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20 April 2017 Question Bank


20th APRIL 2017 


(2 Questions)

Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.

Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers.



1.     "To reduce NPAs, creditors and debtors need mediation and sufficient immunity to hammer out sound commercial solutions." Comment.


NPA issue:

  • The country's banking sector is severely stressed with one-sixth of the gross advances of public sector banks (around Rs. 7 lakh crore) being non-performing assets (NPAs).
  • Existing statutory remedies of insolvency, restructuring of companies, securitisation of debts yield much litigation but insufficient recoveries.
  • The Reserve Bank of India (RBI) brought out a Corporate Debt Restructuring scheme for resolution of dues from the larger companies which account for 70% of the debt portfolio; despite it being a well-structured system, it has failed to deliver substantially. It, however, omitted from attention the smaller borrower with loans less than ?10 crore.
  • Now attention is focussed on the concept of a "bad bank", which would purchase the large loans from the holding banks. The latter would then have better-looking balance sheets; however, the former will find recovery no less difficult. It would then sell off assets to private buyers, who see opportunities for profit-making rather than investment in the economic productive sense.

Two Roadblocks to settlement

  • Two core aspects appear to be the major roadblocks.

1.     The first is the limiting aspect of direct negotiations between bank and debtor, which usually run on the lines of high demands by banks and low offers by the debtor.

2.     The other major block, which paralyses decision-making in government and public sectors in India, is the fear of post-decisional retributive action by way of investigation and prosecution by multiple agencies such as the police, the Central Bureau of Investigation (CBI), the Central Vigilance Commission (CVC), the Lokpal, etc.

A mediation approach

  • When an independent neutral engages with both parties, the lender and the borrower, it is more likely, practically and empirically, to lead to faster and better agreements.
  • In joint and separate sittings with the mediators, this consensual, non-coercive and confidential process enables the parties to discuss options such as debt concessions, repayment schedules, interest reductions, perhaps even additional credit with safeguards.
  • If the RBI sets up mediation panels consisting of bankers, accountants and experienced mediators, that will provide the required institutional framework and enhance trust and credibility in the process and personnel.

Freedom from fear

  • Once initiated, the spectre of lengthy criminal trials looms, accompanied by fear of arrest, denial of bail and public ignominy.
  • Freedom to take sound commercial decisions must be statutorily structured.
  • One way is to create a high-level body before which settlement agreements can be placed for approval.
  • This body will examine the settlement to see if it is commercially advantageous and is in the interests of the public sector financial institutions, taking all prevailing circumstances into account.
  • Where it comes to an affirmative conclusion, that should provide complete immunity - from the police, the CBI, the CVC, the Lokpal and the courts - for the officers of the bank who have negotiated and recommended such solution.
  • This is a better step than oversight committees which do not provide the backbone to take the commercial decision of beneficial compromise.
  • Such a body needs to be headed with high authority, drawn from the top echelons of the judiciary, the RBI and public sector banks, serving or retired.


2.  Do we need an independent science and technology authority, SPARK (Sustainable Progress through Application of Research and Knowledge), as has been suggested?


  • Earlier this year, top administrators in Indian science submitted a detailed project report to Prime Minister Narendra Modi, Vigyan 2030: Science and Technology as the Pivot for Jobs, Opportunities and National Transformation.
  • One of its key recommendations is to have an independent science and technology authority, SPARK (Sustainable Progress through Application of Research and Knowledge), that will report directly to the Prime Minister.
  • SPARK is suggested to have two parallel arms.

1.     One, a ‘discovery arm' that can organise the expertise of various organisations across states and regions to solve a basic research problem.

2.     Two, a ‘delivery' arm that will closely work with industry and evolve public private partnerships.

Bodies already in place

  • All very good, except that India already has bodies that were, in their wisdom, conceived as umbrella organisations that can pool the intellectual and technological resources of organisations and direct them towards specific missions.
  • The Council of Scientific and Industrial Research, a pre-Independence institution, is a body that directly reports to the Prime Minister and has an independently-constituted governing council.
  • It faces its own challenges of effectively translating its know-how. Scientific departments in India, from the Department of Atomic Energy to the Department of Science & Technology, have bureaucracies of their own. They battle the dilemma of having to take bold, expensive risks - that science by its very nature requires - and on the other hand, be accountable to the Finance Ministry.
  • The Principal Scientific Adviser to the Government of India is another such office.
  • The NITI Aayog, now essentially a policy think tank, and tasked with coordinating States and research agencies, is another.


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