These type of headlines were there in almost all main newspapers of India, on the occasion of valentine day. What was the fraud? What is this LOU, SWIFT, and Buyers’ credit? And who is Nirav Modi? Read further to get the answers, and to understand the modus operandi of the fraud.

Nirav Modi is one of the richest Indians, a jewel businessman. He has opened stores on the prime locations such as the Old Bond Street in London, Hong Kong, and Macau.  Nirav Modi store in New York shares space with legendary brands such as Chanel, Hermes, Prada, and Gucci. The brand ambassadors include some eminent personality such as Kangana Ranaut, Priyanka Chopra.

Let’s understand LOU first.

Letter of Undertaking is a bank guarantee and is issued for overseas import payments. A bank, while issuing LoUs for a client (here Nirav Modi), agrees to repay the principal and interest on the client’s loan unconditionally. When an LOU is issued, it involves an issuing bank, a receiving bank, an importer and a beneficiary entity overseas. According to norms, the term of an LOU is 180 day and can be rolled over once for six months. Since LoUs are a form of lending, they are typically backed by security.

It began with diamond firms of Nirav Modi ( Diamonds R US, Solar Exports, and Stellar Diamonds) approaching PNB for seeking LoU for import of rough stones. It is a promise that PNB gives to foreign lender saying that it’s a good borrower if it defaults we’ll pay you back.

Once they receive the LoU the foreign bank approves buyers’ credit. Buyer credit is a short-term credit available to an importer (buyer) from overseas lenders such as banks and other financial institution for goods they are importing, rough diamonds in this case. Buyer’s credit helps local importers gain access to cheaper foreign funds as against local sources of funding which are more costly.

Through the buyers’ credit amount gets credited to PNBs nostro account (an account that a bank holds in a foreign currency in another bank). The money doesn’t reach to any of these borrowers, it remains in nostro account and eventually gets paid to the supplier.

The fraud is that when they received these LoUs they didn’t have required documents or sanction of credit. The company did not have any sanction limit from the bank neither any kind of deposit or long-term relationship with the bank which is required to sanction LoU.

But then how did the LoUs get sanctioned?

An internal probe by the bank then found that a few of its employees had fraudulently issued LoUs for Hong Kong branches of two Indian banks for and on behalf of Modi’s firms.

In January, when a couple of LoUs matured but the banks did not receive their payments, they approached PNB for repayment of the loans. Also, one fraudulent LoU was issued on January 16, 2018, for and on behalf of Modi’s firms, which allegedly presented a set of import documents to the branch, with a request to allow buyers’ credit for making payments to suppliers overseas. When bank officials requested the firms to furnish 100% cash margin for the LoU, the firms argued that they had availed this facility in the past as well, without paying any cash margin.

However, branch records did not have the details of any such facility having been granted to the firms. Why?

This was because these transactions were never recorded in the PNB’s Core Banking Services (CBS) software (the finnacle software used by banks).

When an LoU is issued, the message of credit transfer is conveyed to overseas banks through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system. This is a significant information as it gives the bank’s consent and guarantees. To issue SWIFT, an official has to log in and fill up confidential information such as the account number and SWIFT code. It generally has three layers of security – a maker, a checker and a verifier within the core banking system before it is issued.

The alleged bank employees, somehow, bypassed the CBS and transmitted the transaction through SWIFT. The transactions were initially routed through the CBS system but subsequently, changes were made in the LoUs by substantially increasing the amount and transmitted through SWIFT without reporting this to CBS.

According to PNB’s complaint to CBI, the LoUs were issued for the Hong Kong branches of Allahabad Bank and Axis Bank which have given money to the beneficiary entity on behalf of Modi’s firms. As a result, PNB will have to settle the LoUs with these branches according to the norms of the Hong Kong Monetary Authority.

The PNB is going to suffer from a very big loss, both in monetary and non-monetary terms. The market sentiments are already down. The PNB stock fell 9.81% on Wednesday to close at Rs 145.80 per share, and investors lost over Rs 3,000 crore in a single day.

The bank may have to set aside higher provisioning in the next few quarters if it unable to recover the money from the accused firms. Also, RBI has ordered the bank to pay for the deeds committed by its employees; to settle the transactions with other banks whose loans are maturing.

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Risk management frameworks

RBI has two main functions – financial regulation and supervision. Both are much sophisticated and effort taking functions. For financial regulation, RBI uses various quantitative and qualitative tools such as defining various policy rates, doing open market operation etc.

For supervisory function, Board of financial supervision has been constituted under RBI which is an autonomous body and supervises all financial institutions except SEBI monitored stock market and IRDAI regulated insurance market.

