Current Affairs – October, 2017

Government constitutes Alternative Mechanism Panel for PSBs consolidation

The Union Government has constituted Alternative Mechanism Panel headed by Union Finance Minister Arun Jaitley to oversee merger proposals of public sector banks (PSBs). The other members of the panel include Railway and Coal Minister Piyush Goyal and Defence Minister Nirmala Sitharaman.

Key Facts

This alternative mechanism has been set up by the government to fast-track consolidation among public sector banks to create strong lenders. The mechanism will oversee the proposals coming from boards of PSBs for consolidation.

The decision comes after government had announced Rs. 2.11 trillion bank recapitalisation plan for public sector banks weighed down by bad loans, seeking to stimulate flow of credit to spur private investment. It was also announced that recapitalisation plan will be accompanied by series of banking reforms over next few months. The constitution of an Alternative Mechanism is move in that direction.

The Union cabinet in August 2017 had decided to set up Alternative Mechanism to fast-track PSU bank consolidation. More about alternative mechanism (fig)

Purpose of PSBs consolidation

The move to create large banks through consolidating PSBs aims at meeting credit needs of growing Indian economy and building capacity in PSB space to raise resources without dependence on the state exchequer. The banking entities formed after merging PSU banks will be able to absorb shocks.

Background

The idea of bank mergers was around since 1991, when former Reserve Bank of India (RBI) governor M. Narasimham had recommended the government merge banks into three-tiered structure, with three large banks with an international presence at top. In 2014, PJ Nayak Committee also had suggested that government either merge or privatize state-owned banks.

Significance of PSBs consolidation

• Reduce their dependence on government for capital.
• Open up more capital generation avenues, both internally and from market, for the merged entity.
• From a government point of view, it will increase stream of dividends which forms part of their non-tax revenue.
• Increase the role of internal and market resources and thus reduce dependence of merged bank on government for the future capital infusion
• It will lead to greater concentration of payment and settlement flows as there will be fewer parties in the financial sector.
• Operational risks could increase post-merger as size of operations grows and distance between management and operational personnel is greater as the administrative systems become more complex.
• It will help to deal better with their credit portfolio, including stressed assets. Consolidation will also prevent multiplicity of resources being spent in t same area and strengthens banks to deal with shocks,

Article 35-A: SC adjourns hearing by 3 months

The Supreme Court has adjourned the hearing of plea challenging Article 35A of the Constitution by three months. The apex court’s order came after it was told by Centre that government has appointed a representative (interlocutor) to hold talks with all stakeholders to resolve Kashmir issue.

The court was hearing on batch of four petitions demanding scrapping of Article 35A on various grounds. The main petition was filed by Delhi-based NGO in 2014. Three more petitions were also filed but were later clubbed with main one.

What is Article 35-A?

Article 35A of the Constitution empowers J&K legislature to define permanent residents (PR) of state. It was added through Constitution (Application to Jammu and Kashmir) Order, 1954 issued under Article 370 of Constitution by the President of India and not by amending constitution under Article 368.

The PR law enacted by J&K legislature in pursuance of Article 35A replicates state subject law promulgated by Dogra king Maharaja Hari Singh in 1927 following a strong campaign by Kashmiri Pandits, who had opposed to hiring of civil servants from Punjab because it affected their representation in administration.

Permanent Residents

The J&K Constitution adopted on November 17, 1956 defines Permanent Resident as person who was state subject on May 14, 1954, or who has been resident of state for 10 years and has lawfully acquired immovable property in state. It only empowers J&K legislature to alter definition of PR only through law passed by two-thirds majority.

The provision of Permanent Resident bars Indian citizens, other than permanent resident of J&K, from settling in state, acquiring immovable properties, seeking employment or undertaking any trade or business if state makes any law to that effect and it cannot be challenged before any court.  It also denies property rights to woman who marries a non-permanent resident and her children.

Petitions demanding scrapping of Article 35A

The petitioners have challenged Article 35A on ground that it can only have been introduced through Constitutional amendment under Article 368 and not through a Presidential Order under Article 370.

They say that Article 35A is against very spirit of oneness of India as it creates a class within a class of Indian citizens. It restricts citizens from other States from getting employment or buying property within J&K, thus is a violation of fundamental rights under Articles 14, 19 and 21 of the Constitution.

One  petition also held that Article 35A is gender-biased and also against Article 14 of the Constitution as it denies property rights to J&K permanent resident woman who marries a non-resident while a man who marries outside state will continue to enjoy his rights.