Banking News Dated 29th August 2018

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Banking News: August 29, 2018

RBI deadline over,  20 new NPA accounts to go to NCLT

 RBI deadline over,
20 new NPA accounts to go to NCLT
 Gopika Gopakumar, Malvika Joshi
& Shayan Ghosh: The Mint
Published on August 29, 2018

Essar Power, Reliance Naval and Jindal India Thermal are among the 20 NPA accounts that banks will refer to NCLT for debt resolution under the insolvency and bankruptcy code

Mumbai, August 28:   As the deadline set by the Reserve Bank of India (RBI) for resolution of stressed assets ended Monday, lenders have decided to refer 20 of at least 32 NPA accounts to bankruptcy courts, according to two bankers aware of the matter. For the remaining 12 NPA accounts, lenders will either restructure the debt or initiate sale proceedings, the bankers said on condition of anonymity.

On 12 February, RBI had set a 180-day timeline starting 1 March for resolving large corporate loan defaults, failing which banks have to refer these cases for insolvency proceedings.

Among the 20 new accounts that will be referred to the National Company Law Tribunal (NCLT), a majority—including Essar Power, Korba West Power Co. Ltd, Jindal India Thermal Ltd and SravantEnergy Pvt. Ltd—are power projects. The list also has metal companies, including BMM Ispat Ltd, ISMT Ltd, BRG Iron and Steel and Splendid Metal Products Ltd. Reliance Naval is also among the companies that will be referred to bankruptcy courts.

Lenders have, however, decided to restructure the outstanding debt of Videocon Oil Ventures Ltd, GMR Rajahmundry Ltd and Jaiprakash Power Ventures Ltd.

Banks have received bids from Edelweiss Asset Reconstruction Co. to acquire two accounts—Coastal Energen Pvt. Ltd and GTL Infrastructure Ltd. Edelweiss Asset has bid ₹3,200 crore for CoastelEnergen and ₹ 2,400 crore for GTL Infra. The asset reconstruction company is also exploring the option of teaming up with foreign lenders to bid for these assets.

According to one of the two bankers cited earlier, lenders have decided to sell Prayagraj Power Generation Company to Tata group and ICICI Venture-backed Resurgent Power Ventures and SKS Power Generation (Chhattisgarh) Ltd to Singapore-based AgritradeResources.

Lenders have agreed for a one-time settlement in the case of GMR Chhattisgarh Energy Ltd. A Bloomberg report on Monday said Adani Power Ltd is looking to acquire the 1,370-megawatt GMR Chhattisgarh Energy. The deal is likely to be announced in the next few weeks after lenders give a formal approval, the report said.

Emails and messages sent to a majority of the companies failed to elicit any response. Sravanti Energy declined to comment, as the matter is under judicial review.

The central bank, through its 12 February circular, asked banks to craft resolution plans for defaulted accounts within 180 days in cases where the exposure is more than ₹ 2,000 crore. The central bank also introduced the concept of a one-day default, under which banks have to identify incipient stress when repayments are overdue even by a day.

Last year, lenders referred a total of 40 large corporate accounts worth ₹ 3.5 trillion to NCLT for initiating insolvency proceedings.

Lenders such as State Bank of India believe that admission of these accounts to NCLT will not have an additional impact on the bank’s provision requirement.

“The 27 August deadline would not have any material impact on the provisioning requirements as most of them have already been classified as bad loans. There is not going to be any accelerated provisions for these accounts since the February 12 circular doesn’t mention it,” said SBI chairman Rajnish Kumar.

The Allahabad high court on Monday refused to grant interim relief to power companies against the RBI circular. Consequently, several power companies are now likely to be referred to NCLT. The high court had earlier ordered lenders to avoid acting against these power producers. The companies, however, have the option of challenging the high court judgement in the Supreme Court.

“The resolution process will take its own course, the judgement does not make a difference,” said Rajkiran Rao, managing director and chief executive officer, Union Bank of India. “The issue of how many accounts will go to NCLT will be discussed because we have another 15 days’ time to decide (on taking them to NCLT).”


Report blames Reserve Bank of India for bad loans

Saubhadra Chatterji
The Hindustan Times
Published on August 29, 2018

The committee has criticised RBI’s revised definition for recognising NPAs that saw a spike in the bad loans on the books of banks and said this could hit economic growth.