Following are the risk management frameworks:

1. CAMELS rating to ensure financial soundness of the bank
2. Basel norms (Basel I, II and III) for risk management
3. PCA (Prompt Corrective Action) to take corrective actions

CAMELS rating:

The main instrument of supervision in India is the periodical on-site inspection of banks that is supplemented by off-site monitoring and surveillance. On-site inspections are based on CAMELS (Capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) model and aim at achieving the set objectives.

• C – Capital adequacy
  • The capital adequacy measures the bank’s capacity to handle the losses and meets all its obligations towards the customers without ceasing its operations. This can be met only on the basis of an amount and the quality of capital, a bank can access. A ratio of Capital to Risk Weighted Assets determines the bank’s capital adequacy.
  • The high rating is given when interest and dividend rules are complied. (interest and dividend rules differentiate interest and dividend earning Capitals and define taxations on them)
• A – Asset Quality
  • An asset represents all the assets of the bank, Viz. Current and fixed, loans, investments, real estates and all the off-balance sheet transactions. Through this indicator, the performance of an asset can be evaluated. The ratio of Gross Non-Performing Loans to Gross Advances is one of the criteria to evaluate the effectiveness of credit decisions made by the banker.
• M – Management
  • The board of directors and top-level managers are the key persons who are responsible for the successful functioning of the banking operations.
    Management assessment determines whether an institute is able to react properly to financial stress, depending upon the ability of its management.
• E – Earnings
  • Income from all the operations, non-traditional and extraordinary sources constitute the earnings of a bank. Through this parameter, the bank’s efficiency is checked with respect to its capital adequacy to cover all the potential losses and the ability to pay off the dividends. Return on Assets Ratio measures the earnings of the banks.
• L – Liquidity
  • The bank’s ability to convert assets into cash is called as liquidity. The ratio of cash maintained by Banks and Balance with the Central Bank to Total Assets determines the liquidity of the bank.
• S – Sensitivity
  • Through this parameter, the bank’s sensitivity towards the changing market conditions is checked, i.e. how adverse changes in the interest rates, foreign exchange rates, commodity prices, fixed assets will affect the bank and its operations.

In CAMELS rating, supervisory authority assigns each bank a score from 1 to 5 for each factor mentioned, where 1 is for best and 5 is for worst rating.

The domestic banks are rated on CAMELS model while foreign banks are rated on CALCS model (capital adequacy, assets quality, liquidity, compliance, and systems). The frequency of inspections is generally annual, which can be increased/reduced depending on the financial position, methods of operation and compliance record of the bank.

Basel Norms:

At end of 1974, central bank governors of the group of ten countries formed a committee of banking supervisory authorities. This committee usually meet at Bank of International Settlement (BIS), Basel, Switzerland, hence popular by the name ‘Basel committee’.

BASEL I: The Basel-I defines two tiers of the Capital in the banks to provide a point of view to the regulators. The Tier-I Capital is the core capital while the Tier-II capital can be said to be subordinate capitals. It mainly caters to credit risk (borrowers defaulting).

• Tier 1 capital =
  • Paid up Capital
  • Statutory Reserves
  • Other disclosed free reserves
  • Capital Reserves which represent surplus arising out of the sale proceeds of the assets.
  • Investment Fluctuation Reserves
  • Innovative Perpetual Debt Instruments (IPDIs)
  • Perpetual Noncumulative Preference Shares.

Minus:

• Equity Investment in subsidiaries.
• Intangible assets such as goodwill
• Losses (Current period + past carried forward)

• Tier 2 capital =
  • Undisclosed reserves and cumulative perpetual preference shares.
  • Revaluation Reserves
  • General Provisions and loss reserves
  • Hybrid debt capital instruments such as bonds.
  • Long term unsecured loans
  • Debt Capital Instruments.
  • Redeemable cumulative Preference shares
  • Perpetual cumulative preference shares.

• Risk adjusted assets:
• 0% – government and central bank claims
• 20% – OECD inter-bank claims
• 50% – residential mortgages
• 100% – all commercial and consumer loans

As per Basel norms, the capital ratio should be greater than or equal to 8%. As per RBI, the flour is 9%. Hence any bank in India with CR less than 9% is deemed to be risky.

BASEL II:

Basel II norms have three pillars:

1. Pillar 1 – Minimum capital requirement –

The capital ratio remains same as Basel I. But the calculation of CR is taken in a slightly different manner.

Important changes –

1. Along with credit risk, market risk and operational risks are also taken into account while calculating minimum capital.
2. RWA are now calculated differently. Each type of asset is not given the pre-fixed weight but is assigned as per rating based system. For example, if consumer loan of a type of rating 1 then it may be assigned risk weight around 50% (contrary to Basel I where it was assigned 100% risk).
3. Pillar 2 – Supervisory review process –

There is a necessity of effective supervisory review of banks’ internal assessment of their overall risks to ensure that bank management in exercising social judgment and set aside adequate capital for these risks. Supervisors go to banks for evaluation of activities and risk profiles. This process also takes into account other risks such as interest rate risks.

