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The idea of setting up a bad bank to resolve the growing problem of non-performing assets (NPAs), or loans on which borrowers have defaulted, is back on the table. With commercial banks set to witness a spike in NPAs, or bad loans, in the wake of the contraction in the economy as a result of the Covid-19 pandemic, Reserve Bank of India (RBI) Governor Shaktikanta Das recently agreed to look at the proposal for the creation of a bad bank.
What’s a bad bank and how does it work?
A bad bank conveys the impression that it will function as a bank but has bad assets to start with. Technically, a bad bank is an asset reconstruction company (ARC) or an asset management company that takes over the bad loans of commercial banks, manages them and finally recovers the money over a period of time.
The bad bank is not involved in lending and taking deposits, but helps commercial banks clean up their balance sheets and resolve bad loans. The takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much as possible subsequently.
Former RBI Governor Raghuram Rajan had opposed the idea of setting up a bad bank in which banks hold a majority stake. “I just saw this (bad bank idea) as shifting loans from one government pocket (the public sector banks) to another (the bad bank) and did not see how it would improve matters. Indeed, if the bad bank were in the public sector, the reluctance to act would merely be shifted to the bad bank,” Rajan wrote in his book I Do What I Do.
US-based Mellon Bank created the first bad bank in 1988, after which the concept has been implemented in other countries including Sweden, Finland, France and Germany. However, resolution agencies or ARCs set up as banks, which originate or guarantee lending, have ended up turning into reckless lenders in some countries.
Do we need a bad bank?
The idea gained currency during Rajan’s tenure as RBI Governor. The RBI had then initiated an asset quality review (AQR) of banks and found that several banks had suppressed or hidden bad loans to show a healthy balance sheet. However, the idea remained on paper amid lack of consensus on the efficacy of such an institution. ARCs have not made any impact in resolving bad loans due to many procedural issues.
Now, with the pandemic hitting the banking sector, the RBI fears a spike in bad loans in the wake of a six-month moratorium it has announced to tackle the economic slowdown.
What is the stand of the RBI and government on a bad bank?
While the RBI did not show much enthusiasm about a bad bank all these years, there are signs that it can look at the idea now. Last week, Governor Das indicated that the RBI can consider the idea of a bad bank to tackle bad loans. In recent months, the Finance Ministry too has been receptive to the idea.
Viral Acharya, when he was the RBI Deputy Governor, had said it would be better to limit the objective of these asset management companies to the orderly resolution of stressed assets, followed by a graceful exit. Acharya suggested two models to solve the problem of stressed assets.
The first is a private asset management company (PAMC), which is said to be suitable for stressed sectors where the assets are likely to have an economic value in the short run, with moderate levels of debt forgiveness.
The second model is the National Asset Management Company (NAMC), which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short to medium terms.
Will a bad bank solve the problem of NPAs?
Despite a series of measures by the RBI for better recognition and provisioning against NPAs, as well as massive doses of capitalisation of public sector banks by the government, the problem of NPAs continues in the banking sector, especially among the weaker banks.
As the Covid-related stress pans out in the coming months, proponents of the concept feel that a professionally-run bad bank, funded by the private lenders and supported the government, can be an effective mechanism to deal with NPAs.
The bad bank concept is in some ways similar to an ARC but is funded by the government initially, with banks and other investors co-investing in due course. The presence of the government is seen as a means to speed up the clean-up process. Many other countries had set up institutional mechanisms such as the Troubled Asset Relief Programme (TARP) in the US to deal with a problem of stress in the financial system.
Has the banking system made any proposal?
The banking sector, led by the Indian Banks’ Association, had submitted a proposal last May for setting up a bad bank to resolve the NPA problem, proposing equity contribution from the government and banks. The proposal was also discussed at the Financial Stability and Development Council (FSDC) meeting, but it did not find favour with the government which preferred a market-led resolution process.
The banking industry’s proposal was based on an idea proposed by a panel on faster resolution of stressed assets in public sector banks headed by former Punjab National Bank Chairman Sunil Mehta. This panel had proposed a company, Sashakt India Asset Management, for resolving large bad loans two years ago.
“This is a good idea and hopefully, we would like to take it up again and see that there is a consensus to push this idea. Somehow people have that feeling that banks will park all their bad assets and nothing will happen there. We need to convince all the stakeholders about the purpose behind it and the action plan and the strategy behind the ARC. Once we are able to convince them, hopefully we hope to gain traction.