New Delhi, August 28: A committee of lawmakers thinks the Reserve Bank of India’s policies have accentuated the problem of non-performing assets of state-owned banks, and reduced amount at their disposal to lend; that banks do not have what it takes to fund long-gestation projects; and that it is important to remove the environment of fear in which bankers operate today, worrying that even a legitimate loan approval could engender an investigation.

According to a senior lawmaker who spoke on condition of anonymity, the committee is likely to recommend in its report that India’s central bank relax some of these rules, thereby increasing the amount at the disposal of some state-owned banks to lend by around Rs5 lakh crore, and earning them additional interest income of around Rs45,000 crore.

Specifically, the committee has criticised RBI’s revised definition for recognising NPAs that saw a spike in the bad loans on the books of banks and said this could hit economic growth. The lawmaker who asked not to be identified said that the committee will recommend that the central bank ease its rules.

The lawmaker also said that the committee believes that RBI’s requirements of the so-called Capital to Risk Weighted Assets Ratio (the extent to which a bank’s capital can cover its loans, adjusted for risk) is far too stringent, especially for some state owned banks that do not operate overseas at all. The new International Finance Reporting Standards place a further restriction on banks in this context, the lawmaker said, and the committee is hoping RBI will defer this.

Abhizer Diwanji, head of financial services and restructuring with Ernst & Young, however, felt that such measures will lead to a poorer rating for banks and perceived to be more risk prone. “Irrespective of the international exposure of our banks, the CRAR should be kept high as they face certain other risks. Also, our banks like SBI and Bank of Baroda has a lot of international exposure even if it forms a small part of their balance sheet.”

The report of the committee, to be submitted by the end of this month, is likely to suggest that RBI ensure that there is no atmosphere of anxiety and uncertainty among the bankers and that the regulator itself avoid knee-jerk reactions. The lawmaker added that the committee believes that one such was the halting of letters of undertaking in the aftermath of the fraud perpetrated by jewellers Mehul Choksi and Nirav Modi’s who misused this instrument (essentially a guarantee from the bank).

The rising NPAs of banks have escalated to a major political row between the ruling NDA and the opposition. While the NDA government blames the previous regime for giving loans out of extraneous considerations, the opposition has slammed the NDA of financial mismanagement. NPAs in public sector banks increased by around ₹6.2 lakh crore between March 2015 and March 2018, leading to a substantial provisioning of ₹5.1 lakh crore.

The committee also plans to ask the government to see if RBI needs more power as a regulator.

According to the lawmaker, the committee also recognises the importance of bankruptcies being resolved before the National Company Law Tribunal and is worried that some of these are taking more than the 270-day timeline prescribed under the rules. This person added that the committee will recommend that the tribunal be strengthened so that it can meet its workload.

Diwanji welcomed the suggestion and said, “This is justified. We need stronger and decisive benches. Currently, there are just 13 or 15 NCLT benches and just one appellate tribunal,” he said.

The lawmaker said the committee has met various stakeholders while preparing its report and added that while it is aware of the situation in state-owned banks, it would not like the current crisis to lead to any opportunity to privatise some of these banks.


PSBs likely to see tough days ahead: ICRA

The Business Line
Published on August 29, 2018

Mumbai, August 28: The total loss before tax for public sector banks (PSBs) in FY2019 is estimated at Rs. 41,900-1,01,600 crore, depending on the credit provisioning on stressed assets undergoing resolution, according to credit rating agency ICRA.

The agency said that these losses are likely to surpass the budgeted capital infusion of Rs. 65,000 crore by the government for FY2019. It added that many PSBs will be reporting loss during FY2019.

PSBs posted a loss before tax of Rs. 24,000 crore during Q1 FY2019 and Rs. 1.30-lakh crore in FY2018, said ICRA. During FY2018, too, these losses surpassed the capital infusion of Rs. 90,000 crore by the government.

In a scenario of higher provisioning and losses, the agency felt that the government may need to upsize the budgeted capital infusion for FY2019.

On the back of higher losses reported by the banks in relation to the capital infusion during FY2018 and continued losses during Q1 FY2019, ICRA observed that nine PSBs reported Tier 1 capital ratio lower than 7.5 per cent as on June 30, 2018, against the minimum regulatory requirement of 7 per cent, indicating limited ability of these PSBs to absorb further losses.

“Meeting the regulatory minimum capital ratios being a prerequisite for servicing debt capital instruments, prompted the government to front-load the capital infusion during July in some PSBs, which was in line with our expectations.

