There are two aspects to 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 First Edition we are covering the following news:
1. Yes Bank goes from Hero to Zero
2. US Finally lose to Taliban
3. US Federal Reserve cuts Interest Rates
4. Cryptocurrency Finally Legalised in India
5. US Agrees to make 6 Nuclear Power Plants in India
6. Is the Anti-Sedition Law meant to curb your Right to Speech?
7. No Olympics in 2020?
8. SBI Cards Releases IPO
YES Bank goes from Hero to Zero
Yes Bank Limited is an Indian private sector bank, founded by Rana Kapoor and Ashok Kapur in 2004. It primarily operated as a corporate bank, with retail banking and also asset management as subsidiary function. Yes Bank Limited earns most of its revenue through arranging syndicated loans and through corporate banking. It operates as three entities – Yes Bank, Yes Capital and Yes Asset Management Services.
On 5 March 2020, the Reserve Bank of India (RBI) announced that it would suspend and supersede Yes Bank’s board and impose a 30-day moratorium on its operations. A moratorium refers to a temporary prohibition of any activity. This was due to Yes Bank’s failures to raise new funding to cover its non-performing assets and its underreporting of its non-performing assets, among other factors.
A bank as large as Yes Bank cannot be allowed to fail – its failure threatens the entire banking system (perhaps making it “Too Big to Fail”. A merger with SBI or some other public institution down the road thus appears the most likely outcome.
We have seen a terrific clamour for privatisation of public sector banks in recent years owing to the multitude of benefits of privatisation. Some have urged that the government should drop its stake in PSBs below 50 percent so that they can have private bank-like compensation structures. But what is interesting to see is that despite this argument we in the recent periods have seen many bad instances of private banks itself. Private banks run by professionals have turned out to be poor performers – Centurion Bank, Global Trust Bank, Yes Bank, are some notable ones.
The government proposes to rope in a public sector bank such as the State Bank of India and LIC to reconstruct Yes Bank. It implies the usage of public money to reconstruct a failing bank.
By: Gunika Vij
When the United States of America went into Afghanistan in October 2001, its main goal was to drive out all the terror networks operating in Afghanistan. One of these networks was the Taliban. Nearly 19 years, 2 trillion dollars and 3,500 American casualties later, the US has conceded a virtual defeat by making major concessions in the US-Taliban deal. This deal, which was finalized on 29th February, will have significant impact on the internal politics of Afghanistan and the region as a whole.
- Firstly, at the signing of this deal, half of the total Afghanistan area is controlled by Taliban which does not recognize the Ashraf Ghani-led Afghan government. This government is supported by USA and yet it was excluded from the negotiations because Taliban would not sit with the government’s delegates. This exclusion calls into question the US attitude towards the legitimacy of the Afghan government.
- Secondly, Taliban has agreed to negotiate with the Afghan government once all US troops leave the Afghan mainland. However, there is no verification mechanism to ensure that Taliban would respect their commitment. And considering that US would not deploy their forces in Afghanistan again, Taliban can easily launch an extensive military operation against the much-weakened Afghan government and take over the entire country.
- Thirdly, Taliban does not respect civil liberties which USA seeks to espouse. Taliban’s treatment of women, minorities and its competency to promote a radical and violent version of Islam can spell doom for much of the Afghan populace once the US forces leave. The US should have included a clause in the deal with respect to civil liberties in the region.
- Fourthly and lastly, Taliban will interpret the US withdrawal of forces as a significant war victory. Given that they already drove out the Soviet Union in 1989, the Islamic militants will perceive this as their second major victory against a superpower within 4 decades. This is likely to increase their morale which can be used to carry out major terror attacks in other countries.
This abrupt and ill-planned US withdrawal may lead to the creation of a breeding ground of terrorists in Afghanistan.
By: Manraj Uppal
Coronavirus is spreading like wildfire and countries all over the world are preparing for the worst. USA has decided to respond to a potential epidemic by cutting interest rates by half a percentage point. This has been done to limit the negative impact that coronavirus can have on the US economy and financial markets. This is the first such cut by the US Federal Reserve since the collapse of Lehman Brothers in 2008.
Fed chair Jerome H Powell claimed that there is a significant risk and the US needs to act to combat it. He is not wrong as many US manufacturers have scrambled to relocate their supply chains away from China as factories shut down in the world’s second largest economy. Another fear is that the outbreak may lead to a huge reduction in consumer expenditure as people will be wary of buying products and travelling to tourist spots. In addition to this, schools have also been shut and the stock market has been volatile. Investments have also been affected and in the worst case scenario, companies may need to downsize and cut workers. It is to be noted that this outbreak has happened when the world economy is already facing a recession due to issues like the trade war between USA and China. Donald Trump urged the central bank to introduce more tax cuts and lower the interest rates even further to boost the economy.
Congress is also preparing a $7.5 billion emergency package to deal with the outbreak. However, experts such as George Selgin and Bernard Bauhmol have called this action tokenistic and ineffective. The argument here is that availability of cheap credit won’t work when consumers are not ready to venture out of their houses due to the panic generated by the outbreak. Regardless of these concerns, the Australian Central Bank has followed suit by taking the interest rate to its lowest level ever. Meanwhile the White House insists that a cut in payroll taxes is also important and that a mere 0.5 % lowering of the interest rate is not enough to combat the crisis.
By: Manraj Uppal
The Reserve Bank of India had placed restriction on the trade using crypto currency which rendered the practice as illegal. The recent verdict passed by the Supreme Court of India uplifted these restrictions from the banking access and legalised the virtual currency trading in cryptocurrencies. The trend of virtual currency in India couldn’t last long as the market closed down with the ban by RBI in 2018. Since, the practice has been reversed, new companies such as ZPX will consider functioning in India, said Ramani Ramachandran, CEO of the Singapore-based crypto firm and WazirX finds it advantageous to invest in India, said Nischal Shetty, Co-Founder of the Crypto-exchange firm.