The idea of a bad bank was discussed in 2018 too, but it never took shape. During the pandemic, banks and India Inc were also pitching for one-time restructuring of loans and NPA reclassification norms from 90 days to 180 days as relief measures to tackle the impact of the lockdown and the slowdown in the economy. Currently, loans in which the borrower fails to pay principal and/or interest charges within 90 days are classified as NPAs and provisioning is made accordingly.
How serious is the NPA issue in the wake of the pandemic?
Bad loans in the system are expected to balloon in the wake of contraction in the economy and the problems being faced by many sectors. The RBI noted in its recent Financial Stability Report that the gross NPAs of the banking sector are expected to shoot up to 13.5% of advances by September 2021, from 7.5% in September 2020, under the baseline scenario, as “a multi-speed recovery is struggling to gain traction” amidst the pandemic.
The report warned that if the macroeconomic environment worsens into a severe stress scenario, the ratio may escalate to 14.8%. Among bank groups, the NPA ratio of PSU banks, which was 9.7% in September 2020, may increase to 16.2% by September 2021 under the baseline scenario.
The K V Kamath Committee, which helped the RBI with designing a one-time restructuring scheme, also noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. This effectively means Rs 37.72 lakh crore (72% of the banking sector debt to industry) remains under stress. This is almost 37% of the total non-food bank credit.
The panel led by Kamath, a veteran banker, has said companies in sectors such as retail trade, wholesale trade, roads and textiles are facing stress. Sectors that have been under stress pre-Covid include NBFCs, power, steel, real estate and construction. Setting up a bad bank is seen as crucial against this backdrop.
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On March 31, the World Economic Forum (WEF) released its annual Gender Gap Report 2021. The Global Gender Gap report is an annual report released by the WEF. The gender gap is the difference between women and men as reflected in social, political, intellectual, cultural, or economic attainments or attitudes. The gap between men and women across health, education, politics, and economics widened for the first time since records began in 2006.
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The Global gender gap index aims to measure this gap in four key areas : health, education, economics, and politics. It surveys economies to measure gender disparity by collating and analyzing data that fall under four indices : economic participation and opportunity, educational attainment, health and survival, and political empowerment.
The 2021 Global Gender Gap Index benchmarks 156 countries on their progress towards gender parity. The index aims to serve as a compass to track progress on relative gaps between women and men in health, education, economy, and politics.
Although no country has achieved full gender parity, the top two countries (Iceland and Finland) have closed at least 85% of their gap, and the remaining seven countries (Lithuania, Namibia, New Zealand, Norway, Sweden, Rwanda, and Ireland) have closed at least 80% of their gap. Geographically, the global top 10 continues to be dominated by Nordic countries, with —Iceland, Norway, Finland, and Sweden—in the top five.
The top 10 is completed by one country from Asia Pacific (New Zealand 4th), two Sub-Saharan countries (Namibia, 6th and Rwanda, 7th, one country from Eastern Europe (the new entrant to the top 10, Lithuania, 8th), and another two Western European countries (Ireland, 9th, and Switzerland, 10th, another country in the top-10 for the first time).There is a relatively equitable distribution of available income, resources, and opportunities for men and women in these countries. The tremendous gender gaps are identified primarily in the Middle East, Africa, and South Asia.
Here, we can discuss the overall global gender gap scores across the index’s four main components : Economic Participation and Opportunity, Educational Attainment, Health and Survival, and Political Empowerment.
The indicators of the four main components are
(1) Economic Participation and Opportunity:
o Labour force participation rate,
o wage equality for similar work,
o estimated earned income,
o Legislators, senior officials, and managers,
o Professional and technical workers.
(2) Educational Attainment:
o Literacy rate (%)
o Enrollment in primary education (%)
o Enrollment in secondary education (%)
o Enrollment in tertiary education (%).
(3) Health and Survival:
o Sex ratio at birth (%)
o Healthy life expectancy (years).
(4) Political Empowerment:
o Women in Parliament (%)
o Women in Ministerial positions (%)
o Years with a female head of State (last 50 years)
o The share of tenure years.
The objective is to shed light on which factors are driving the overall average decline in the global gender gap score. The analysis results show that this year’s decline is mainly caused by a reversal in performance on the Political Empowerment gap.
Global Trends and Outcomes:
– Globally, this year, i.e., 2021, the average distance completed to gender parity gap is 68% (This means that the remaining gender gap to close stands at 32%) a step back compared to 2020 (-0.6 percentage points). These figures are mainly driven by a decline in the performance of large countries. On its current trajectory, it will now take 135.6 years to close the gender gap worldwide.