ICRA believes there will be a further announcement of capital infusion in a few more PSBs during September and October 2018 to support their capital ratios and, hence, their debt servicing, said Anil Gupta, Head – Financial Sector Ratings, ICRA.

Assuming 60-65 per cent provisioning requirements on accounts to be resolved and normal slippages of about 3 per cent for FY2019, the credit provisions for PSBs are estimated at Rs. 1.4-2.0-lakh crore for the year ( Rs. 2.71-lakh crore during FY2018), the agency said. Factoring in the marked-to-market losses on bond portfolios will lead to many PSBs reporting losses during FY2019 as well, it added.

With the expiry of the 180-day period provided in the February 12, 2018, circular of the Reserve Bank of India (RBI) for resolution of large stressed borrowers, and limited number of accounts where banks have been able to implement resolution plans, the agency felt that many of the 70 large borrowers accounting for about Rs. 3.8-lakh crore of debt may be heading for resolution under the Insolvency and Bankruptcy Code (IBC), 2016.

“With Rs. 4-lakh crore of debt across 40 large borrowers already under the RBI-directed resolution through IBC, and the likelihood of more large borrowers being resolved under IBC, about 60 per cent of the non-performing loans (including loans earlier written off) of the Indian banking sector are now under active resolution,” added Gupta.

While the pick-up in the pace of resolution is positive, the agency cautioned that tough times are expected to continue for banks, given the limited recoveries being witnessed in many of the earlier cases undergoing resolution, except for accounts belonging to the steel sector.

With 85-90 per cent of these non-performing advances belonging to PSBs, the recoveries from these accounts will be a major driver of their profitability and capital requirements during the current fiscal.


Total losses of 21 PSBs in Q1
stand at Rs 16,615 crore

Utsav Saxena
The Financial Express
Published on August 29, 2018

Mumbai, August 28: Aggregate losses for a clutch of 21 banks for the three months to June came in at Rs 16,614.52 crore, led by a massive loss of Rs 4,875 crore from State Bank of India (SBI) and Rs 940 crore from Punjab National Bank. The aggregate losses of these 21 banks for the three months to March stood at Rs 62,641.27 crore.

Only seven of the 21 public sector banks (PSBs) posted a profit, data from Capitaline showed. In Q1FY18, the 21 banks had reported a combined profit of Rs 516.68 crore. Operationally, the banks did not fare too badly with the combined net interest income (NII) increasing nearly 25% y-o-y to Rs 59,9529.96 crore. However, provisions, primarily for loan losses, jumped a staggering 72% to Rs 63,010.48.

Analysts from Jefferies believe that while Q1FY19 was a mixed performance, SBI is better positioned among the peers to capture emerging opportunities amidst slackened competition. However, given higher investment depreciation, they pruned the FY19 earnings by 10% even as operating profits were steady. “Value in its non-banking subsidiaries will also be a more stable and scalable vector,” they noted. “Asset quality was mixed with higher retail & agri slippage offsetting lower corporate slippage & IBC recoveries. The SBI management has guided an aggressive 2% credit cost for FY19 – implies lower net-slippages & provision write-backs,” they added.

Punjab National Bank posted a loss of Rs 940.01 crore. The loss turned out to be lower than what analysts predicted owing to several one-offs. Analysts from Kotak Institutional Equities wrote, “PNB reported lower-than-expected losses and while the gross NPLs declined 4% q-o-q, the slippages were still high and mostly led by small-ticket loans. PNB’s asset quality showed improvement in Q1FY19 with a decline in gross NPLs of 4% q-o-q on absolute basis and 12 bps q-o-q to 18.3% of loans. The bank’s net NPLs declined 10% q-o-q on absolute basis and 66 bps q-o-q to 10.6% of loans. Slippages were high at 7% of loans and were driven partly by fresh debits into existing NPLs as well as agriculture (~25% of slippages).”

Although Union Bank of India posted a profit of Rs 129.54 crore, experts are skeptical about the future. Analysts from Nomura said, “Slippage of Rs 470 crore without a reduction in stress book was a negative and is the key reason for the management increasing its slippage guidance for FY19 to 3.5% vs 3% given earlier. Further, recognised stress in power/textiles/roads at 25-30% of exposure is relatively lower compared with peers, and gives less comfort on the recognition catch-up. Provision cover has not increased q-o-q and remains low at 50%, which implies credit cost pressure will remain elevated. From a business perspective, momentum remains soft. The only silver lining is the sustained growth momentum in the retail segment (up 18% y-o-y).”

