Good morning everyone. This is the continuation of the last class what we had on economic survey. Last week we had had the class on volume 1 and we had finished up to the 4 chapters. This PPT is again running from the first chapter. After the class is over I will be again sharing this presentation with you all. I think like the first part the video has also been shared with the students. So those who were not attending this video in the previous session I hope you would have seen it and then you have joined us right now because that will help you to give a continuation. So now we are getting into the chapter number 5 where we are actually going to talk about exports from India and how we can actually become part of the global value chain. For all the students who have joined only today's session I am again telling like the period when this economic survey was presented you all know it was towards the end of January and in the beginning of February. So please don't contextualize anything what I am telling from the economic survey to the current COVID situation. So now the global economy everything is slowing down which you all know. So when I tell you the details about the chapters assume that you are reading a book and you are trying to understand what is written in the book. So don't get worried about the current situation and don't like start asking yourself like how is it real today. So it is not real today which I am completely agreeing and just telling you the chapters as such which has been presented in economics. We are trying to understand how the economy can be studied maybe that perspective will help you to understand and continue with the content. So now what we are trying to see through chapter 5 is we are trying to understand like how exports can actually help in economic growth. So by generating the income as well as by generating employment. So this is what we want to do. So here we are trying to say like 8 lakh jobs had been created between 1999 and 2011 and this is as part of a report what we are seeing. So so much of labor force has been created both in the formal and informal employment generation. So we let us this is only a basic data with the introduction we are starting. Now we will go into the chapter and see how all actually the exports in different sectors it is performing and how it can be improved. And what is to be done for us to become a part of the global value chain. They are telling a word called as GBC right. So how do we become part of it and start promoting the exports. So this graph is to tell us that actually the share of exports in GDP for India as well as comparing it with the rest of the world. It is sounding very less. We all know like we have one expenditure method where we study as C plus I plus G plus X minus M. If you all remember our basic studies on national account statistics you will be seeing export also as part of the GDP. So when they are presenting that particular number share of exports in GDP you can see that the green line as well as the blue line these two lines which are corresponding to goods and the services. When you compare the world situation it is actually lesser. So this graph is showing like the blue colored line is about the exports of the goods and the green color line is about the exports of the services. And you can see against the world in terms of the goods and the services our growth is or the percentage in GDP is not very greatly increasing. It increased but again it is seeming to be declining. Many of you may be actually thinking in your mind why this goods export is actually higher than the services export are we not having a trade deficit. Your question will be answered in the next graph where you will be actually seeing like the trade balance is negative because it is grouping lesser than this is zero line where you can see the net invisibles. The meaning of net invisibles means you're going to say export of services and import of services netting of those two things. The services actually becomes a positive whereas when you're talking about the goods it is actually going to be trade balances the balance of trade which is actually talking about the goods. So though you are having like export of the goods here seeming to be higher but still the import of the goods is very high which is why this is becoming into the negative. So we are having this CAD you all know what is CAD which is current account deficit. So current account will be the total of these two things of course there are more components into it which you would have studied in the class but basically we are summarizing CAD here. And you have a green line which is still in the deficit situation right. So the basic scenario what we want to tell based upon these two graphs here is we still have a lot of scope to improve the exports both in the goods as well as in the service and then make this deficit into services. So now we are going to see how we can do this. So there are four or five questions which this is a chapter in the survey wants to answer. One is what type of policy interventions would help achieve faster export growth and economic growth. And if I want to promote export so should I go ahead for the specialization or should I think about the diversification of the goods and services. So if I become part of this GVC what is the advantage which I am going to get because of it. Will it be affecting my domestic industries or is it going to really help my domestic industries or not. And if I say yes these domestic industries will be benefited then which are all the domestic industries which I should be getting involved in this export growth and employment generation. And finally larger question actually about the free trade agreements you know like India is striking FDA with a lot of group of countries. Basically free trade agreement is to reduce or completely eliminate all the customs duty between the group of countries India and say for example if there is Shailanka we are going with the FDA. We are going to say that we are going to completely eliminate all the customs duties in between the two countries and also give more benefits to the two countries. So when we are doing like this are we really getting beneficial to India. The question is like are we actually increasing our exports or are we actually increasing our imports. So which is what will be answering the question whether it is finally beneficial to India or not. So for every question like we are going to see the answer through the chapter. So first we are trying to see that whether it will be helping us achieve faster export growth. We will come to that point for that we have to substantiate all the facts in the figures. So now this