An important outcome of pillar 2 is ICAAP – Internal Capital Adequacy Assessment Process. It is an umbrella activity that encompasses the governance, management, and control of all risks and capital management functions.

1. Pillar 3 – Market discipline –

It is about effective management such as transparency in banks’ public reporting. Thus adequate disclosure of information in a timely manner brings in market discipline and in the process promotes safety and soundness in the financial system.

Disclosures are either core or supplementary. Core disclosures are those who convey the vital information for all institutions and are important to the basic operation of market discipline. Supplementary disclosures are important for any particular institution, but it should not be treated as secondary or optional.

BASEL III:

It is intended to strengthen banks’ capital requirement by increasing bank liquidity and decreasing bank leverage.

1. Capital ratio – We know that

AT1: This is the money borrowed by the company and expected back by the lenders. But in case of loss, debt is converted into equity i.e. shares of the same price are issued to lenders and no money is returned. So this is a way of debt restructuring debts. These are also called CoCo bonds or contingent convertible bonds. These bonds can also be canceled anytime.

PCA (Prompt Corrective Action) Framework:

PCA framework has been revised and is effective from April 1, 2017. New PCA framework has following parameters, breach of any of which threshold will trigger disciplinary action against that particular bank:

1. Capital to risk-weighted asset ratio (CRAR)/Common Equity Tier I ratio to measure capital – CRAR is defined as Capital ratio + capital conservation buffer (CCB). CET1 ratio is defined as per Basel III norms. CCB is the buffer made by banks during profit periods so that it can be used during loss periods.
2. Net NPA ratio to measure asset quality – Net NPA ratio is defined as the percentage of net NPAs to net advances
3. Return on Assets (RoA) to measure profitability – it is defined as the percentage of profit after tax to average total assets.
4. Leverage ratio (Additional, it wasn’t included in the old PCA) – It is defined same as in Basel norms.

Note – CCB would be 1.875% and 2.5% as on March 31, 2018 and March 31, 2019 respectively.

Following are the actions taken if breaching of any risk threshold takes place.

Common menu for selection of discretionary corrective actions

1. Special Supervisory interactions – Special supervisory monitoring meetings/ inspection/audit of the bank
2. Strategy related actions – Special short term/medium term strategy as advised by RBI to bank’s board
3. Governance related actions – RBI to restructure banks board which contain removal/addition of any managerial person and take other actions as per Banking Regulation Act 1949.
4. Capital related actions – RBI may restrict the bank to expand high-risk weighted assets and from exposure to high-risk sectors, etc.
5. Credit risk related actions – Preparation of time bound plan and commitment for reduction of stock of NPAs, reduction of risk assets, the sale of assets, etc.
6. Market risk related actions – reduction in borrowings from different markets, interbank markets, etc.
7. HR related actions – Reduction in staff expansion or reduce expansion on training etc
8. Profitability related actions- Restrictions on capital expenditure, other than for technological up gradation.
9. Operations related actions – Restrictions on branch expansion plans, Reduction in business etc.

So these are the different risk management frameworks used in the present economic scenario, to effectively tackle the stress period of the economy.

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So what is a risk in the banking sector?

A risk may be defined as the probability of loss.

A more formal definition is,

An activity which ‘may’ give profit or loss is a risky proposition due to uncertainty or unpredictability of activity of trade in future.”

A risk is directly proportional to return on investment. Higher we take the risk, higher returns we may get.

Two historical developments in the context of banking:

1. Deregulation: More autonomy to banks to lend, invest, decide interest rates etc.
2. Technological innovation: Created efficient environment for the fast delivery of services, new products, these help manage assets and liabilities, but have also increased complexity and diversity of risk.

There are many types of risks, as mentioned in the diagram below:

Let’s discuss them one by one.