– The gender gap in Political Empowerment remains the largest of the four gaps tracked, with only 22% closed to date, having further widened since the 2020 edition of the report by 2.4 percentage points. Across the 156 countries covered by the index, women represent only 26.1% of some 35,500 Parliament seats and 22.6% of over 3,400 Ministers worldwide. In 81 countries, there has never been a woman head of State as of January 15, 2021. At the current rate of progress, the World Economic Forum estimates that it will take 145.5 years to attain gender parity in politics.
– The gender gap in Economic Participation and Opportunity remains the second-largest of the four key gaps tracked by the index. According to this year’s index results, 58% of this gap has been closed so far. The gap has seen marginal improvement since the 2020 edition of the report, and as a result, we estimate that it will take another 267.6 years to close.
– Gender gaps in Educational Attainment and Health and Survival are nearly closed. In Educational Attainment, 95% of this gender gap has been closed globally, with 37 countries already attaining gender parity. However, the ‘last mile’ of progress is proceeding slowly. The index estimates that it will take another 14.2 years to close this gap on its current trajectory completely.
In Health and Survival, 96% of this gender gap has been closed, registering a marginal decline since last year (not due to COVID-19), and the time to close this gap remains undefined. For both education and health, while progress is higher than economy and politics in the global data, there are important future implications of disruptions due to the pandemic and continued variations in quality across income, geography, race, and ethnicity.
India-Specific Findings:
India had slipped 28 spots to rank 140 out of the 156 countries covered. The pandemic causing a disproportionate impact on women jeopardizes rolling back the little progress made in the last decades-forcing more women to drop off the workforce and leaving them vulnerable to domestic violence.
India’s poor performance on the Global Gender Gap report card hints at a serious wake-up call and learning lessons from the Nordic region for the Government and policy makers.
Within the 156 countries covered, women hold only 26 percent of Parliamentary seats and 22 percent of Ministerial positions. India, in some ways, reflects this widening gap, where the number of Ministers declined from 23.1 percent in 2019 to 9.1 percent in 2021. The number of women in Parliament stands low at 14.4 percent. In India, the gender gap has widened to 62.5 %, down from 66.8% the previous year.
It is mainly due to women’s inadequate representation in politics, technical and leadership roles, a decrease in women’s labor force participation rate, poor healthcare, lagging female to male literacy ratio, and income inequality.
The gap is the widest on the political empowerment dimension, with economic participation and opportunity being next in line. However, the gap on educational attainment and health and survival has been practically bridged.
India is the third-worst performer among South Asian countries, with Pakistan and Afghanistan trailing and Bangladesh being at the top. The report states that the country fared the worst in political empowerment, regressing from 23.9% to 9.1%.
Its ranking on the health and survival dimension is among the five worst performers. The economic participation and opportunity gap saw a decline of 3% compared to 2020, while India’s educational attainment front is in the 114th position.
India has deteriorated to 51st place from 18th place in 2020 on political empowerment. Still, it has slipped to 155th position from 150th position in 2020 on health and survival, 151st place in economic participation and opportunity from 149th place, and 114th place for educational attainment from 112th.
In 2020 reports, among the 153 countries studied, India is the only country where the economic gender gap of 64.6% is larger than the political gender gap of 58.9%. In 2021 report, among the 156 countries, the economic gender gap of India is 67.4%, 3.8% gender gap in education, 6.3% gap in health and survival, and 72.4% gender gap in political empowerment. In health and survival, the gender gap of the sex ratio at birth is above 9.1%, and healthy life expectancy is almost the same.
Discrimination against women has also been reflected in Health and Survival subindex statistics. With 93.7% of this gap closed to date, India ranks among the bottom five countries in this subindex. The wide sex ratio at birth gaps is due to the high incidence of gender-based sex-selective practices. Besides, more than one in four women has faced intimate violence in her lifetime.The gender gap in the literacy rate is above 20.1%.
Yet, gender gaps persist in literacy : one-third of women are illiterate (34.2%) than 17.6% of men. In political empowerment, globally, women in Parliament is at 128th position and gender gap of 83.2%, and 90% gap in a Ministerial position. The gap in wages equality for similar work is above 51.8%. On health and survival, four large countries Pakistan, India, Vietnam, and China, fare poorly, with millions of women there not getting the same access to health as men.
The pandemic has only slowed down in its tracks the progress India was making towards achieving gender parity. The country urgently needs to focus on “health and survival,” which points towards a skewed sex ratio because of the high incidence of gender-based sex-selective practices and women’s economic participation. Women’s labour force participation rate and the share of women in technical roles declined in 2020, reducing the estimated earned income of women, one-fifth of men.