is a diagram where you can see like there is a comparison between India and China. There is a world export share. You can see India is in the blue line and it is having a very lesser percentage as in the total world export. But as China is having the increasing the percentage and this percentage has been decomposed into specialization effect and diversification effect. These two things added together will become into this. So that's what we call it as these are the components of this particular graph. So what do we understand from this specialization. So what is like very good for us or in which we have the skill the most we are not actually specializing in it in very well like how China is doing. So I can see China specialization effect is very good whereas India specialization effect is not like very well explored. But in case of our diversification effect of course we are trying to give varieties of things. And we are getting closer to China in this aspect. So what is that exactly we have to concentrate if we have to improve our exports. It will be moving towards the specialization effect in which we are still performing very low. Coming to this decomposition effect now we are decomposing the specialization effect into the quantity and the price effect. We are going to take this specialization effect and we are moving towards decomposing it further. What do we mean by decomposing it further. We have two things quantity into the price. This is what Q into P will be what will be giving you the value right. So if you look at this graph for India you can see that the quantity specialization is very less or the quantity effect is very less. We are not producing very more. But when you are looking at the prices effect actually we are pricing our products are higher than China. This is one of the reasons why we are not able to sell much more products of what we are very good in doing that. So we have to be reworking on our prices that should be actually lesser than the selecting. Whereas the quantity should be actually increasing. So we should be producing more and we should be pricing it less. In this case our specialization effect will become higher like as China is doing right now. So these are the things in which we have to concentrate. And then now again we are going for a bit more comparison of ourselves with the China. In these two graphs you can see like see basically India and China both are labor intensive countries. And we will have skilled laborers for a certain part and then we will have more of unskilled laborers. So when you are looking at the kind of products what we will be exporting naturally we will have an expectation that we will be working upon the products which are requiring unskilled laborers work. But that and all happened only till up to like 90s and then up to 2000. After which slowly we started moving towards the capital intensive products which both China and India wanted to do. Which is why in these two graphs you can actually see that the blue line is on the top and you can see that it is written as the capital intensive. But the capital intensive thing how much have we increased is less than compared to China. It has grown very fastly and when you see the labor intensive things particularly the red coloured line which is the unskilled labor intensive goods that has drastically fallen down after 2000. The falling down is true for both India as well as China. But the falling down is much more greater for India than when compared to China. So the increasing is less but the falling is more. So both of these two things are not actually very good trend. But we have like primary sources and the natural resource intensive goods better than performing better than what China is doing. So comparing our strength like labor intensive thing we are coming down capital intensive we want to do but we are not doing so well like what China is doing. So this is a base picture. With this base picture we would like to travel to the next slide where this is going to give us more insight. What is the insight which we are trying to take from these two graphs? You are seeing the title as trading partners by income level. So the blue line is high income OECD countries. We have less trade with them but as China has comparatively more trade with them. Mainly because they are high income countries and capital intensive goods are being sent by China more than us. So in that way they are able to capture their market very well in the high income countries. Whereas when you see in the low and middle income countries India is actually doing well than when compared with China. And then other high income countries also you can see like actually India is doing a bit better than China in that regard. But the main OECD which is the top most like the high income countries in terms of like getting the capital intensive goods. India is not able to catch up with what China is doing. And then when you come to this particular graph where you want to say the share of capital intensive exports as a ratio to the share of labor intensive products. You can again see that India is capable of reaching only the low and middle income countries more than the high income countries. Whereas China is capable of reaching both the high income as well as the low income countries. So basically the receptiveness of the products from China is very good in the high income countries. Whereas it is bit lower for India and India is able to capture the market only in the lower and the middle income countries. So this is like about the trading partners based upon the nature of the goods what we are capable of doing in the past few decades. The aftermath of the pandemic will the concept of global value chain remain relevant. I told you already please don't contextualize whatever I'm telling you to the current context. None of these things may actually work out in reality because this was done then in Jan or Feb. And every country was thinking that India was actually prospering well. So we are reading a book. That's how we need to look at it. So these two graphs are going to tell us how we are working very differently from China. Though both the countries are having like the same kind of the resources or the same kinds of abilities. We are also having good number of like a laborer and we are also wanting to do capital intensive. But we are very different from China because you can see in dollar value of exports we are so much like having a gap between India and China. We are this much lesser than China. And similarly in specialization effect we are having a very huge gap with China diversification effect. I told you already we are actually closer to China though there is a gap but it