1. Liquidity risk: It arises when a bank does not have enough money to pay back its lenders. How does a bank do its business? The money we deposit in our current or saving accounts (CASA) or capital accounts (Fixed deposit or recurring deposit, FDRD), banks do business by using that money. They distribute loans at a rate higher than they give us on CASA or FDRD; they invest in market shares to get much higher returns and make money out of that. But higher returns means higher risk, that means sometimes they suffer from huge losses too. In that condition, they cannot pay back to its lenders.
   1. Funding risk – Funding risk arises when banks don’t have enough fund to meet cash flow obligations. Suppose 80% of people in a town have done insurance of their houses from the same bank and an earthquake destroys all the houses. In that case, all the people will go to the bank to reclaim their insurance amount, which the bank may be unable to fulfil at that time. This is an example of a funding risk.
   2. Time risk – Time risk arises when performing assets start turning into non-performing assets, hence banks need to compensate the money which was expected to come back in the form of loan interest. People defaulting on a loan can lead to time risk. The example is Vijay Mallya.
   3. Call risk – Any future contingency which can cause a huge outflow of money gives rise to this type of risk. For example – bank losing a legal battle which may pose to a huge fine.
2. Interest rate risk: This type of risk arises due to movement in interest, which can cause the borrowing rate of bank greater than its lending rate, in turn causing a loss for the bank. For example, a bank gives loan at the rate of 9 percent and borrows at 8 percent. After some time the rate of borrowing becomes 9.5 percent. If now the bank needs to borrow, it will have to suffer from loss. This situation gives rise to interest rate risk.
3. Market risk: This risk arises due to unfavourable movement in market prices of commodities/shares/stocks/currency in which the bank has invested. Suppose one dollar equals 65 Indian rupees, and a bank has purchased something worth 50000 dollars. Now the value of Indian rupee improves to 60 a dollar. So by selling that commodity bank will suffer a loss of (65-60) X 50000 = 250000 INR. This is the example of market risk.
   Interest rate risk is also a type of market risk.
4. Credit risk or default risk: When a bank borrower or counterparty is unable to meet its obligation in accordance with their agreed terms, then this type of risk arises. It has two types –
   1. Counterparty risk – It is more or less same as time risk. This risk arises due to counterparty’s refusal and/or inability to perform as per contract.
   2. Country risk – If the non-performance of the trading partners is due to restrictions imposed by their country, then this type of credit risk arises.

These types of risk can be mitigated up to an extent by putting a cap on loan amounts, and by rules such as verifying the trustworthiness of the counterparty by credit rating agencies, etc.

5. Operational Risk: Operational risk is an internal risk, which may arise due to the bad intention of staff, or hacking of system, or wrong processes. It has two types –
   1. Transaction risk – Transaction risk arises due to frauds, internal or external; or failed business processes due to the inability of staff to do their work properly.
   2. Compliance risk – If a bank fails to comply with any or all of the rules and regulation, code of conduct or standard practices, it may cause a huge loss of money in the form of fine and loss of reputation of the organisation due to legal action on them. So this risk is manageable. Also called integrity risk since a bank’s reputation is closely linked to its adherence to the principle of integrity and fair dealing.
6. Other types of risk:
   1. Strategic risk: Risky business decisions, improper implementation of them and lack of responsiveness to latest market updates in industry lead to this type of risk. This risk may pose a problem to achieve an organisation its strategic vision. For example, if there are two banks, one of them allows their customers to do every banking activity online, whereas another bank is not updated enough to provide this online facility, then other bank’s business will hamper.
   2. Reputation risk: reputation risk is the risk arising from negative public opinion. For example, suppose a news publishes in the newspaper about a bank that it may default. Then all account holders will withdraw their money and no new person will open his/her account, posing to other risks for the bank.
   3. Systematic risk – risk which affects the entire market is called systematic risk. This risk is unavoidable, hence has to be endured by every organisation.

The risks are unpredictable and impossible to avoid completely. Hence various measures are taken time to time to minimise their intensity and ensure the steadiness and sustainability of an economy. When the economy is talked about, then there a need arises of interference of a central agency. In our case, RBI is that central agency. To mitigate the risks, various risk management frameworks are defined and implemented.

To be continued…

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NPAs or non-performing assets are those loans which default- i.e. don’t pay their interest on time or simply don’t pay their debt at all. There are various stages in an NPA. Let it be clear by an example.

Suppose a person XYZ buys a car by taking a loan of a certain amount, say 5 lakhs. He has to pay a certain interest amount against that loan in a period of 30 days. His loan account is called a special mention account (SMA) of category zero.

If for any reason, his interest payment becomes overdue for more than 30 days, it becomes SMA of category one. It remains SMA – 1 from 30 to 60 days.

If the payment is still due then the account becomes SMA – 2 from 30 days to 90 days.

If the interest is still not paid then the asset turns into an NPA. Now, the NPA has been classified into three categories:

1. Substandard Assets: Assets which has remained NPA for a period less than or equal to 12 months.
2. Doubtful Assets: An asset would be classified as doubtful if it has remained in the sub-standard category for a period of 12 months. It remains in doubtful category for a period of three years in general.
3. Loss Assets: After a certain time the asset is declared as loss asset. There are different rules for this declaration for a different account. After declaring an asset as loss asset, it no longer remains an asset, since now it is not making money for the bank. In that case, they have to remove that loan from the asset section of their balance sheet. As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

Setting aside of money from Profits to compensate a probable loss caused on lending a loan is called Provisioning. Provisioning is done to cover the risk. When a loan is not getting repaid, this provisioning amount is used to reconstitute the money.