Bank of Baroda posted a 160% increase in y-o-y profit to Rs 528.26 crore. The lender’s loan book grew 9.8% y-o-y, NII was up 28.7% y-o-y and NIM at 2.65%. Analysts from Jefferies said, “we derive greater comfort on its asset quality (GNPL to decline by 6%) as well as earnings capacity. We believe a combination of the above two factors should result in ~14% RoE in FY19 which could move up to ~16% by 21. While there’s still some quarter-to-quarter uncertainty on the earnings & slippages given the lumpy nature of the watch list, it is pertinent to point that our book value adjusts for 80% haircut on gross stressed assets.”

Indian Bank posted a profit of Rs 209.31 crore, a 43% y-o-y decline, but experts maintained a positive outlook. Analysts from AnandRathi said, “decreasing stressed pipeline, emphasis on granularity in its loan book and benefits from further improvements in operating leverage would gradually improve Indian Bank’s profitability in the medium term.”


NPAs up by Rs 6.2 lakh crore under
NDA Rule: Parliamentary Committee

The Logical Indian Online
Published on August 28, 2018

New Delhi, August 28: A parliamentary committee report on August 27 said that non-performing assets (NPAs) under the present NDA government has gone up by Rs 6.2 lakh crore between March 2015 to March 2018. Reportedly, the committee headed by VeerappaMoily has put the blame on the Reserve Bank of India.

The draft report of the committee stated that the NPAs have further compelled the government to provide Rs 5.1 lakh crore to the public sector banks, reported Times Now.

Reportedly, the committee which includes former Prime Minister Manmohan Singh as a member has also questioned RBI for failing to take prior action in checking bad loans before the Asset Quality Review (AQR) undertaken in December 2015.

According to sources, the RBI needs to find out as to why the early signs of the stressed accounts were not taken into consideration before the AQR, reported Live Mint.

Moreover, the report also highlighted the issue of low credit to GDP ratio in India, which was 54.5% as of December 2017, against much higher scores of UK, USA and China.

Sources while quoting the report said, “The RBI should examine the asset to capital leverage ratio in other countries vis-à-vis India and, keeping in view India’s relatively low credit-to-GDP ratio, identify ways to improve the capital base of banks without constraining growth of, and equitable access to MSME, agriculture and retail segments.”

It also highlighted various other measures that have led to transformative change in the creditor-debtor relationship and clean, responsible banking which include enhanced provisioning, massive recapitalisation, transparent recognition of NPAs post-AQR, enactment of Insolvency and Bankruptcy Code, debarment of connected parties and examining of all NPA accounts exceeding Rs 50 crore from the angle of possible fraud among others, reported Live Mint. 

Reportedly, the draft report is most likely to be placed in the Parliament during the Winter session.


Government seen ‘burying’ MPs’
panel report on Demonetisation

The Business Line
Published on August 29, 2018

New Delhi, August 28: Is the government shying away from acknowledging the findings of report on demonetisation by the Standing Committee on Finance? The Opposition believes so.

According to sources, the report of the 31-member Committee headed by senior Congress leader Veerappa Moily is unlikely to be tabled in the Lok Sabha because it appears to be very critical of the November 2016 demonetisation, which the government claims is one of its biggest achievements.

Demonetisation was one of 18 subjects that the Committee addressed. Interestingly, the term of the Committee, which was constituted on September 1, 2017, expires on August 31, 2018: according to the rules, the term of Office of these Committees is a year. And if no report is finalised in the next three days, it will be not be possible to table it.

In such a situation, rules say, the present Committee may report to the House that it has not been able to complete its work. Also, any preliminary report, memorandum or note that the Committee may have prepared or any evidence that it may have taken shall be made available to a new Committee.

The present Committee comprises 21 members from the Lok Sabha and 10 from the Rajya Sabha. The BJP accounts for 13 members (which is the most from any party); the Congress has four; the AIADMK has three; the Shiv Sena, the TMC and the TDP have two each; and BJD, the SDF, the JD(U), and the CPI (M) have one member each. There is also one nominated member.

