Page 54 - Banking Finance January 2024

FEATURES

What is the government's criticism? There are four main pillars - such as macroeconomic outlook,
structural features, etc. - each with a specific weight. Within
The Finance Ministry has pointed out three main issues with
each of these pillars there are sub-components, again with
the methodologies used by the rating agencies.
individual weights. But apart from the quantitative
variables, each vertical also has "Qualitative Overlay"
First, they "are opaque and appear to disadvantage
variables.
developing economies" in certain ways. "For instance," the
Ministry says, "the Fitch document mentions that the rating
The essential points of contention are, one, the use of the
agency "takes comfort from high levels of foreign
composite governance indicator (which has a weight of 21.4)
ownership" in the banking sector and that "public-owned
is only based on the World Bank's Worldwide Governance
banks have historically been subject to political
Indicators (WGI); and two, the use of Qualitative Overlay
interference"."
implies a subjective assessment.
"Such an assessment", the government argues, "tends to
The WGI uses a host of indices and reports such as the World
discriminate against developing Countries, where the
Economic Forum Global Competitiveness Report, Economist
banking sector is primarily run by the public sector".
Intelligence Unit, etc. to assess several aspects of a country
According to the government, such an assessment also
that may not be captured by hard economic data. These
ignores the welfare and development functions that public
include freedom of expression, freedom of media, rule of
sector banks have in a developing country, including playing
law, corruption, quality of regulation, etc.
an important role in promoting financial inclusion.
The government argues that there is an excessive reliance
Second, the government says, "the experts generally
on such subjective appraisals.
consulted for the rating assessments are selected in a non-
transparent manner, adding another layer of opaqueness to
According to the government's calculations, "...the
an already difficult-to-interpret methodology".
influence of the composite governance indicator and
perceived institutional strength surpasses the collective
Third, the rating agencies do not convey clearly the assigned
influence of all other macroeconomic fundamentals when
weights for each parameter considered. "While Fitch does
it comes to the chances of earning India and other
lay out some numerical weights for each parameter, they
developing economies an upgrade.
do go on to state that the weights are for illustrative
purposes only," the essay says. "The effect is non-trivial... It implies that to earn a credit
rating upgrade, developing economies need to demonstrate
To understand some of these points, look at the Table above. progress along arbitrary indicators, which are also criticised
It details the Finance Ministry's understanding of how Fitch for being constructed from a set of several one size-fits-all
goes about judging sovereign risk. perception-based surveys." (Refer to Indian Express)

Govt says 10 PSBs transferred NPAs of over Rs. 11,617 crore to

NARCL from Jan-Nov 2023

A total of 10 Public Sector Banks (PSBs) have transferred Non-Performing Assets (NPAs) of over Rs 11,617 crore to
NARCL between January and November this year, the Finance Ministry said. Minister of State for Finance Bhagwat
Karad said the National Asset Reconstruction Company Ltd (NARCL) has recovered Rs 16.64 crore as on November
30, 2023.
He said recovery in NPA accounts is an ongoing process, and security receipts issued to lenders by NARCL, backed by
government guarantee, provide a five-year time window for effecting the recovery in such accounts.

48 | 2024 | JANUARY | BANKING FINANCE