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Editorials/Opinions Analysis For UPSC 25 October 2022

Editorials/Opinions Analysis For UPSC 25 October 2022


  1. When does the RBI intervene to supervise a bank?
  2. What we can do to protect migrant workers

When does the RBI intervene to supervise a bank?


  • The Reserve Bank of India (RBI) recently increased its oversight of Thrissur (Kerala)-based private bank Dhanlaxmi Bank’s financial position as a reaction to the bank’s capital adequacy deterioration.
  • Dhanlaxmi Bank’s capital adequacy has previously fallen below required levels, and it has even been placed under the RBI’s prompt corrective action framework (PCA) to deal with serious deteriorations


GS Paper – 3: Banking Sector & NBFCs, Statutory Bodies

Mains Question

What are the special occasions when the RBI use to intervene in monitoring the banks? Is this practice good for banks reform? (150 Words)

Framework for Prompt Corrective Action (PCA) in Banks:

  • The Reserve Bank of India (RBI) introduced the PCA framework in 2002 as a structured early intervention mechanism.
  • The PCA framework, which only applies to commercial banks (not cooperative banks or NBFCs), refers to the central bank’s watchlist of troubled banks, and the regulator (RBI) imposes restrictions (such as lending limits) on such banks.

The PCA framework’s process was as follows:

  • Process start-up: The RBI has specified regulatory trigger points for three parameters: capital-to-risk-weighted assets/capital adequacy ratio (CRAR), net non-performing assets (NPA), and return on assets (RoA).
    • CRAR is a ratio that measures a bank’s available capital as a percentage of its risk-weighted credit exposure to assist banks in protecting depositors and promoting financial health.
  • Basel-III requires banks to keep their CRAR at 9% or higher.
    • An NPA is a loan or advance for which the principal or interest payment has been late for 90 days.
    • RoA is a type of profitability ratio that measures a company’s or financial institution’s returns on assets.
  • What is CRAR, and how is a violation punished?
    • If the CRAR falls below 9%, the RBI requires banks to submit a capital restoration plan and limits new businesses and dividend payments.
    • If the CRAR is less than 6% but equal to or greater than 3%: If the bank fails to submit a recapitalization plan, the RBI may take additional steps (such as appointing new management or a board of directors, initiating the merger process, and so on).
  • The RBI has the authority to supersede the bank’s board of directors in governance-related actions under the Banking Regulation Act (1949).
    • If CRAR falls below 3%: If a bank’s CRAR does not improve above 3%, the bank will be closely monitored and steps to merge, amalgamate, liquidate, or impose a moratorium will be taken.
  • The second component of the trigger:
    • If net NPAs exceed 10% but fall below 15%, a special drive to reduce bad loans and limit the generation of new NPAs begins.
    • If net NPAs exceed 15%, the bank’s board is summoned to discuss the PCA.
  • The third factor is:
    • If the bank’s RoA is less than 0.25%, the RBI prohibits it from entering new lines of business.
    • The bank’s borrowings from the interbank market, dividend payments, and staff expansion will be restricted.

How did the bank arrive at this point?

• Dhanlaxmi Bank’s CRAR fell to around 13% at the end of March this year, down from 14.5% the previous year, prompting the RBI to examine the bank’s financial health.

• Dhanlaxmi Bank’s minority shareholders have accused management of mismanagement following the bank’s decision to expand into new geographies despite an unexpected increase in expenses.

• Management has also been accused of withholding sufficient information to explain the cost increase.

In the future:

  • The Reserve Bank of India is likely to keep a close eye on Dhanlaxmi Bank in the coming months, as the bank’s ability to meet capital adequacy norms is strained.
  • Dhanlaxmi Bank attempted to issue additional shares in the open market via a rights issue to address its capital adequacy issues.
    • Through a rights issue, the bank will be able to raise additional equity capital from existing shareholders.
    • In contrast, shares are issued to new shareholders during an initial public offering (IPO).
  • The RBI may even decide to intervene if the delay of the rights issue jeopardises the bank’s ability to comfortably meet the capital adequacy norms recommended by Basel-III regulations.
  • In fact, if Dhanlaxmi Bank’s management is unable to raise the required capital, the bank may be acquired.

What we can do to protect migrant workers


  • The article expresses concern about the recently acknowledged deaths of migrant workers from all over the world since Qatar was awarded the World Cup in 2010. However, Qatar has remained silent on compensation and whether the cause of these deaths would be investigated.
  • Origins of migration: During the 1970s, with the Gulf oil boom and growing wealth, countries began investing heavily in infrastructure and development work. With this development in the region, the door to job opportunities has been opened.
    • An influx of migrant workers from India, Pakistan, and Bangladesh began, primarily semi-skilled and unskilled labourers. Thus, migration to the Gulf region has a five-decade history.


GS Paper 1: Indian Society

Mains Question

The phenomenon of reverse-migration poses various challenges in front of the administration. Discuss its overall impact on the economy and society. (250 words)

Statistics on migration

  • UN Survey: According to the Population Division of the United Nations Department of Economic and Social Affairs’ report titled International Migration 2020 Highlights, India has the world’s largest diaspora population.
    • Six Gulf countries, namely Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Oman, and Kuwait, account for nearly half of all Indian migrants.
  • MEA data: The Ministry of External Affairs (MEA) reports that there are over 13.4 million Non-Resident Indians worldwide.
    • Sixty-four percent of them live in GCC countries, with the UAE having the highest percentage, followed by Saudi Arabia and Kuwait.