According to the Congress, the main Opposition, the BJP is stonewalling the procedures using its numerical strength on the Committee. “Every sentence in the statement on demonetisation made by former Prime Minister Manmohan Singh in the Rajya Sabha has proven true. The entire process, as he said, was legalised loot and organised plunder. As a result of it, people have lost confidence in banks,” Congress spokesperson Jaipal Reddy said.

Another Opposition member, who was present at the panel’s meeting on Monday, said no drafts were sent to the members.

According to sources, the draft report says about 1 per cent of GDP was lost owing to demonetisation. It also points to job losses arising from the decision to invalidate Rs. 500 and Rs. 1,000 notes illegal, which effectively invalidated over 80 per cent of notes in circulation.

A few BJP members are believed to have sent a letter to the Chairman against the findings of the report. They are also believed to have said that they would seek a vote before the finalisation of the report. Under the Rules of Procedure and Conduct of Business in the Lok Sabha, reports should be based on a broad consensus.


Pay app: Google, banks team up for digital loans

The Financial Express
Published on August 29, 2018

Mumbai, August 28:  In what appears to be a symbiotic relationship, Google’s India arm said on Tuesday it was teaming up with HDFC Bank, ICICI Bank, Federal Bank and Kotak Mahindra Bank to offer loans on its app Google Pay.

Digital payments experts said that while the banks would be able to acquire customers more easily via the Google Pay app, Google in turn would have access to the credit histories of these borrowers. The data could then be mined by Google for its business, they said.

“This is a typical land and expand strategy that fintechs follow and that’s what Google is doing,” Vivek Belgavi, partner and head (fintech) at PwC, observed. Fintech, Belgavi said, was becoming the new distribution channel for banks, allowing them to address new customer segments.

While banks will approve the instant, pre-approved loans, the front-end and user experience will be provided by Google Play. The feature, set to be rolled out to eligible users within the next few weeks, will appear as a notification informing the user he or she has been pre-approved. He or she can then decide the amount and tenure of the loan.

Once the terms of the loan are finalised, the relevant bank will deposit the money in the user’s bank account. No additional paperwork will be required.

Internet penetration and the increasing affordability of smartphones are facilitating digital payments and transfers. Rajan Anandan, Google’s vice-president for India and Southeast Asia, observed on Tuesday that India now has 390 million internet users with a fourfold growth in rural users.

“About 45% of online uses will be women in the next three years,” Anandan said. Moreover, the ecosystem has seen a significant upgrade with 70% of smartphones now offering over 2 GB of RAM and 80% of the devices offering at least 16 GB storage. Also, feature phone usage, he said, is redefining the internet by triggering a 270% year-on-year growth in voice; while the average data consumption is now 8 GB per user, about 95% of the video consumption that drives this number is in local languages.

Google Pay — earlier called Tez— is understood to have been downloaded by over 55 million people. More than 22 million people and businesses use the app for digital transactions every month. Collectively, they have made more than 750 million transactions, with an annual run rate of over $30 billion, the company said. Google Pay has language support for eight languages — English, Hindi, Bengali, Gujarati, Kannada, Marathi, Tamil and Telugu.

India is an important market for digital payments for a number of global players. Digital payments in India, currently estimated at around $200 billion, are projected to rise fivefold in the next five years to touch $1 trillion, according to an estimate made by Credit Suisse. At this point, the value of digital payments will rise from around 10% right now to around 25%, a February report by the investment bank stated.


Power Sector NPAs: Government, banks
have only one option, public sector AMC/ARC

The Press Trust of India
Published on August 28, 2018

The court instead asked the Centre to talk to the central bank to get some relief for the petitioners using the provisions of the RBI Act within 15 days.

New Delhi, August 28 (PTI): Sour loans of over $51 billion (Rs 1.74 trillion) to the power sector are likely to go to the insolvency courts after the Allahabad High Court ruling and government may be forced to float an asset reconstruction/management company (ARC/AMC) to deal with the issue, a foreign brokerage has said.

Dashing the hope of independent power producers, the Allahabad High Court yesterday turned down their petition challenging the February 12 circular from the Reserve Bank which said if a resolution was not found by August 27 (yesterday) these accounts should be sent to bankruptcy courts.

The court instead asked the Centre to talk to the central bank to get some relief for the petitioners using the provisions of the RBI Act within 15 days. "The only way out is to form a public sector ARC/AMC that manages banks' power non-performing assets either directly or by bidding at NCLT auctions," analysts at Bank of America Merrill Lynch said today.