is lesser. And you're looking at the quantity effect we are very very lesser than what China is actually contributing to the world export. But in case of the prices we are actually pricing more than what China does. So this is an illustration to tell how are we lesser than China in certain aspects. And similarly China India gap after controlling for the high income partner. So if we don't actually take into account the high income partners even for the rest of the world still we are very good only in the diversification effect. Whereas we still have to improve ourselves for the specialization and we should be reducing our prices if we really want to catch up more market in the world exports. So now this is where we are moving on to the third question where we are going to say so the question was like whether India should become part of the global boundary chain. And will we be getting any benefits out of it. The second question which was about whether we should be specializing or diversifying it seems like we have to give more concentration to the specialization effect and reduce the prices. So that we can be producing more quantity and do well. So that's the answer for the second question. Now when we are moving towards the third one we can understand that first we have to explain certain things what is actually this global value chain. The moment we say global value chain everybody will be understanding that the product will be produced in parts in different different countries and we are going to do a value addition across different countries and make it into a complete product. So in this case these two diagrams are showing like how China was part of the assembling of certain things say for example one they have taken as the Apple iPod. So to the price which was estimated as $144 in 2008 what China contributed in the total value it was only $4. So there is a small amount only it could the value only it could contribute. But because it assembled so many number of iPods it was able to aggregate so much millions of dollars for this economy. Similarly you can see for the iPhone 7 again they are giving a data how much did China add as a value it is only $8.46. But if you are calculating it for the number of iPhones which are sold across the world again it generated a very huge amount. So whatever maybe the smaller value addition you are doing per product but if the quantity of the product sold is very high definitely this is going to earn a huge revenue for the country. So that is where like China is giving a lesson to the rest of the world where you can become part of the global value chain and earn a lot for the country. So what should India actually do by taking the lesson from China in a similar way. So we are saying we should make use of the world assembling in India as part of making India. So what we need to do is when we are getting into the greater participation in the assembling of the products we are going to generate export value like what China added. And this will be increasing the total value of the exports and when you are saying that particular part is to be fitted to the iPhone or any other particular product. We will be domestically producing it and then fitting it in which case our domestic production will also increase when the production is increasing automatically the employment which is linked to it will also start increasing. So that is what we are giving here as the evidence empirical evidence of like how much this global value chain participation will be giving as a benefit for India. So gain in exports gain in domestic value as well as in the number of jobs which can be produced in India by participating in this kind of global value chain. When you say global value chain they are giving a specific name to the products which are called as network products. So the question which is getting answered to this through this table is which are the products which are actually done through this global value chain at the maximum. So you can see this electrical machinery which is 10.44% share in the total world exports followed by this office machines automatic data processing machine. So there are varieties of machines road vehicles and other things but electrical machinery is other things which will be taking a major share as the network of products. So what do you mean by the network products? The products which are being like assembled or which are being like completed by participation of the various countries into the shape. And that network product now you have to remember two words. You are seeing that network product here in the blue line which is on the top. This is again about the trends in the world exports. But there are two more lines below word. One is the green one another one is the red one. The green one is called as assembled end products AEP means assembled end products. PLC will be parts and components. So parts and components and assembled end products together will be becoming into the network road. Either you take the parts and components from different different countries and make it into one product or you are going to assemble the particular product in different locations of the world and then make it into an end product. So assembled end product and parts and components are the two things which will be becoming part of the network. So in this you can see this assembled end products is actually higher than the parts and components. Which means that which is why we have mentioned in that particular structure India has to become part of this assembling in India. So we don't even have to contribute towards the parts and the components produce the parts and components. We can just give our labor also in that and then do the assembling and we can still earn a lot in terms of the exports. So now when we are seeing the second graph which is talking about geographical distribution of network world exports. You can actually see that the green area which is the Asia area which is where this network products distribution inside the high list. And when you come into the Asia you can again see that eastern Asia which will be including China, Japan and other Korea and other countries. Which is where actually the network product distribution is or the exports of that is actually happening in the high level. So we are actually seeing that China's active participation is understood even from this graph about the network products. And if you come back to India and then see how much are we actually contributing to the mercantile export. Mercantile export it will be including the goods. So when you are talking about it India is actually doing lesser only when compared to the rest of the world. And you can see between 