An overview of labour fatalities in the Gulf region

  • Mortality statistics: According to a Guardian article, over 10,000 migrant workers from South and Southeast Asia die each year in Gulf countries.
  • Recent deaths: According to The Guardian, approximately 6,500 migrant workers from South Asia have died in Qatar in the last ten years, primarily following the start of construction projects for the upcoming World Cup in 2010.
    • Indians had the highest death toll (2,711 workers), followed by migrants from Nepal, Bangladesh, Pakistan, and Sri Lanka.
    • The UAE has the largest Indian expat community, with over 35 lakh people, and at least five people died every day between 2017 and 2021. The number of fatalities increased from 2454 in 2020 to 2714 in 2021.

Discrimination is prevalent in the Gulf.

  • Lack of social security: During Covid-19, Gulf Cooperation Council (GCC) countries have been accused of failing to provide healthcare services, employment, and social protection for workers.
  • Wage theft: According to the Return Migration Survey, which was conducted among 2,000 Vande Bharat returnees in Kerala, 39% of those who lost their jobs reported non-payment of wages and wage reductions.
  • Labor rights violations: Recently, the media has provided extensive coverage of labour rights violations at three events: the Dubai Expo, the construction of stadiums for the Qatar World Cup, and the Covid pandemic, including contract violations and worker intimidation.
  • Lack of a healthy workplace: Testimonies from returning migrants highlight the deaths that occur as a result of a lack of occupational safety and health measures.
  • According to a 2018 study published in the International Journal of Community Medicine and Public Health, the most common causes of death are cardiac arrest, heart-related problems, traffic accidents, falls from great heights, drowning, suicide, stroke, and infectious diseases.
  • Long hours of manual labour in high temperatures may also result in heat stress and, eventually, organ damage.
  • The infamous “Kafala” or sponsorship system in the Gulf, which allows employers to wield significant power over the lives of migrant workers, has concerned policymakers.
    • The Kafala system: During the contract period, a migrant worker’s immigration status is legally bound to an individual employer or sponsor (‘kafeel’).

Labor Welfare Initiatives

  • Abu Dhabi Dialogue (ADD): It was founded in 2008 as a forum for dialogue and cooperation between Asian labour origin and destination countries to discuss the management of temporary contractual labour mobility in Asia.
    • The forum is interested in developing worker information orientation programmes, promoting technology platforms, and reforming domestic workers’ laws.
  • First International Migration Review Forum (IMRF): Beginning in 2022, the International Migration Review Forum will be held every four years.
    • It will be the primary intergovernmental global platform for reviewing progress in implementing the Global Compact for Safe, Orderly, and Regular Migration at the local, national, regional, and global levels (GCM).
    • GCM is the first UN agreement on a common approach to international migration management.
    • The GCM addresses all aspects of migration (“360-degree” approach) by providing a range of possible actions based on best practise that states can use to implement their national migration policies.
  • GCC labour reform: As a result of widespread reporting of labour rights violations and criticism of the Kafala system, GCC countries are attempting to reform labour laws in order to portray the region as migrant-labor friendly.
    • However, the changes should be viewed as a step forward toward the abolition of Kafala and other anti-labor laws.

India’s Initiatives

  • Government portal: The “Madad” e-portal allows migrant workers in the country to file complaints. According to the website of the Ministry of External Affairs, approximately 95% of the registered grievances were resolved.
  • Previous legislation: The Emigration Act of 1983 establishes a regulatory framework for the emigration of Indian workers for contractual overseas employment, with the goal of protecting their interests and ensuring their welfare.

India’s constraints

  • Crisis-instigated actions: Until now, India’s efforts for migrant welfare have frequently been limited to “repatriation exercises” during times of crisis.
  • Delayed legislation: The inaction in putting the draught Emigration Bill of 2021 on hold (indicates the approach towards migrant workers, especially low-skilled workers).
    • Emigration Act of 2021: It envisions comprehensive emigration management, establishes regulatory mechanisms governing Indian nationals’ overseas employment, and creates a framework for the protection and promotion of emigrant welfare.
  • Minimal impact of MoUs: Existing MoUs with GCC countries on domestic worker recruitment and irregular recruitment have had little impact on Indian labour welfare.

The way forward

  • The need for collaboration: The bottlenecks in the countries of origin and destination imply the need for collaboration to address migrant issues rather than blaming each other in situations such as the pandemic and migrant deaths.
  • India as a model: India, as a key player in the South Asia-GCC migration corridor, should serve as a role model for the region.
  • Regional alliance: India should take the lead in forging regional alliances along the South Asia-GCC corridor.
  • Significant changes can be brought about by a collaborative effort of all stakeholders, including the government, trade unions, recruitment agents, and civil society. It has the potential to significantly reduce the exploitation of low-skilled migrant workers.

April 2024