In February 2016, financial markets in India were shocked by the bad news from the banking system. One by one, public sector banks revealed their financial results for the December quarter. And the numbers were stunning. Banks reported that nonperforming assets had soared, to such an extent that provisioning had overwhelmed operating earnings. As a result, net income had plunged deeply into the red.

Bad loans — or NPAs — were about 9 per cent of total loans of all Indian banks in September 2016. At public sector banks, bad loans were 12 per cent of all advances while another 3 per cent of loans in the aggregate have been restructured.

Meanwhile, on the corporate side, Credit Suisse reported that around 40 percent of the corporate debt it monitored was owed by companies which had an interest coverage ratio less than 1, meaning they did not earn enough to pay the interest obligations on their loans.

Here came the picture of twin-balance-sheet-problem, where both the banking and corporate sectors are under stress. Not just a small amount of stress, but one of the highest degrees of stress in the world. The increasing numbers of NPAs are damaging the balance sheets of banks and at the same time, corporate sectors are not earning enough to repay their loans, as their balance sheets are also getting damaged.

The highest nos. of NPAs are in power and steel sectors.

But this is not the end. The story has a new turn. A fresh wave of potential NPAs is looming on the horizon.

Agriculture, power and auto pressure are adding to clouds of bad loans, as the recent survey suggests.

Banks, led by the Indian Banks Association, are in the process of petitioning the Centre over the increasing trend of power distribution companies (DISCOMS) in states, such as Rajasthan and Tamil Nadu, reportedly curtailing solar and wind-power generation. Discoms in Tamil Nadu, Madhya Pradesh, Maharashtra, and Rajasthan are also reported to be delaying payments to generators of the wind and solar power by 6-12 months, putting the cash flows of most of the smaller renewable firms under severe stress. Adding to their woes is the fact that states such as Tamil Nadu, Uttar Pradesh, Andhra Pradesh, Rajasthan and Madhya Pradesh are moving to renegotiate power purchase agreements of both renewable and thermal units.

In the case of just renewable projects, at stake is over Rs 1.10 lakh crore lent by around 23 public sectors and seven private sector banks and six Non-Banking Financing Companies (NBFCs) that have cumulatively committed financing of green projects worth 30,984 MW capacity, as on March 31, 2016.

Alongside this, the collateral impact of the agri-bank loan waivers could play out in the coming quarters, which could see more stress emanating that could further strain the loan books of banks.

HDFC Bank Ltd, which has so far done well on the bad loans problem as compared to competitors, reported a sharp surge in the gross non-performing assets (NPAs) ratio during the June quarter to touch the highest in seven years on account of farm loan waivers announced by states.

The RBI has already red-flagged the disastrous potential impact of the spate of loan waivers. As per the directions of RBI on priority sector lending, a target of 18 per cent of adjusted net bank credit or credit equivalent of off-balance sheet exposure has been prescribed to all Scheduled Commercial Banks (excluding regional rural banks) for agriculture.

Apart from the agriculture loans, the scare on the auto loan front is growing amid rising defaults by those working with ride-hailing companies, such as Ola and Uber, prompting lenders to cut back on car loans and modify underwriting norms.

The economy regulator RBI has been trying since a long time to tackle this hazard. Following are the actions taken by RBI time to time to handle this big issue:

1. The 5/25 refinancing of Infrastructure Scheme: This scheme offered a larger window for the revival of stressed assets in the infrastructure sectors and eight core industry sectors. Under this scheme, lenders were allowed to extend amortization periods to 25 years with interest rates adjusted every 5 years, so as to match the funding period with the long gestation and productive life of these projects.
2. Private Asset Reconstruction Companies (ARCs): ARCs were introduced to India under the SARFAESI Act (2002), with the notion that as specialists in the task of resolving problem loans, they could relieve banks of this burden. However, ARCs have found it difficult to resolve the assets they have purchased, so they are only willing to purchase loans at low prices.

