1. UP Government strategy to ‘name and shame’ through posters

Relevant for GS Prelims & Mains Paper II; Polity & Governance

It is regrettable that the Uttar Pradesh government has appealed against the Allahabad High Court order directing the removal of hoardings in Lucknow that displayed details of those who participated in the protests against the Citizenship Amendment Act.

Further, it has approved an ordinance that provides for recovery of compensation from those suspected of involvement in rioting for any damage to property. In a quick and well-reasoned response, the Allahabad High court curbed the administration’s gross misuse of power.

The High Court’s order was on the grounds that the erection of the hoardings lacked statutory backing and that it was a gross violation of citizens’ privacy.

What was done by UP Government?

The Lucknow administration had displayed the photographs, names and addresses of those who, it claimed, owed compensation for the alleged destruction of public property during the protests. There has been no judicial finding that those named were involved in such violence; and there is no law that authorises such public “naming and shaming”. It was quite apparent that the government was humiliating the protesters and exposing them to danger from the CAA’s supporters and the government.

Source: The Hindu

2. Grand Ethiopian Renaissance Dam- A dam of contention in Africa

Relevant for GS Prelims & Mains Paper II; IOBR

As the July deadline draws closer for the Grand Ethiopian Renaissance Dam (GERD) on the river Nile to become functional, the dispute between Ethiopia and Egypt, with Sudan caught in between, has escalated into a diplomatic stand-off. Differences were laid bare recently when Ethiopia skipped the latest round of tripartite negotiations with Egypt and Sudan in Washington, being mediated by the U.S. and the World Bank.

The Prime Minister of Ethiopia, Abiy Ahmed, who won the 2019 Nobel Peace Prize, even said last October that “no force could stop Ethiopia from building a dam,” though he stressed that war was not a solution, echoing similar rhetoric from Cairo. The Arab League earlier this month underscored Egypt’s historical and civilisational links to the river region and opposed any unilateral action by Ethiopia.

The contentious issue around the GERD, Africa’s biggest hydropower project, concerns control of the flow of water in the world’s longest river among the riparian states. Ethiopia, Africa’s second-most populated country and a manufacturing hub, views the mega dam as a symbol of its sovereignty. It began construction on the Blue Nile (a tributary) in 2011 at a cost of $4 billion. The government wants to extend power supply to some 60% of the country’s population and bridge the infrastructure gap. Addis Ababa is hence impatient to fill the gigantic reservoir within six years, and generate 6,000 MW of electricity.

Cairo’s reservations

But the GERD’s storage capacity of 74 billion cubic meters of water has raised hackles in Egypt. Cairo, which relies on the Nile for 90% of its freshwater supply, is apprehensive that a rapid filling of the reservoir in upstream Ethiopia would cause a drastic reduction in supplies. President Abdel Fattah al-Sisi has insisted on a staggered approach to fill the reservoir, say, between 10 and 21 years, and for the release of a minimum of 40 billion cubic metres annually. No less is the risk Egypt perceives from the diversion of waters to its own High Aswan Dam.

Conversely, Addis Ababa is concerned that a long delay in filling the reservoir would jeopardise returns on its investments and hamper the prospects for overall growth. The GERD is said to have been financed almost entirely from domestic resources, in part due to the resistance mounted by Egypt against global funding for the project. There is in addition the element of national pride in the timely completion of the GERD, as Ethiopia’s recent economic resurgence has revived the old vision of Great Ethiopia. There is also a lot at stake for the government of Mr. Ahmed, who faces a difficult general election this year after the euphoria of the 2018 peace process with Eritrea has largely faded.

History and geopolitics

Cairo’s strong reservations over the GERD are also rooted in history and geopolitics. Under the 1959 Nile Waters Agreement, the two downstream riparian states Egypt and Sudan, respectively, were allocated 55.5 billion cubic metres and 18.5 billion cubic metres of Nile water annually. That settlement reduced Cairo’s control of the waters, compared to the virtual veto over utilisation it was granted under a 1929 treaty.

Ethiopia was outside the purview of the 1959 treaty, as also other upstream states including Uganda, Kenya and Rwanda. But Addis Ababa’s assertion of its rights for an equitable share of the Blue Nile flows from the Cooperative Framework Agreement (CFA) signed by some of the 10 Nile Basin Initiative nations (under the initiative, Eritrea participates as an observer).

The establishment of the Nile River Basin Commission mandated by the CFA has not materialised so far. Tthe challenges for the fair utilisation of waters among the riparian states have only been compounded by the pressures of population growth and the effects of global warming. While the parties have sought international mediation from the U.S. and South Africa, that is no substitute for regional cooperation among the parties.

Source: The Hindu

3. Once treated for coronavirus infection, can a patient relapse?

Relevant for GS Prelims & Mains Paper III; Science & Technology

Out of 110 individuals who have tested positive for novel coronavirus infection in India, 13 have been discharged, according to the Health Ministry’s update on Sunday. Worldwide, out of over 1.56 lakh positive cases, over a third — 54,000 —have recovered.

Yet there have been cases in China, South Korea and most recently Japan, where treated patients were rediagnosed with COVID-19 after discharge. On February 14, a septuagenarian in Japan was diagnosed in a cruise ship; on March 2, he tested negative and was discharged; on March 14, he tested positive again.

The US Centers for Disease Control and Prevention said immunity against COVID-19 is not fully understood. Signals from the previous coronavirus outbreaks have been mixed: studies on the virus that caused MERS showed people are unlikely to get reinfected within a short time of the original infection, while there were records of relapse during the SARS outbreak.