Additionally, it would become easier to arrange funds for start-ups as less attention has to be paid on regulatory clarity of funds with Crypto and Blockchain. Not only it improves the daily investment in the country, it directs the flow of innovation which would otherwise have been landed to some other country and gives India foot to stand on globally in this regard. Bitcoin is seen as a digital gold asset and has a user base of over 30 million people. This opens the prospect of increased job opportunities and new technology in the country. The concern at this point is as to how India will move forward with Cryptocurrencies, what kind of regulatory framework it will adopt and how it will prevent the emergence of money laundering and illegal trading through Cryptocurrency. Regardless of the benefits, this move by the apex court has raised questions on the fairness of the regulatory body. The RBI is now expected to deal better with the problems that come along Cryptocurrency and introduce innovations in this sector.
By: Somya Yadav
Under the light of adopting clean energy, India plans on increasing its nuclear electric generation capacity. In this regard, the United States of America has shown support to the entry of India in NSG by agreeing to build six atomic energy power plants in India. This will not only strengthen the bilateral security but also civil nuclear cooperation. This is in line because of the increased interest of US to sell more energy products in India.
An agreement was signed between India and the to cooperate in civil nuclear energy sector in October 2008 and this operation has been put on hold for more than a decade now because of bringing the liability legislation of India in line with international norms wherein the cost of any sort of damage should come under the operator and not the nuclear power plant technology maker. The Westinghouse-Toshiba nuclear reactors were supposed to supply 6 nuclear reactors by 2017 but the company got bankrupt and the date was missed. Indian claims to generate a capacity of as much as 22.5 GW over the next 15 years as it wants to opt for renewable source of energy. The benefit of the wavier is that the country has been able to sign cooperation agreements with a dozen more countries. Although the deal signed in 2008 took a lot of time in implementation, it has enabled India to establish itself as a responsible nuclear weapon state, fuel its domestic power plants and give India access to critical technologies in strategic areas.
By: Somya Yadav
Sedition refers to conduct or speech inciting people to rebel against the authority of a state or monarch. Section 124A of the Indian Penal Code lays down the punishment for sedition. It states the following:
Whoever, by words, either spoken or written, or by signs, or by visible representation, or otherwise, brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards, the Government established by law in India, shall be punished with imprisonment for life, to which fine may be added, or with imprisonment which may extend to three years, to which fine may be added, or with fine.
Amidst the ongoing protest against CAA and NRC, sedition act was repeatedly used to put an end to the ongoing protests. While the act protects the interest of the citizens by putting an end to hate speech it might also lead to suppression of freedom of speech. Over the past 18 months, more than 10,000 tribal farmers in mineral-rich Jharkhand state were accused of sedition in 19 police cases for opposing acquisition of lands for so-called developmental projects. Law is not meant to suppress people’s voice, but to create a sense of security among the people. In its third attempt to determine the validity of sedition, earlier last year, the Law Commission of India observed that while dissent is essential to any democracy, law enforcement agencies must use sedition law judiciously. Additionally, it also held that it is necessary for the Supreme Court to interpret the provisions of sedition law.
By: Gunika Vij
The Olympic Games have been cancelled only 3 times- 1916, 1940 and 1944. On all of these occasions, the reason for cancellation was the world war. However, there is a chance that the Tokyo Olympics (scheduled to take place from the 24th of July) may get cancelled due to the outbreak of Coronavirus.
One of the main reasons why this is a possibility is because Japan is a neighbouring country of China, which is the epicenter of the outbreak. A rugby sevens competition to be held in Tokyo next month has already been suspended. Many J league matches and voluntary Olympic practice has also been cancelled. Only limited participation was allowed at the esteemed Tokyo marathon. A few possibilities are being discussed. Japan’s Olympic minister suggested that the games can be delayed by about 4 months. Other experts have suggested that fans should not be allowed to view the games. While it would make for a dismal Olympics, this seems like the most convenient alternative. In the worst case scenario of course, the games may be cancelled.
Clause 66 of the Tokyo Host City contract stipulates that IOC can terminate the games if there is a significant threat to the safety of the athletes. Despite these fears, IOC president Thomas Bach has urged all the players to relentlessly prepare for the games. He insisted that while there are concerns surrounding the Coronavirus, the games will go on as planned. This wave of optimism may just be to distract from the eventual possibility of cancellation. Reports suggest that IOC will take a decision after official consultation with WHO. Regardless of whatever the decision is, Japan stands to lose billions of dollars if the Olympics do not go as planned. A lot of money has been invested in infrastructure for the Olympics and many of the tickets have already been sold. All of this may go to waste if the IOC decides to terminate the Olympics.
By: Manraj Uppal
On 2nd March 2020 SBI Cards and Payment Services opened for subscription its Initial Public Offering at a face value of Rs 10 per equity share. The issue price was fixed at Rs 755 and raised a total of Rs 10,340 crore in the span of 3 days (till 5th march). It is also planning to raise up to Rs 9,854 crore through offer for sale of existing shares. The response received by this IPO is commendable with more than 250 crore of over subscription. It received bids of more than 266 crore against an offer size of 10 crore shares. At the same time it carried a lot of risks. Being a single product company, SBI Cards and payments does not have any product other than unsecured credit card to fall back in bad times. Especially when the economy is at a slowdown, rise in defaults are bound to happen. Another key risk for the broader industry is that credit card penetration remains low in the country (4 out of 100 people as compared to over 30 per 100 people for China and other developing and developed countries). Although, the SBI share price has dropped points on the Sensex, it is predicted that SBI stock will likely gain from the IPO launch.
By: Somya Yadav