2000 and 2018, 18 years later also like after two decades also we were not able to do a very great improvement in terms of the network products. And when you are seeing among the major Asian country India is the only country with the trade deficit in the network product. Which means like our exports are less and our imports are still higher. So we have to definitely change the situation. We have to do more participation in the global value chain. We have to be making this exports of the network products more than the imports so that we ultimately benefit from this global value chain process. Now we are going to see two examples which the survey has given us. There are two box items which you can read through slowly. The book which we have shared from our academy on the economic survey. I will just tell you to mention the two examples. One of which is like the car sector in which initially we were having tie up with outside companies. And then it was like a joint venture and slowly the only subsidiaries came into India and they started making use of our assembling skills into it and they started exporting. The other case was about it is not actually was you can actually mention it as is because India is now becoming the second country after China in terms of this mobile handset assembling. So what we are actually doing is now the import of the handset in India has come down. We are actually importing bit more of the parts and components only but we have started increasing the exports of the handsets in a larger way. So this is all showing that we are taking the parts and components and we are assembling it in India and we have started becoming part of the global value chain by exporting the completed handsets to the rest of the world. So these are some of the examples where survey wants to say that India is not very new to the global value chain. We are doing very well in car industry and we are doing right now very good in mobile phones industry but still we have this kind of a trade deficit. We have a lot of scope to go ahead and then make this participation in the global value chain in a much more way particularly in assembling it in India. And when we say like when we are participating in the global value chain there are two types of impacts which the survey wants to show. One is like what is the value which will be added to the exports and then through the exports how many number of jobs will be added and as a result of which income generation happens. And then we can say about the derived demand like for producing that particular part in the component if we are having number of jobs created and what will be the wage income created for them and what will be the domestic value. So one example assume like you are producing a mobile handset you can get the parts and components from other country and then assemble it here make it into a complete product and then export in which you are adding your expertise into it. The other way of looking at this participation in global value chain is you were importing the mobile handsets earlier but now you want to contribute to the parts and components which can be done by the internal domestic sector and the country. So in which case the production of the parts and components itself will create a market here and the employment will also be created here. So this will be called as the derived market or the second order impact. Whereas putting in the parts and components into it will be giving an addition of additional value to the exports and the total exports will increase and that assembly alone will be creating a particular number of like employment generation into the export sector. So you can segregate these two things as the first order impact and the second order impact. And based upon this we are giving certain estimates like how the million of jobs and the value added can be going on increasing and you can see like by 2030 we can be having 173.5 million jobs. Again I'm telling you please don't contextualize anything with the current COVID situation. This is like maybe we should start studying economy as pre-COVID and post-COVID. So these are all the projections which were given by the survey at that point of time assuming that we will be able to do a very good participation in the global value chain. And the last question of this chapter is about the free trade agreements and whether India is getting benefited out of it. This slide and the next slide is actually going to tell you about the exports and imports, how we have done with the free trade area countries. So you can see there are lots of groups of countries to which we have done this free trade agreement and in certain cases you have to read the title differently. Mercundice exports will be including the manufactured exports but it will be more than that. So you can say that in manufacturing sector maybe we are doing more positive exports with many countries, however we do negative with one or two countries. Whereas in mercundice export our participation in terms of overall being positive is actually bit lesser only. Whereas when you look at the imports, for the mercundice also you can see it is 8.6% and 10.9%. So you can say by a narrow margin our free trade agreements are actually giving benefit to the country because our exports are seeming to be marginally higher than the imports. And that's how the survey presents the data that of course by going ahead with the free trade agreement we are actually getting benefited to India by improving the exports at least marginally over the imports from these countries. So this is how we have answered all the five questions pertaining to this particular chapter. So I am going back to those five questions with which we started this chapter. We have to go ahead with those kinds of policy interventions which will be promoting us to move towards the global value chain. That could be one of the answers for the first question but that we can answer only after studying through the chapter. This actually our policies should be targeting towards specialization because we are already doing good work in diversification. Still we can improve our diversification but we need to specialize more, we have to do a lot of quantity more in order to improve our export. And definitely it is going to be a good interest if we participate in the global value chain because domestic industries will also get a chance to participate and earn more income and employment generation. And which are the industries that hold the greatest potential for export growth and employment generation. We are seeing them to be the manufacturing sector because which is what we can expect to participate in the global value chain very easily. Because