Map shows the total of coronavirus patients among different countries

(Source: Johns Hopkins University; map updated at 10 pm, March 15)

There are at least two possible scenarios leading to a second positive test. The virus could have lain dormant in the body, so that the test before discharge would have failed to pick the low virus threshold. Eventually, the viral load would have increased so that it would be detected during re-testing. The second possibility is that the patient reacquired the infection, perhaps a mutated strain, from the community.

Map shows the Corona patients in India

There could also be laboratory-related factors responsible for a second positive test — a human error in testing, contaminated swab samples, an oversensitive nucleic acid test during re-testing, or discharge given to a person still infected, without following proper protocol.

While discharging 13 patients, Indian authorities have been following a guideline that a patient must be tested twice within a gap of 24 hours. Only if both tests come negative is the patient discharged. China has a similar protocol in place but some experts have raised concerns whether each patient discharged did undergo two tests. The country’s diagnostic resources were under strain with over 80,000 cases.

In many cases, a coronavirus infection causes lifelong immunity. In several other cases, however, the antibodies produced against the virus may not prove effective if there is a mutation in the virus. In such cases, there will be reinfection.

Source: The Indian Express

4. Yes Bank and bonds

Relevant for GS Prelims & Mains Paper III; Economics

Why are investors stuck with Additional Tier 1 bonds? What is the Reserve Bank of India policy on this?

Depositors and investors in Yes Bank received a rude jolt on March 5 when the Reserve Bank of India (RBI) announced its decision to impose short-term curbs on their withdrawals, citing the bank’s declining financial position. Since then, efforts have been made to quickly stitch together a bailout package for depositors before the event took a systemic toll. With the State Bank of India (SBI) agreeing to acquire a 49% equity stake, other investors joining in and the Cabinet clearing a reconstruction proposal, the fog has cleared a bit for depositors, as the withdrawal limits may soon be lifted. But one set of Yes Bank stakeholders who were expected by the RBI to take immediate and complete write-offs at the first sign of the bank’s troubles, were the holders of its Additional Tier 1 bonds. Apart from mutual funds, pension funds and other institutions who usually invest in such bonds, quite a few retail investors are also stuck with them.

What are AT1 bonds?

AT1 bonds, also known as Additional Tier 1 bonds, are unsecured perpetual bonds issued by banks to shore up their capital base to meet Basel III requirements. Basel III norms were a set of rules that banking regulators around the world came up with after the global financial crisis in 2008, to strengthen bank balance sheets. Requiring banks to have their own skin in the game in the form of permanent capital, before taking on deposits or loans, is one of the underlying principles of Basel III norms. The RBI’s version of Basel III norms requires Indian banks to hold a minimum capital amounting to 11.5% of their risk-weighted loans. Of this, about 9% is supposed to be the bank’s core capital (called Tier 1), with 5.5% in equity. AT1 bonds are issued by banks to supplement their permanent or Tier 1 capital which is mainly made up of equity shares.

Don’t bonds have a fixed maturity? Why are AT1 bonds ‘perpetual’? Will investors never get back their principal?

Yes, as per their contract terms, AT1 bonds are supposed to remain permanently with the bank and pay investors interest for perpetuity. In practise though, these bonds have a ‘call option’ after 5 or 10 years that banks use to retire one set of AT1 bonds and issue another. Indian banks have so far never failed to call back their AT1 bonds after 5 or 10 years, and this has led to people forgetting their ‘perpetual’ nature.

In the Yes Bank case, why did the RBI propose that AT1 holders alone must take a write-off?

The contract terms for AT1 bonds mention clearly that the value of these bonds can be completely written off if the bank’s capital ratios fall below certain regulatory thresholds.

The write-off also kicks in if the RBI decides that the bank is beyond the “Point of Non Viability” or needs a public sector capital infusion to survive. This is the clause that the RBI seems to have originally invoked in the Yes Bank case. So, even though bond-holders generally come higher in the pecking order of stakeholders than equity shareholders in most situations, AT1 bonds incorporate special situations where their contract terms allow for their holders to suffer write-offs before equity shareholders.

Are there other such clauses lurking in the fine print for AT1 bonds?

Yes, several. One, these bonds can partly or fully skip their interest payments for any year if the bank’s Tier 1 capital ratios fall below the RBI’s thresholds. They can also give interest payouts a miss if the bank makes losses and has insufficient reserves. Two, the bank can also reduce the principal value of these bonds temporarily or for good, if its equity Tier 1 ratio falls below specified limits. Finally, there is the bombshell clause that the RBI used in Yes Bank. When a bank is teetering, the RBI can decide on a complete write-down of its AT1 bonds or convert them into equity if it feels that it has reached the point of non-viability.

How did these bonds get into the hands of retail investors?

Reports suggest that retail investors were sold these high-value bonds (the face value is Rs. 10 lakh each) as high-return alternatives to fixed deposits, given that they were offering 2-3% higher interest than FDs. Some investors also bought them through their brokers based on their high yields in the secondary market.

So, who should invest in AT1 bonds?

Only affluent investors who are willing to take on higher risk of a capital loss for higher yields.

So, what happens to Yes Bank AT1 bond holders?

Bondholders need to wait for clarity from the Centre or Courts. While the RBI’s original scheme had proposed a complete write-off of these bonds, this was protested by institutions who were exploring legal options. The reconstruction scheme notified this week does not mention the way ahead for AT1 bonds.

Source: The Hindu

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