1) ECL Based Loan Loss Provisioning Framework: Lenders in India have approached the Reserve Bank of India (RBI) seeking a one-year extension for the implementation of the Expected Credit Loss (ECL)-based loan loss provisioning framework
- The RBI had previously proposed the adoption of the ECL approach for credit impairment, and banks were given a one-year period for implementation once the final guidelines are released
- In the expected credit loss framework, banks are mandated to forecast anticipated credit losses through forward-looking estimations, rather than waiting for credit losses to materialise before making corresponding provisions for those losses
- This new approach replaces the current “incurred loss (IL)” model, which delays loan loss provisioning, potentially increasing credit risk for banks.
- A key drawback in the IL model was that usually banks made provisions with a significant delay after the borrower may have started facing financial difficulties, thereby increasing their credit risk. This led to systemic issues
- Furthermore, the delayed recognition of loan losses resulted in an overstatement of banks’ income, combined with dividend payouts, which further eroded their capital base
- To prevent a capital shock, the RBI has proposed a transitional arrangement for the introduction of ECL norms
2) 25th Anniversary of Pokhran-II: India recently celebrated the 25th anniversary of Pokhran-II on 11th May 2023 marking the successful nuclear bomb test explosions which became a significant milestone in its journey to become a nuclear power
- In 1945, renowned physicist Homi J. Bhaba lobbied for the establishment of the Tata Institute of Fundamental Research (TIFR) in Bombay, dedicated to nuclear physics research.
- India’s pursuit of nuclear weapons was motivated by concerns over its sovereignty and security threats from China and Pakistan
- Pokhran-I (codenamed ‘Smiling Buddha’) was India’s first nuclear bomb test conducted on May 18, 1974, at the Pokhran Test Range in Rajasthan
- Pokhran-II (codenamed ‘Operation Shakti’) refers to a sequence of five nuclear bomb test explosions conducted by India on between 11-13th May 1998 at Rajasthan’s Pokhran desert
- Pokhran-II cemented India’s status as a nuclear power. While the tests in 1998 also invited sanctions from some countries (like the US), the condemnation was far from universal like in 1974
- India adopted a policy of credible minimum deterrence, stating that it would maintain a sufficient nuclear arsenal for deterrence purposes but would not engage in an arms race
- India currently possesses approximately 160 nuclear warheads, according to the Federation of American Scientists (FAS)
3) International Credit Card Spending Outside India under LRS: Recently, the Finance Ministry of India, in consultation with the Reserve Bank of India (RBI), has made significant amendments to the Foreign Exchange Management Act (FEMA), bringing international credit card spending outside India under the Liberalised Remittance Scheme (LRS)
- The amendment is expected to facilitate the monitoring of high-value overseas transactions but does not apply to payments for purchasing foreign goods/services from India
- A TCS levy of 5% will be applicable on such transactions until 1st July 2023 (except for medical and education-linked sectors). After 1st July 2023, the TCS rate will increase to 20% for credit card spendsoutside India
- Banks and financial institutions may experience an increased compliance burden due to these changes