It can be noted that the idea of floating such an ARC was already suggested by RBI deputy governor Viral Acharya as well as the Sunil Mehta committee. The proposed power ARC/AMC will need a seed capital of $9 billion, which will be a part of the $20-billion bank recapitalisation, the brokerage said, adding it will be a three-step process.

The government will have to infuse $26.5 billion into the state-run banks (excluding SBI) in FY19-20 to support a moderate 14 percent credit growth, it said, adding $19.4 billion will be required for 75 percent haircut on stressed power projects. Other reports suggested that banks will have to make an incremental provisioning of around Rs 1 trillion if these 60 accounts go to the NCLTs.

The BofA-ML analysts estimated the total stressed assets in power sector at $51.6 billion, with banks holding a bulk $36.1 billion and dedicated non-bank lenders like Power Finance Corporation and Rural Electrification Corporation having $15.5 billion.

Banks have recognised $15.3 billion of NPAs in the power sector and have already provided $7.6 billion for four assets being resolved in NCLT at 50 percent of the exposure, it said. Banks will transfer the stressed assets to the ARC at 75 percent haircut and securitise the rest of NPAs into the ARC or AMC (asset management company) paper to seed it.

"As Re 1 of capital pushes up loan supply by Rs 11 at, say, 9 percent capital-to-risk weighted assets ratio, the balance recapitalisation of $0.9 billion will allow banks to securitise $9 billion of power loans into ARC/AMC bonds," it said.

The brokerage said the ARC/AMC can "extinguish such paper" as and when it is able to restructure/sell the NPA, or, raise funds from the market, as the cycle turns up.

In a bid to hasten the resolution of bad loans, the RBI on February 12 abolished half a dozen loan restructuring schemes and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.

Finance ministry may soon hold talks with the Reserve Bank to resolve issues faced by the power sector and also seek some relaxation of the February 12 NPA guidelines, sources had said yesterday.

Up to nine commissioned power projects will be impacted by the high court order and banks have mostly provided for these stress projects, they had said.

The finance ministry could ask the RBI to provide 180 days for resolution of stressed power projects with a view to avoiding potential value erosion of operating plants. If suggestions are accepted, banks would get about a year for restructuring their power sector loans of about Rs 1.74 trillion.

Bankers have also drawing comfort from that fact that these accounts, along with some EPC and telecom accounts together constituting around Rs 3.8 trillion, are not part of the RBI's first 40 largest default lists.


Major worries for US! 4 in 10 Americans
struggle to pay for basic needs, reveals study

The Financial Express
Published on August 29, 2018

Four in 10 Americans struggled to pay for their basic needs such as food or housing last year, according to a new study from the Urban Institute, a Washington-based think tank.

Washington, August 28 (IANS): Four in 10 Americans struggled to pay for their basic needs such as food or housing last year, according to a new study from the Urban Institute, a Washington-based think tank. Despite a growing US economy and a low unemployment rate, 39.4 per cent of Americans between 18 and 64 years old said they experienced at least one type of material hardship in 2017, Xinhua quoted a study as saying, which surveyed nearly 7,600 adults about whether they had trouble paying for housing, utilities, food or health care.

The findings came as a surprise among researchers with the Urban Institute, who had expected to find high level of hardship among poor Americans but hadn’t predicted so many middle-class families would also struggle to meet their basic needs. “Economic growth and low unemployment alone do not ensure everyone can meet their basic needs,” the authors wrote in a report.

“A lot of people are looking at the fact that wages aren’t keeping up with household costs as one reason families are having difficulty making ends meet,” said Michael Karpman, research associate at the Urban Institute’s Health Policy Centre and a co-author of the report. Food insecurity was the most common challenge, with over 23 percent of households struggling to feed their family at some point during 2017.

That was followed by troubles paying a family medical bill, reported by about 18 percent. A similar percentage didn’t seek care for a medical need over concerns of the cost. Additionally, roughly 13 percent of families missed a utility bill payment at some point during the year. And 10 percent of families either didn’t pay the full amount of their rent or mortgage, or they paid it late. The Urban Institute designed the study last year to get a baseline measure of hardship in anticipation of proposed cutbacks in federal safety-net programs, such as Medicaid, SNAP and housing assistance. Some states have already moved forward with such plans.

