Goaltide Daily Current Affairs 2020
Current Affair 1:
Negative Yield Bonds
Recently, demand for negative yield bonds is on rise in the global market.
A negative bond yield is when an investor receives less money at the bond's maturity than the original purchase price for the bond. A negative bond yield is an unusual situation in which issuers of debt are paid to borrow. In other words, the depositors, or buyers of bonds, are effectively paying the bond issuer a net amount at maturity instead of earning a return through interest income.
|
Bond: Is an instrument to borrow money. A bond could be floated/issued by a country’s government or by a company to raise funds. Yield: The yield of a bond is the effective rate of return that it earns. But the rate of return is not fixed; it changes with the price of the bond. |
Why would anyone want to buy a bond with a negative yield?
It’s a good question especially given that experts estimate that there are almost $16 trillion of bonds in the world that have negative yields. But there are at least four situations where it may make sense.
The bond offers security at a cost
The chance of a quick trading profit
Purchasing power is maintained
Currency Gain
Current Affair 2:
Banking health and the ‘K Curve’ dynamics
Recently, on the basis of recommendations of RBI, the Central Government decided to impose moratorium for a period of 30 days on the Laxmi Vilas Bank (LVB). The Board of Directors of LVB has been superseded and a new administrator has been appointed. This failure of LVB raises concerns since in the recent years, a number of financial Institutions such as Yes Bank, Punjab and Maharashtra Cooperative Bank (PMC), IL&FS, DHFL etc. have failed.
In this regard, this article has highlighted concerns about the precarious condition of the Banking sector and accordingly, it has highlighted as to how the Government should deal with the present crisis in the Banking sector.
Understanding the Concept of Price-to-Book Ratio
“Book value” is defined as the net asset value of a company and is calculated by adding up total assets and subtracting liabilities. Book value per share is arrived at by dividing book value by the number of shares outstanding. This can be thought of as the amount that shareholders would theoretically receive per share of stock held if the company went out of business and all the assets were liquidated.
The “Price/Book Value” Ratio (P/BV) is calculated by dividing the price of a share of stock by the book value per share. So, if a company has Rs100 in net assets and 10 shares outstanding, then the book value for that company is Rs 10 per share.
If the price of the share stands at Rs 20, then the price to book value ratio is 2.0 (Rs 20 price divided by Rs10 book value).
- A P/BV ratio above 1 indicates that the market believes that the Bank can grow and generate higher Return on Equity (RoE).
- A P/BV below 1, on the other hand, indicates that the market either does not believe the bank does not have a good deposit base, has bad cost discipline or a broken lending model.
K Curve in the Banking Sector
The K Curve depicts the inequality existing between different financial entities in terms of their attributes that determine their future growth and profitability.
Widening of the arms of the ‘K’ would imply that the inequality is increasing, while narrowing of the span of the ‘K’ would mean the opposite.
Presently, in case of India, banks that have a P/BV above 4 while some others languish at much below 1, even at 0.25. With NBFCs, the P/BV range is even wider, with some NBFCs being valued in excess of 7.
Private Banks: A couple of private sector banks have always had their P/BV above 1 on a consistent basis. These Banks are well-capitalized, have lower NPAs and hence the market is betting that these banks will grow much above system average and generate attractive RoE. This would imply that these banks will have disproportionate incremental market share on both assets and liabilities. The author of this article calls such Banks as Alpha Banks.
Public Sector Banks: Among the Public Sector Banks, only the largest PSB i.e., SBI can be considered as Alpha Bank. In general, these PSBs account for higher share of NPAs (80%) in the Banking sector. The NPAs of the PSBs is much higher at around 12% as compared to 9% NPAs in the Banking sector. Similarly, the PSBs account for loss of almost Rs 66,000 crores.
Way Forward
There is need to narrow the span of K Curve and reduce the present inequalities in the performance of Banking Sector.
Presently, there is lack of level playing field among the Private and Public Sector Banks. The PSBs do not enjoy financial, operational and personnel autonomy. There is high level of political interference in the working of the PSBs. This needs to be addressed by implementing the recommendations of P.J. Nayak Committee such as merger of weak Banks with the strong Banks.
Further, the Economic Survey 2020-21 has highlighted that Indian Banking sector has remained dwarf in comparison to the size of the Indian Economy. For instance, India's largest Bank SBI, is placed at 55th position globally. Hence, there is need for more large-sized Banks (Alpha Banks) to cater to the credit needs of % 5 trillion economy.
Ok, learn one more thing, K- SHAPED ECONOMY RECOVERY.
A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
Current Affair 3:
Asia-Pacific Economic Cooperation (APEC)
A brief History of APEC:
|
The idea of APEC was firstly publicly broached by former Prime Minister of Australia Bob Hawke during a speech in Seoul, Korea, on 31 January 1989.
Ten months later, 12 Asia-Pacific economies met in Canberra, Australia, to establish APEC. The founding members were Australia; Brunei Darussalam; Canada; Indonesia; Japan; Korea; Malaysia; New Zealand; the Philippines; Singapore; Thailand; and the United States.
China; Hong Kong, China; and Chinese Taipei joined in 1991. Mexico and Papua New Guinea followed in 1993. Chile acceded in 1994. And in 1998, Peru; Russia; and Viet Nam joined, taking the full membership to 21.
