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RBI's New Financial Directives and the Debate on Electoral Bonds: Navigating India's Economy and Polity – November 29, 2023

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    Current Affairs Wala
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Introduction

Welcome to our in-depth analysis of the latest pivotal shifts in India's economic and political landscape as of November 29, 2023. In this edition, we dissect the Reserve Bank of India's recent decision to increase risk weights for certain types of lending, a move that signifies a new direction in managing the nation's financial stability. We explore how this decision affects the banking sector and consumer credit. Moving to the political arena, we delve into the heated debate over electoral bonds, unpacking the complexities of political funding and the clamor for transparency in this domain. These issues are critical for understanding the dynamics of India's economy and the integrity of its democratic processes. Join us as we navigate these intricate topics, offering a comprehensive perspective on the challenges and advancements shaping India today.

INDIAN ECONOMY

RBI'S LATEST MOVE TO INCREASE RISK WEIGHTS FOR LENDING

  • The observed pattern in the rise of unsecured personal loans and credit cards, the Reserve Bank of India directs all banks and non banking financial companies to reserve more capital for risk weight.
  • The manager risk weight requirement has been increased by 25% points which should be applicable for unsecured personal loans, credit loans and credit cards and lending to non banking financial companies.

WHAT IS RBI’s LATEST STATEMENT ON RISING RISK WEIGHTS?

  • The idea is to address the nation of credit risk. Now the question is what refers to credit risk. Credit risk is actually entitled by a borrowed bring to enable complete their obligation or defaulting or their commitment.
  • It is an essential tool for banks to manage this risk.
  • Earlier the RBI has raised concern about the growth and trend in consumer credit and increased dependency of non banking financial companies now it has detected that the risk weight for consumer credit exposure has increased by 25% to 125% for all commercial banks and NBFCs.
  • This would apply to personal loans like retail loans excluding housing loans education loans vehicle loans and learn secured by gold and gold jewelry.
  • At present the risk amount is 100% credit card and loans of scheduled commercial banks currently attract a risk weight of 125% while the non banking financial companies attract 100%.
  • So now the RBI has regulated his decision to increase the risk weight 125% for NBFCs and 150% for scheduled commercial banks.
  • So lastly the banks credit to non banking financial companies excluding core investment companies also had their risk weights increased by 25% points. But housing finance companies and loans to NBFCs classified into the priority sector would not be included in this list.

WHAT ARE THE BENEFITS OR CONCERNS?

  • The initial concerns are related to the effects on capital adequacy and the bank's profitability.
  • Second, a latest report states that slow or lone growth and increased emphasis on risk management will support better quality in the Indian banking system.

INDIAN POLITY

BATTLE FOR DEMAND TO DISCLOSE THE POLITICAL DONATION SYSTEM

WHAT DOES THE PETITIONERS SAY ABOUT ELECTORAL BONDS?

  • The petitioner's claimed to the court that electoral bonds are the anonymous root of funding which has no identity from its source ; it is another form of bribery.
  • As these donations enjoy 100% tax compensation even foreign companies can donate through Indian subsidiaries.

WHAT IS ELECTORAL BONDS?

  • The Finance Commission 2017 introduced the use of electoral bonds which are exempted from disclosure under representation of people act 1951 who are actually open to unchecked unknown funding to political parties.
  • This particular amendment has removed the existing cap of 7.5% of net profit in the past 3 years on campaigning donations by companies and has legalized anonymous donations.

WHAT ARE THE NEED FOR THE DISCLOSURE OF ELECTORAL BONDS

  • Being a democratic country and consciously under democratic setup the parties who are going to be leaving this democracy in the near future or at present are not desirable to hide or get such grants which are questionable for the people.
  • Under a democratic system like India elections should always be neutral and unbiased but this huge donation to political parties and their allies will affect the campaigning and buying voters ultimately affect the real electrical outcome as elections should not be dependent on which party has more money to campaign.
  • So to ensure the electoral justice which states every action procedure and decisions related to electoral process in line with the law and employment of electoral rights protecting the names of the donors of such huge money should be discussed.
  • Electoral justice system actually the rule of law and it also guarantees the democratic principle of holding free prayer and guarantee elections
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