Low-income households reported the highest share of hardship. More than 40 per cent of poor and near-poor adults, or those below and slightly above the federal poverty level, experienced food insecurity, compared with about 23 per cent across all income groups. It is the first study on the subject by the Urban Institute, which looks at economic and social policy issues. The institute plans to conduct the study annually to track the well-being of families as the economy and safety net systems change.


When private whims dominate public spaces

Rajrishi Singhal
Consulting Editor, The Mint
Published on August 29, 2018

The executive and private operators must remember they are only custodians of a public asset on behalf of the people of India. That, in some senses, defines their primary responsibility

The Union ministry of civil aviation recently invited public comments on a proposed transaction structure for greenfield airports. The transaction structure is premised on three guiding principles: affordability, sustainability and predictability. The entire model is based on the idea that a formula-based, administered cap on aeronautical yields will tick all the three boxes mentioned above: it will satisfy the middle-class consumer’s price-sensitive demand curve, provide predictability to the airport concessionaire’s cash flows and create long-term sustainability for all stakeholders involved in setting up a greenfield airport.

The model, however, suffers from one basic drawback. It tries to achieve an equilibrium between administered pricing (through the formula-driven cap on yields) and some free market pricing rights. Caught between these two opposing forces, citizen rights inevitably suffer the most.

The model says the concessionaire can price certain services outside the administered pricing regime, but subject to “regulation”: for example, passenger and staff entry charges, or vehicle entry and parking charges. But revenue from restaurants, retail outlets and duty-free shops will be free from any pricing regulation.

This is also true for all real estate activities outside the aeronautical area, such as hotels and malls. What is left unclear is what “regulation” means or what shape it will take in practice. This is where the model plants the seeds for future legal liabilities.

Lack of clarity on the desired regulatory framework or a clear demarcation between concessionaire and citizen rights could end up generating the kind of debates that currently bedevil multiplexes. The current brouhaha over prices of food inside multiplex cinemas skirts the core principle of how many states provided multiplex promoters with significant tax breaks.

These tax incentives are like trade-offs made by society—forgoing certain public services these tax revenues would have financed in lieu of incentivizing entertainment infrastructure. In return, is it wrong for them to expect some regulation over pricing?

Going back to the aviation sector, two fundamental points need consideration. One, the regulatory regime referred in the model will presumably be governed by the Airports Economic Regulatory Authority of India (AERA), which is an independent regulatory body established through an Act of Parliament to protect the interests of airports, airlines and passengers. In the Act setting up AERA, or the subsequent amendment Bill pending in Lok Sabha, prioritizing citizen rights over operator rights is not at the core of the legislation. This is vital and brings up the second point: all airports are built on public land and any agreement, or public-private partnership (PPP) arrangement, allowing a private sector company to build and operate on that land, has to keep in mind the hierarchy of rights in relation to the ownership of that land.

The design and structuring of almost all agreements seem to disregard this hierarchy of rights. The implicit logic, it seems, is that with government strapped for cash, private investment is inescapable and necessary for financing key infrastructure projects. Therefore, regulatory and administrative space has to be created to attract the required private investment. This is a slippery slope argument, and once entertained, creates a perverse pecking order between profit motive and public interest.

There is no arguing that infrastructure needs private investment, and without profits, there can be no private sector investments. However, the three-way equilibrium between private profit motive, regulatory oversight and citizen rights—essential for any successful PPP—is increasingly getting skewed in favour of the operator, leading to major distortions and price gouging.

The recent passenger charter released by Union minister of state for civil aviation Jayant Sinha does try to correct some of the imbalances but it does not go all the way. The charter provides for, among other things, how much penal charges airlines can levy on ticket cancellation, depending on when it is done. The charter also requires airports to provide free Wi-Fi to passengers for 30 minutes. However, the charter leaves many other instances of price gouging untouched. Take one small example: parking fees. Private airport operators have been charging exorbitant fees for providing parking facilities on land not effectively owned by them. As an unintended consequence, the approach roads to airports are getting jammed with cars parked on both sides of the road.

Another manifestation of the skew is how operators use public spaces for pursuing private ideologies.

For example, many multiplex cinema operators and other private utilities (such as private universities built on land offered by government at concessional rates) impose their personal dietary choices on consumers in blatant disregard for constitutional norms and secular ethics. The most egregious example is national carrier Air India imposing compulsory vegetarian meals on passengers. This is odd for an airline which continues to be financed through public funds and yet blatantly disregards the heterogeneity of its investors and customers.