3. Strategic Debt Restructuring (SDR): The RBI came up with the SDR scheme in June 2015 to provide an opportunity to banks to convert debt of companies (whose stressed assets were restructured but which could not finally fulfil the conditions attached to such restructuring) to 51 percent equity and sell them to the highest bidders, subject to authorization by existing shareholders. An 18-month period was envisaged for these transactions, during which the loans could be classified as performing. But as of end-December 2016, only two sales had materialized, in part because many firms remained financially unviable since only a small portion of their debt had been converted to equity.
4. Asset Quality Review (AQR): Resolution of the problem of bad assets requires sound recognition of such assets. Therefore, the RBI emphasized AQR, to verify that banks were assessing loans in line with RBI loan classification rules. Any deviations from such rules were to be rectified by March 2016.
5. Sustainable Structuring of Stressed Assets (S4A): Under this arrangement, introduced in June 2016, an independent agency hired by the banks will decide on how much of the stressed debt of a company is ‘sustainable’. The rest (‘unsustainable’) will be converted into equity and preference shares. Unlike the SDR arrangement, this involves no change in the ownership of the company.
6. And the most recent is Insolvency and bankruptcy code (IBC). Under this code, the IBBI (Insolvency and Bankruptcy Board of India) has been established to deal with debt defaulter firms. When a firm default on its debt, control shifts from promoter/shareholder to a committee of creditors, who have 180 days to evaluate proposals from various players about resuscitating the company or taking it into liquidation. The most advantageous feature of this code is that it puts a time bound to solve a case. This code has four pillars;
   • Pillar I – insolvency professionals regulated by insolvency professional agencies to handle the commercial aspects of insolvency resolution process.
   • Pillar II – informational utilities which would store facts in the form of an electronic database so that any information related to the firm or individual can be obtained from a single place, hence avoiding unnecessary delay to gather the required facts.
   • Pillar III – Adjudication of insolvency cases, for which two tribunals to be formed:
     • Debt Recovery Tribunal (DRT) along with Debt Recovery Appellate Tribunal (DRAT), to deal with Individual insolvency cases
     • National Company Law Tribunal (NCLT) along with its appellate tribunal (NCLAT) to hear firm insolvency cases.
   • And the fourth pillar is IBBI itself, to keep a regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities.

To work with largest and most complex cases, a Public Asset Rehabilitation Agency (PARA) is proposed to be constructed, also known as ‘bad bank’ as it collects all the bad loans. It would purchase specified loans (for example, those belonging to large, over-indebted infrastructure and steel firms) from banks and then work them out, either by converting debt to equity and selling the stakes in auctions or by granting debt reduction, depending on professional assessments of the value-maximizing strategy.

Once the loans are off the books of the public sector banks, the government would recapitalise them, thereby restoring them to financial health and allowing them to shift their resources – financial and human – back toward the critical task of making new loans. Similarly, once the financial viability of the over-indebted enterprises is restored, they will be able to focus on their operations, rather than their finances. And they will finally be able to consider new investments.

Besides, revised PCA framework has been launched by RBI to tighten the jibes on defaulting companies and non performing banks (We will discuss PCA framework in some other article as this requires a lot of new concepts, so including it here will make this article very lengthy).

Still, RBI’s new policies are yet to show their effects. Hence we have to have patience and make these policies work to bring our economy back on track. Only time will tell..

References:

1. http://indianexpress.com/article/business/banking-and-finance/agri-power-auto-pressure-adds-to-cloud-of-bad-loans-4795480/
2. Economic survey of India pg 82 -104
3. www.wikipedia.org
4. http://economictimes.indiatimes.com/

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First of all, let us know some details. This is included here just for information.

The Graduate Aptitude Test in Engineering (GATE) is an examination that primarily tests the comprehensive understanding of various undergraduate subjects in engineering and science. GATE is conducted jointly by the Indian Institute of Science and seven Indian Institutes of Technology (Bombay, Delhi, Guwahati, Kanpur, Kharagpur, Madras, and Roorkee) on behalf of the National Coordination Board – GATE, Department of Higher Education, Ministry of Human Resources Development (MHRD), Government of India.

The GATE score of a candidate reflects the relative performance level of a candidate. The score is used for admissions to various post-graduate education programs (e.g. Master of Engineering, Master of Technology, Doctor of Philosophy) in Indian higher education institutes, with financial assistance provided by MHRD and other government agencies.

Recently, GATE scores are also being used by several Indian public sector undertakings (i.e., government-owned companies) for recruiting graduate engineers in entry-level positions. It is one of the most competitive examinations in India.

Based on the success story of IITs all over the world, GATE is also recognized by various international institutes such as Nanyang Technological University, Singapore.

Tips:

