tailwinds and rain on the table-top runway at the Kozhikode airport has once again raised issues about the safety concerns over flight operations at such runways in the country.
The safety concerns were first raised following the 2010 Air India Express crash in Mangalore that killed 160 people on board.  The 2010 report has cautioned of operations at such ‘critical airfields’.
The DGCA has classified certain airfields as critical which need special qualification for the flight crew to undertake operations.  The criteria for classifying airfields as critical are based on various factors such as terrain, length of runway, predominance of inclement weather etc.
Following the Mangalore crash, the court of Inquiry recommended setting up of an independent Indian Civil Aviation Safety Board (ICASB) urgently in view of rapid growth of aviation in the country.
Such independent safety organisations have been set up in the USA, UK, Canada, France and Indonesia to name a few.  The ICASB will focus on all flight safety related issues to suggest proactive measures, to minimise accidents and incidents, it had said.
Civil Aviation Safety Advisory Council(CASAC) had also warned the authorities 10 years back that Kozhikode runway was very risky for landing during rains and harsh weather conditions.
CASAC member Captain Mohan Ranganath had pointed that the Runway 10 of the Kozhikode airport could be risky for landing in tailwind condition in rains. He also said that the airport does not have the Minimum Runway End Safety Areage.
Hence, The Air India Express accident in Mangalore should have alerted the Airport Authority to make the runway conditions safe so that this accident could be avoided and also these runways become safe for future landings.



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