The executive and private operators must remember that they are only custodians of a public asset on behalf of the people of India. That, in some senses, defines their primary responsibility.

Rajrishi Singhal is consulting editor of Mint.


The right to privacy vs right to information

Siddharth Sonkar  & Sayan Bhattacharya
The Mint
Published on August 29, 2018

Finding the right regulatory structure is important
in order to ensure that the two rights don’t come into conflict

Recently, information commissioner Sridhar Acharyulu, in an attempt to save the right to information (RTI) from dilution, cautioned against amending the RTI Act while implementing the data protection framework suggested by the Srikrishna Committee report.

The public focus so far has been on the conceptualization of personal data, consent fatigue and data localization. But the report raises a crucial question. What would be the mandate of the future data protection authority (DPA) it envisages? And how would the mandate be reconciled with that of the information commissioner? This concern becomes particularly relevant due to a history of bureaucratic conflict in various countries stemming from the tension between the discordant mandates of the two authorities.

Conceptually, RTI and the right to privacy are both complementary and in conflict. While RTI increases access to information, the right to privacy veils it instead. At the same time, they both function as citizen rights safeguarding liberty against state overreach. There are two possible frameworks for managing this tension.

A two-body model

In most jurisdictions, the information commission and privacy commission are separate and distinct bodies. In a few countries, however, the RTI commission is a single-function body responsible for balancing competing interests. These jurisdictions include Hungary, Mexico and the UK.

Countries which have two commissions are able to champion both these rights distinctively. This is because they are unencumbered by the onerous task of balancing competing interests. However, this clarity of mandate and authority comes with a price tag. Disagreements between the two authorities can heighten transaction and opportunity costs involved in reconciliation, reducing overall efficiency in grievance redressal.

Canada has witnessed public tension between the two commissions due to politics and policy concerns. These concerns include delineating the extent to which a request to access “personal” information may be granted without undermining privacy. A Canadian task force reviewing its two-body model acknowledged the confusion arising out of conflicting recommendations. For instance, the two bodies could have conflicting opinions on whether educational records of public officials or asset records of spouses of public officials constitute “personal data” shielded from RTI requests.

A single-body model

Adopting a single commission (as in the UK) instead would remove the transaction costs associated with conflict between two commissions. This would increase administrative efficiency and, in turn, public welfare. However, the possibility of a conflict between the two competing rights may end up prejudicing the authority in favour of one of them, endangering their intended harmonization. Moreover, additional mandates may over-burden the authority and undermine its efficacy, reducing social welfare instead.

One body or two for India?

The Supreme Court of India, while declaring the right to privacy as a fundamental right in Justice K. S. Puttaswamy (Retd.) and Anr. vs Union Of India and Ors, missed out on defining its contours with respect to the right to information. The Srikrishna Committee Report, while acknowledging that most commentators are in favour of an independent data protection authority, falls short of explaining the rationale behind it. These missed opportunities are regrettable. That said, the optimal solution for India is indeed two independent bodies.

While the cost-effectiveness of a single body model is attractive, in the Indian context, it may have a number of drawbacks. These include high levels of corruption that could encourage conflict of interest and a tendency to safeguard personal gains.

Moreover, there might be another kind of mismatch in giving an information commissioner the mandate of enforcing a data protection law. The information commissioner’s mandate is concerned with personal data only of public officials and not of citizens at large. The enforcement of a data protection law, on the other hand, would require familiarization with, and expertise in, a far broader mandate. Achieving these may require a structural overhaul of the commission, which could prejudice the existing regime. A body with specialized expertise in this field would be far more suited to serve this purpose.

We admit that there may be some agency costs involved in reconciling conflicts between the information commissioner and the DPA. However, these costs would not override the larger public interest served by ensuring the independence of a DPA. This is because the agency costs would be relatively small compared to the harm arising out of a prejudice to either of these rights.

Furthermore, a single commission may lean towards hierarchizing the enforcement of RTI over the realization of privacy. This fear arises from the false perception that a dichotomy exists between privacy and welfare. This perception is based on public attitudes that question the relevance of privacy within the Indian socio-political climate as opposed to RTI, which is looked upon more favourably.

Siddharth Sonkar and Sayan Bhattacharya are students, respectively, at the National University of Juridical Sciences, Kolkata, and Nalsar University, Hyderabad.

Source: Internet Newspapers and Anupsen Articles


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