1. Start your GATE-specific preparation in final year only. If you start your preparation earlier in the first or second year, you will get exhausted in the middle of your course and will start losing interest.  However, keep studying your semester subjects from the level of GATE during your first three years of engineering and prepare good quality notes because these notes will help you to prepare in final year.
   1. Do not hesitate to buy standard books for any subject whenever you first get introduced to it. Eg. – Many people read Ashfaq Husain for Electrical machines. The standard one is P. S. Bambara. Similarly for Design in Civil Engineering, students used to refer to the N. Subrahmanyan. Make your concepts through standard books. You can use the local/common books to pass your semester examination.
   2. Do not throw away the notes/photocopies of your core subject. Those are going to help you during preparation in your final year.
2. Total 65 questions are asked in the examination out of which 10 are of general ability and 55 are from your core subjects. The total marks are 100.
3. GATE tests your analytical ability, not retaining ability. So start solving conceptual questions of your core subjects after the third year.
4. Revise your concepts from the books/ notes you saved in the previous years. Go for the subjects one by one. Start from the subject you find easy. Gradually go for harder subjects.
5. Although in many colleges, all the core subjects are taught by the time you finish your 3rd year. But at few places, some important subjects are taught in the final semester. So keep that in mind and do have some knowledge of that subject in advance.
6. Don’t spend too much time on a single subject. Solve the question bank from a good book for all subjects. Do solve all the previous year question papers. This will help you understand the pattern of questions asked. Complete this by two months before the exams.
7. Reasoning section is also there which holds probably 15%  marks of paper. This section contains 5 questions from reasoning/quant and 5 questions from verbal ability. For this, solve Arun Sharma or R S Aggarwal books for verbal reasoning and quant. Again, don’t devote it too much time. 10 to 15 days are enough.
8. After completing all subjects, do join a good test series (online/offline). That will check your level of preparation at some extent.
9. Maintain yourself cool in the examination hall. Don’t panic if you don’t know the question. Solve the next one. Get back to the previous one in the end, if you find time.
10. Keep yourself motivated. For this read good motivational books, Buddha,s scriptures etc. means make yourself mentally strong.
11. My sincere advice to join a coaching, in the end of the second year, if it is required however the coaching timings can lead to frustration and extra burden, so if possible, avoid coaching and prepare self.

If you want to get selected in PSUs, your personal development is must because they will recruit you as OFFICER. For improving your personality,

1. Participate and involve in every cultural or any other events. Make a winning attitude.
2. Be in touch with your seniors so that you can get a good opportunity for training.
3. Make a very good project.
4. Improve English and communication skills. Add some uniqueness in yourself. Cultivate a leadership attitude in you.

If you follow this way religiously, you will surely be able to score very good marks in your first attempt. Set your gears to get succeed. All the best for your future.

SOURCES:

1. https://en.wikipedia.org/wiki/Graduate_Aptitude_Test_in_Engineering
2. Based on Self-Experience and Experience shared by Verified User (Successful Candidates) on quora.

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To increase their chance of success, students like to get into a good coaching institution. Here comes the decision – which coaching institution should they take admission into? Should they go for a single coaching where all subjects are under a roof, or should they choose individual teachers which are good in a certain subject (Physics/Chemistry/Maths)? Or, should they sit at home and prepare by self-study?

The decision is equally tough for their parents. They have to consider a more important point – Budget. By observing the economic status of our demography, we can know that North India is comparatively poor than South India. Also, South India has rather a systematic education system, which lacks in North India up to some extent. So North India is specifically mentioned in the topic.

How to prepare for JEE? Some opt for Coaching and some believe in self-study without coaching. Self Study is the most important aspect which no one can deny, but coaching certainly gives an edge. Good coaching/tuitions always give ample time to do self-study.

The success of a coaching institution depends on its teachers. A good teacher clears the basic concepts and clears all the doubts of the student. He/she also motivates his/her students time to time.

The following points can be taken into account while choosing coaching institute or individual teacher.

1. The quality of Education: – This point is of prime importance as this is what the motive for joining a coaching. One should choose the place which has a better quality of education however if the quality is not the factor to discriminate then further points will be helpful.
2. Location: – This is also important because if the place of coaching is very far from the room, then it will affect the studies in an adverse way. This will increase physical and mental fatigue. So, one should opt for a place which is nearer and easily accessible. This easy access will add security too.
3. Budget: – There may be chances that a complete coaching will charge less and total sum cost of individual tuition will be high. One should keep this factor in mind while choosing the option.
4. Security: – What if individual teacher met with an accident? Is there any back up with him/her. If not then it is not advisable to go there because in any causality, ultimately you will be the one who pays off. Generally, there are alternates available with the complete coachings but individual teachers do not have alternates and if they have, in that case too your requirement will not be fulfilled as you are there for the particular teacher.
5. Time: – Going to a place and sitting there for three classes of 2 hours each is easy than going to three different places for the same. So, complete coaching saves your time whereas going to individual teacher requires your daily time for travel which adds to fatigue too. So to take guidance of good teachers, students take classes of different subjects from different teachers however if their tuition centers are far apart, then commuting from one place to another waste their time and drains their energy. So it is preferable to find good teachers under one roof, hence to opt for coaching.
6. Subject: – If one is looking coaching for only one or two subjects and can prepare rest at his/her own then individual coaching will be the best option for JEE preparation.

Also, classes should not be too long so that students can get enough time in the day for their self-study. At last, self-study is the most important aspect which no one can deny. A perfect blend of self-study and good guidance can make you reach your goal.

