3 July 2023 : Indian Express
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3-July–2023
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1. A BIGGER BRICS
Syllabus – GS II
Context – At the BRICS foreign ministers’ meeting last month, external affairs minister S Jaishankar called BRICS expansion a “work in progress”.
BRICS
- The grouping that brings together Brazil, Russia, India, China and South Africa and represents 40 per cent of the world’s population and 23 per cent of global GDP.
- In 2001, the term BRIC was coined by British Economist Jim O’Neill to describe the four emerging economies.
- It was formalised by its first foreign ministers’ meeting in 2006.
- After South Africa joined this group in 2010, it became BRICS.
Issue
- The geopolitical shifts in the world from the time of Russia’s invasion of Ukraine have set off frenetic group shopping as middle-sized countries with decent economies in the global south look for both voice and leverage.
- Both are potentially possible in BRICS, comprising five regional heavyweights. More than 20 countries are in the queue. If media reports are correct, five applicants—Saudi Arabia, Indonesia, the UAE, Egypt and Argentina — may be granted membership this August at the Cape Town summit.
- While it is always desirable to have bigger groupings than small clubs, especially when the stated aim of the group is to project the interests of the non-monolithic global south, an increase in membership is also likely to weigh the group in favour of China, the world’s second-largest economy.
- Other than the five possible new entrants this year, those waiting to join are also part of the Chinese Belt and Road Initiative.
- Inherent in this is the likelihood of such a grouping being projected as a Chinese-led anti-American bloc.
- Understandably, Delhi has recently demonstrated a new resolve in taking the bilateral relationship with the US to a new level and has been wary of expansion.
- Indeed, the long line of aspiring members is seen already as fuelled by China, with the tacit backing of Russia.
- Last year’s BRICS declaration reflects India’s concern that any addition of new members must follow the carefully thought out objective criteria for membership, mutually discussed among the present members so that all are on the same page regarding the logic of expansion.
Way Ahead
Realising that it may not be able to stave off an expansion —many of the candidates are friends of India, too — Delhi appears to have come to terms with a limited addition of five members.
The challenge would be for the original BRICS members — India, Brazil and South Africa — and the new entrants to ensure that the group does not become a Chinese bandwagon.
2. WELCOME TURNAROUND
Syllabus – GS III
Context – Banks have seen an improvement in asset quality, but are as of stress in retail loans require close monitoring.
Highlights
- The asset quality of the banking system of India continues to show improvement.
- As per the Reserve Bank of India’s latest financial stability report, banks’ gross non-performing assets have fallen to a 10-year low of 3.9 per cent in March 2023.
- The improvement has been across the board, with bad loans falling in both public and private sector banks and in major sectors of the economy.
- Alongside this, there has also been a steady improvement across key financial parameters of the corporate sector. As per there port, private non-financial companies have brought down their debt-to-equity ratios further and have seen an improvement in their debt-servicing capacity.
- Consequently, unlike in the past when the balance sheets of both banks and firms were impediments to investment activity, they are now “engendering at win balance sheet advantage for growth”, as per RBI Governor Shaktikanta Das. These are encouraging signs for the economy.
Challenges
- The improvement in the asset quality of banks is likely to continue. Stress tests by the central bank suggest that bad loans are likely to decline further to 3.6 per cent by the end of March 2024.
- However, this trend could be disrupted if the macroeconomic environment worsens.
- Alongside, banks have managed to sustain the momentum in their profitability as their net interest margins continue to grow, their provisioning coverage ratio is high, and their capital position is healthy.
- In fact, the capital-to-risk-weighted assets ratio has touched a high, implying that banks are well-capitalised and can absorb macroeconomic shocks.
- As per the RBI’s assessment, they will be able to comply with the minimum capital requirements even under adverse stress scenarios.
- However, there are some areas of concern. In the retail loan category, even though NPAs are low, loans where the principal or the interest payments or any other amount wholly or partly overdue has remained outstanding for a specified time (special mention accounts) were high at 7.4 per cent.
- Public sector banks were even higher in both the secured and unsecured loan categories, amounting to almost a tenth of their retail portfolio.
- For public sector banks, 6.1 per cent of education loans have turned bad, as have 18 per cent of credit card receivables. The share of unsecured retail loans has also risen from 22.9 per cent to 25.2 per cent.
- Further, under the emergency credit line guarantee scheme, one-sixth of accounts have turned non-performing, with the distress being majorly seen in micro-enterprises, in the services and trade sectors.
- In the case of industry, while bad loans have fallen, they remain high in segments such as gems and jewellery, construction, food processing and textiles. These areas require close monitoring.
For Enquiry
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