Indian Current Affairs: 14.08.2010

Politics & the Nation

The government seems to have found a panacea for all concerns about foreign firms offering communication and internet services in the country.
The home ministry, intelligence agencies and telecom department (DoT) are exploring the possibility of mandating companies offering communication services with encryption higher than 40 bits to deposit their software in an escrow account, the equivalent of a sealed envelop, to be opened by Indian authorities only in times of security threats.
The move could face stiff opposition from telcos and Internet solutions providers, which view such moves as encroachment on their intellectual property rights.
Currently, India’s security agencies lack technological capability to monitor communication services and data transfers on the Internet when encryption levels are higher than 40 bits. Encryption means converting data and emails into codes that travel through the network and later get reassembled into the original form.

Want to know how Rajasthan derives its name from the bank that was established before India obtained independence?
It is an interesting story in history. Take a look at it here.

Finance & Economy

Holding companies and investment firms of large Indian business houses will for the first time come under the regulator’s glare. All such entities with assets above 100 crore will have to register with the Reserve Bank of India, maintain a minimum level of capital and will be restricted from borrowing beyond a point.
Huge fund-raising by corporate investment companies with shallow capital base has been a gowing concern for the central bank which on Friday finalised a new a regulatory framework for these ‘core investment companies’ (CICs).
A core investment company, as per RBI’s definition, means a nonbanking finance company that holds not less than 90% of its total assets in the form of investment in equity shares, preference shares, debt or loans in group companies.
In recent times, Indian corporates have borrowed aggressively through investment arms and holding firms to fund growth. Often holding companies pledge shares of a group company to borrow from a bank or a finance firm and, then, invest the money to fund another group entity. In the second stage, the shares of the newly-capitalised entity are pledged for fresh borrowings to fund yet another company. The holding company can do this as long as it pays interest on the loans and maintains margins with the lenders.
While some of the biggest corporate houses were lobbying against the new rules, the central bank felt that such over-leveraging was a risk to the system.

After recent bouts of regulatory skirmishes, two key financial market overseers are set to ensure better coordination by having cross representation on their boards.
The government has reportedly taken an in-principle decision of having a Sebi representative on the board of Forward Markets Commission (FMC) and the chairman of FMC on the Sebi board to ensure smooth interregulatory coordination. If the decision is implemented, the chairmen of the two regulatory authorities are expected to benefit from each other’s presence on their respective boards. Sebi regulates the capital market while FMC controls futures trading on five national and 16 regional commodity bourses.

In a push to financial inclusion drive, the government may not allow state banks to buy priority sector loans of rural banks sponsored by them.
There are 82 regional rural banks with a network of 15,475 branches, 17 of which are sponsored by the country’s largest lender, State Bank of India.
The Reserve Bank of India guidelines say commercial banks have to earmark 40% of their bank credit towards priority sector, which include agriculture, small scale industries, education and advances towards weaker sections. Within this limit, banks have to carve out 18% for agriculture and set aside 10% for weaker sections.
Instead of trying to meet these targets on their own, banks take the easier way of lending to these sectors indirectly.
The other option is to make up for the shortfall in priority sector lending through participation in rural infrastructure development by a contribution towards Rural Infrastructure Development Fund (RIDF).
Banks prefer to buy out farm loans of RRB’s, offering a 7-8% return to them, instead of contributing towards the RIDF which pays an interest of 6%, barely more than the cost of funds.
A bird's eye view of the performance of the RRBs:

79 RRBs out of toal 82 are profitable
The profits of these increased to 1970 crore in 2009-10 from 1371 crore in 2008-09
The losses of other three dropped to 6 crore from 36 crore
Accumulated losses down to 1808 crore end March 2010 from 2300 crore a year ago
Average net NPAs of RRBs down to 1.62% in 2009-10 from 1.81% in previous year
53 RRBs had a capital adequacy ratio of more than 9%

With autonomy of the various regulators becoming a subject of hot discussion of late in the media, this question assumes significance. Look at some thoughts taken out from today's op-ed:
Governors and deputy governors of RBI are appointed by the government; even the pay structure of RBI employees is approved by the government.
Moreover, government paper has to be issued by the RBI to accommodate the government’s needs. Many times, expansionary monetary policy is the result of excessive government borrowings. Whether the RBI wants to or not, it has to finance the government’s deficit, even in spite of the inflationary pressure. This means that the interest rate structure is not fully within the control of the RBI. The reason is that government has to undertake several projects for the development of the country. Thus, the RBI cannot have absolute autonomy.
On occasion, the country is faced with unseen catastrophes: recession, flood, drought, etc. These unfortunate eventualities are met by the government, often involving fiscal measures that make the RBI borrow on the government’s behalf. The RBI preamble clearly states that it has to function in the interest of the public and of development of the country, and has to adjust with government policies and directives. The mission of regulatory bodies should be welfare of the common man, not absolute autonomy.

International

European economic growth accelerated sharply in the second quarter of 2010 as Germany’s best performance (a growth of 2.2% in its GDP quarter on quarter) since reunification more than made up for the struggles of Spain, Ireland and recession-ravaged Greece. The euro zone has seen an aggregate GDP growth rate of 1% from the previous quarter. This is the fastest growth rate for the currency bloc in more than three years compared with a rise of just 0.2% in the first quarter, and was higher than a comparable US secondquarter increase of about 0.6%.

Medicine

Recently Lancent (a reputed journal which publishes medical research papers and articles) has published a report which says that scientists tracked down to Indian hospitals a drug-resistant superbug that infects patients and causes multiple-organ failure. The study has warned that people travelling to the country to get cheaper medical treatment including cosmetic surgeries risked picking up the superbug, called NDM-1.
Now the country and the medical industry are a worried lot about this superbug and its origin being linked to India.

Indian Current Affairs