  References:

1. http://www.ransphire.com/blog/best-coaching-for-iit/
2. https://jeemainonline.in/how-to-prepare-for-jee-main-advanced/
3. http://www.askiitians.com/iit-jee/main/preparation-tips/
4. https://www.quora.com/How-many-people-are-selected-for-an-IIT-JEE-advanced-paper-and-of-them-how-many-get-into-IIT

The post Individual subjects coaching vs all subjects coaching under a roof- what is good for IIT-JEE aspirants in North India? appeared first on Kailasha Foundation.

Before coming to any conclusion on this decision of Supreme Court, we must know what all the fuss about is.

What is this BS?

To start with, the ‘BS’ in BS IV stands for ‘Bharat Stage’ which signifies the emission regulation standards set by Indian regulatory bodies. The higher the number gets, the stricter the Bharat Stage emission norms get which eventually means it becomes trickier (and costlier) for automakers to meet them.

Image Source – the Internet

These emission standards were set by the central government to keep a check on the pollutant levels emitted by vehicles that use combustion engines. To bring them into force, the Central Pollution Control Board sets timelines and standards which have to be followed by automakers.

Also, the BS norms are based on European emission norms which, for example, are referred to in a similar manner like ‘Euro 4’ and ‘Euro 6’. These norms are followed largely by all automakers across the globe and act as a good reference point as to how much does a vehicle pollute. Bharat Stage emission norms are largely similar to the European emission norms followed globally.

What is the problem?

1. R&D demands time: It takes years for automakers to develop a new kind of an engine or to tweak around with the current ones used in their vehicles. Once the research and development is over, the task of setting up full-scale production comes up. Automakers were supposed to make their models BS IV compliant by April 1, 2017. While some automakers have met the targets and updated their products, there is a huge stock of vehicles left to be sold into the market that is BS-III compliant and as per the latest SC decision, they won’t be able to do so.
2. Cost factor: All of this comes at a cost which eventually makes the vehicle more expensive for the end customer of the product and that can be a cause of concern for automakers given how price sensitive the Indian market is.
3. For good engine, good fuel is needed: There is the requirement of cleaner fuel to run these vehicles that comply with a stricter emission regulation as it is not feasible to make internal combustion engines pollute less while using poor quality of fuel. As mentioned by Solicitor-General Ranjit Kumar while promoting the use of ‘new’ fuel, oil refineries spent about ₹30,000 crore since 2010 to produce it.

Image Source – the Internet

How will it affect the common man?

The everyday customer who is yet to buy themselves a vehicle or is planning to get one could soon have to shell out more for their purchase. On top of that, the fuel costs also need to be taken into account.

But pollution is the issue of major concern: Above all of this, there is a bigger target to be achieved. India has some of the most polluted cities in the world and automobiles are often considered as one of the biggest factors responsible for it. The need of the hour is to control the pollution levels by all means possible and since globally, countries are implying Euro 6 levels of emission regulations, India needs to step up its game and hence the BS III to BS IV emission norm implication.

Solution: According to the government, time is not a problem from their side because it was their earlier plan. These standards were first introduced in 2000. Progressively stringent norms have been rolled out since then. All new vehicles manufactured after the implementation of the norms have to be compliant with the regulations. Since October 2010, Bharat Stage (BS) III norms have been enforced across the country. In 13 major cities, Bharat Stage IV emission norms have been in place since April 2010 and It’s enforced for the whole country from April 2017.

In 2016, the Indian government announced that the country would skip the BS-V norms altogether and adopt BS-VI norms by 2020. This is the larger aim for the automotive sector.

Effects on future market

This will require a huge amount of investments to make the oil refineries capable of producing a better quality of fuel and also investments in the infrastructure to make that fuel available across the country. Then, the automakers will have to make investments on their end too in order to speed up the research and development process and improve their own infrastructure – like the manufacturing plants – to make their offering BS VI compliant.

This, eventually, will make owning an internal combustion engine powered car more expensive to own and maintain.

To sum it up, India is making an effort to grab the bull by its horns and hence, a lot of changes in the trends, sales, and choices made by customers are expected in the coming years. Apart from that, these types of initiatives are necessary for all of us and our future generations.

Source :

1. http://www.thehindu.com/news/national/sc-orders-freeze-on-sale-registration-of-bs-iii-vehicles-from-april-1/article17728104.ece
2. http://www.thehindu.com/business/Industry/bs-iii-vehicle-sales-ban-unfortunate-siam/article17738486.ece
3. https://www.quora.com/What-are-BS3-and-BS4-Engines
4. http://www.news18.com/news/auto/supreme-court-asks-automobile-firms-not-to-frustrate-bs-iv-roll-out-1365329.html
5. https://en.wikipedia.org/wiki/Bharat_Stage_emission_standards
6. http://www.thehindu.com/news/national/unsold-bs-iii-vehicles-can-be-registered/article17688100.ece

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