Learning from the Nordic region, noteworthy participation of women in politics, institutions, and public life is the catalyst for transformational change. Women need to be equal participants in the labour force to pioneer the societal changes the world needs in this integral period of transition.
Every effort must be directed towards achieving gender parallelism by facilitating women in leadership and decision-making positions. Social protection programmes should be gender-responsive and account for the differential needs of women and girls. Research and scientific literature also provide unequivocal evidence that countries led by women are dealing with the pandemic more effectively than many others.
Gendered inequality, thereby, is a global concern. India should focus on targeted policies and earmarked public and private investments in care and equalized access. Women are not ready to wait for another century for equality. It’s time India accelerates its efforts and fight for an inclusive, equal, global recovery.
India will not fully develop unless both women and men are equally supported to reach their full potential. There are risks, violations, and vulnerabilities women face just because they are women. Most of these risks are directly linked to women’s economic, political, social, and cultural disadvantages in their daily lives. It becomes acute during crises and disasters.
With the prevalence of gender discrimination, and social norms and practices, women become exposed to the possibility of child marriage, teenage pregnancy, child domestic work, poor education and health, sexual abuse, exploitation, and violence. Many of these manifestations will not change unless women are valued more.
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]2021 WEF Global Gender Gap report, which confirmed its 2016 finding of a decline in worldwide progress towards gender parity.
Over 2.8 billion women are legally restricted from having the same choice of jobs as men. As many as 104 countries still have laws preventing women from working in specific jobs, 59 countries have no laws on sexual harassment in the workplace, and it is astonishing that a handful of countries still allow husbands to legally stop their wives from working.
Globally, women’s participation in the labour force is estimated at 63% (as against 94% of men who participate), but India’s is at a dismal 25% or so currently. Most women are in informal and vulnerable employment—domestic help, agriculture, etc—and are always paid less than men.
Recent reports from Assam suggest that women workers in plantations are paid much less than men and never promoted to supervisory roles. The gender wage gap is about 24% globally, and women have lost far more jobs than men during lockdowns.
The problem of gender disparity is compounded by hurdles put up by governments, society and businesses: unequal access to social security schemes, banking services, education, digital services and so on, even as a glass ceiling has kept leadership roles out of women’s reach.
Yes, many governments and businesses had been working on parity before the pandemic struck. But the global gender gap, defined by differences reflected in the social, political, intellectual, cultural and economic attainments or attitudes of men and women, will not narrow in the near future without all major stakeholders working together on a clear agenda—that of economic growth by inclusion.
The WEF report estimates 135 years to close the gap at our current rate of progress based on four pillars: educational attainment, health, economic participation and political empowerment.
India has slipped from rank 112 to 140 in a single year, confirming how hard women were hit by the pandemic. Pakistan and Afghanistan are the only two Asian countries that fared worse.
Here are a few things we must do:
One, frame policies for equal-opportunity employment. Use technology and artificial intelligence to eliminate biases of gender, caste, etc, and select candidates at all levels on merit. Numerous surveys indicate that women in general have a better chance of landing jobs if their gender is not known to recruiters.
Two, foster a culture of gender sensitivity. Take a review of current policies and move from gender-neutral to gender-sensitive. Encourage and insist on diversity and inclusion at all levels, and promote more women internally to leadership roles. Demolish silos to let women grab potential opportunities in hitherto male-dominant roles. Work-from-home has taught us how efficiently women can manage flex-timings and productivity.
Three, deploy corporate social responsibility (CSR) funds for the education and skilling of women and girls at the bottom of the pyramid. CSR allocations to toilet building, the PM-Cares fund and firms’ own trusts could be re-channelled for this.
Four, get more women into research and development (R&D) roles. A study of over 4,000 companies found that more women in R&D jobs resulted in radical innovation. It appears women score far higher than men in championing change. If you seek growth from affordable products and services for low-income groups, women often have the best ideas.
Five, break barriers to allow progress. Cultural and structural issues must be fixed. Unconscious biases and discrimination are rampant even in highly-esteemed organizations. Establish fair and transparent human resource policies.
Six, get involved in local communities to engage them. As Michael Porter said, it is not possible for businesses to sustain long-term shareholder value without ensuring the welfare of the communities they exist in. It is in the best interest of enterprises to engage with local communities to understand and work towards lowering cultural and other barriers in society. It will also help connect with potential customers, employees and special interest groups driving the gender-equity agenda and achieve better diversity.