Between 1989 and 1992, APEC met as an informal senior official- and ministerial-level dialogue. In 1993, former US President Bill Clinton established the practice of an annual APEC Economic Leaders' Meeting to provide greater strategic vision and direction for cooperation in the region. |
The Asia-Pacific Economic Cooperation (APEC) is a regional economic forum established in 1989 to leverage the growing interdependence of the Asia-Pacific. APEC's 21 members aim to create greater prosperity for the people of the region by promoting balanced, inclusive, sustainable, innovative and secure growth and by accelerating regional economic integration.
APEC members: INDIA IS NOT A MEMBER.
Why is India not a member of Asia Pacific Economic Cooperation?
India had requested for a membership at the grouping. However, the members of the grouping had decided not to allow India as the country does not border Pacific Ocean. Asia Pacific Economic Cooperation mainly includes countries that are bordering the Pacific Ocean. On the other hand, India has gained support from United States, Papua Guinea on, Japan and Australia to become a full-time member of the grouping. India is currently and observer of the grouping.
It is to be noted that the Indo-Pacific was earlier called as Asia Pacific.
What Does APEC Do?
APEC ensures that goods, services, investment and people move easily across borders. Members facilitate this trade through faster customs procedures at borders; more favorable business climates behind the border; and aligning regulations and standards across the region. For example, APEC's initiatives to synchronize regulatory systems is a key step to integrating the Asia-Pacific economy. A product can be more easily exported with just one set of common standards across all economies.
Current Affair 4:
India to launch deep sea mission
India will soon launch an ambitious ‘Deep Ocean Mission’ that envisages exploration of minerals, energy and marine diversity of the underwater world, a vast part of which still remains unexplored.
- The mission, which is expected to cost over Rs 4,000 crore, will give a boost to efforts to explore India’s vast Exclusive Economic Zone and Continental Shelf.
- The multi-disciplinary work will be piloted by the MoES and other government departments like the Defence Research and Development Organisation, Department of Biotechnology, Indian Space Research Organisation (ISRO), Council for Scientific and Industrial Research (CSIR) will be stakeholders in this mission.
- Some of the technologies involved will be developed by organisations such as the ISRO and DRDO.
- One of the main aspects of the mission will be design, development and demonstration of human submersibles.
- Another aspect is exploring the possibility of deep-sea mining and developing necessary technologies, the official added.
- In September 2016, India signed a 15-year contract with the International Seabed Authority (ISA) for exploration of Poly-Metallic Sulphides (PMS) in the Indian Ocean.
- The ISA is an institution set up under the Convention on Law of the Sea to which India is a Party.
- The 15-year contract formalized India’s exclusive rights for exploration of PMS in the allotted area in the Indian Ocean.
- The ISA earlier approved 10,000 sq. km for India with a 15-year PMS exploration plan along the Central Indian Ridge (CIR) and Southwest Indian Ridge (SWIR) region of the Indian Ocean.
- Poly-Metallic Sulphides (PMS), which contain iron, copper, zinc, silver, gold, platinum in variable constitutions, are precipitates of hot fluids from upwelling hot magma from deep interior of the oceanic crust, discharged through mineralized chimneys.
- PMS in the Ocean Ridges have attracted worldwide attention for their long term commercial as well as strategic values.
Current Affair 5:
Plea for paid leave during menstruation
Delhi High Court has directed the Union of India to consider as a representation, a plea seeking period leave and facilities of periodic rests, separate and clean toilets and provision of sanitary napkins to woman employees during menstruation period.
While grounding the relief in the physical pains experienced by women during menstruation, the petition states that:
Arguments in favour of Menstrual leave
- Article 15(3) empowers the state to make special provisions for women and children which is an exception to the to the general rule laid down in the Article 15(1). This protective discrimination is a necessity to maintain social equality where there has been a history of discrimination against women.
- It has been held by the Supreme Court in Government of Andhra Pradesh versus P B Vijayakumar (1995) that “special provision for women” in Article 15(3) means the provisions which the state may make to improve women’s participation in all activities under the supervision and control of the state, can be in the form of either affirmative action or reservation’.
Thus, menstrual leave policies like the other women’s rights legislations such as the Maternity Benefit Act (1961), The Hindu Succession (Amendment) Act (2005) etc., will not infringe the Article 15(1) of the Constitution of India.
- Article 42 of the Constitution envisages that the state shall make provision for securing just and humane conditions of work and maternity relief.
- Bihar is the only state in India which has been providing two days of special leave every month to its female employees since 1992.
Arguments against Menstrual leave
- Menstrual leave policies might discriminate against men. Periods are weakening only for some women.
- Many women are capable of functioning at full capacity even during their periods. In this regard Menstrual leave policies are also prone to misuse. (But the numbers are not insignificant to avoid a policy decision).
- It would prejudice employers against hiring women and lead to their alienation at work.
- It is argued by some that the concept of menstrual leave goes against the constitutional right to equality.
- Sick leave can be used during Menstruation. (It is inequitable to merge menstrual leaves with sickness leaves because menstruation is not an illness but an inevitable biological process that is painful for most women).
<< Previous Next >>