two things you can do, one is this assembling, another one is we can contribute towards the parts and the components. So those are the industries which we can focus upon and if you ask our pre-trade agreements beneficial to India. Of course with the minor margin we are seeing the exports to these FTA countries had been higher than the imports and therefore we are going to answer yes to this question. With that we are finishing this chapter and we are moving ahead to the next chapter which is about the ease of doing business. Harsha has asked ma'am so to increase the quantity and decrease the price as you said doesn't it mean there is a need of major skill delivery. Of course it can be the requirement of the skilled laborer or the requirement of the resources. One thing what we need to naturally understand is when the quantity increases automatically the price will come down. So we don't have to put in obvious efforts on the price as such. We just have to be concentrating on improving the production of the surplus quantity for the exports. What do you mean by specialization effect of exports? Aditya Prasad has asked specialization is what is that you are very good in doing that? Suppose if you are very good in doing textiles, suppose if you are very good in doing leather products you need to specialize in those kinds of activities in which you are very good in doing that. That's one of the things. But when you are doing the specialization again now the question comes whether it is with the skilled laborer or unskilled laborer or how do you want to do the capital intensive industries as specialization. All of these things India should evolve along with the market. If China is doing very good capital intensive things as the commodities for the exports then we are also catching up but we are not to that extent like how China does. So we have to be specializing in the commodities which has a good global demand. Will we be able to profit if we reduce the prices of the product? Again I'm telling you quantity into prices what is value quantity increases automatically price will come down. So the quantity effect will fetch us good the profits. We are not asking to reduce the prices of the products as such as we have right now. We should become more competitive. If we want to become more competitive obviously we have to reduce the prices by working upon the good quantity and the quality right. What is the difference between specialization and diversification effect in India's export Galaxy M31. I don't know the name of this program but I can answer diversification is like you produce 10 different things specialization is produced like two, three different things in which you are very good doing that. Right will signing FTS can help us be part of the global value chain. It can be helping us to become part of global value chain. We can be giving our assembling skill and we can turn more by doing that. Then we have we will have to sacrifice the gains on our diversification exports if we focus on specialization or exports. See slowly once we are doing very good in what we are doing and we improve the quantity and reduce the price and then we are doing very well in this particular thing. Then slowly we can go in doing the diversification. See diversification is not giving variety but it is not enough if you just give variety you have to also give quantity. So we are not actually compromising on diversification and doing this. We should be first establishing that we are able to do well in what we are actually skill that right. What are the reasons India's productivity is low when compared to China. Probably the skill levels are lesser and the resources availability may also be different between the two countries. The positive and the negative side of the graph is only to tell us like by pre-trade agreement have we improved a particular thing or not. So here we can say that the exports have improved on the right hand side. Exports have declined on the left hand side. Imports have improved on the right hand side and imports have declined on the left hand side after doing the 50. So overall this is the summary of like after the increase and decrease of the exports and imports to the various countries through the pre-trade agreement. What was the summary of the overall impact of the trade agreements of exports and imports right. So here is where we are seeing overall our exports have actually improved when compared to the imports and therefore we are calling it as a beneficial right. And then diversification I've already said we have to stick to diversification exports keeping in mind the environmental aspects. We are not here to tell that we should not diversify the exports. We are only saying if we want to earn more through the exports we have to be concentrating more upon the specialization effect. Unskilled labor is high why can't government take steps to increase the skilled laborer doing any programs and whether this is possible to move. I think we are moving towards like giving more skill to the laborer right now. Ministry of skill development has also been established but given our huge number of population delivering the skills or to the illiterate or like the less illiterate people it will become bit difficult. But we are taking steps towards the improvement of the skilling of the laborers right. Whether India should concentrate on capital intensive products India has already started concentrating on capital intensive products and whether we should do that. Given our situation of India's labor availability maybe we should think about promoting more of the labor intensive products rather than the capital intensive products. But we should also see the global demand and answer accordingly. We can't be simply saying that we should be doing only labor intensive products which may not be well taken in the global market. What is this why access in figure 6 slide 60. We are talking about capital intensive to labor intensive. You can put in like usually in economics we have a trend of studying K by L which is how much are you capital intensive divided by labor intensive. If you put it as K by L ratio right if the ratio is becoming larger and larger it means that your K is actually increasing. The meaning of that is your capital intensiveness of the country is actually increasing or your labor intensiveness is actually reducing right. So to the lower and the middle income countries the green line is higher which means that the K by L line is higher. Which means that you are actually giving the capital intensive products more to the lower and middle income countries than to the higher income countries. Your K by L ratio is lesser to the higher income OECD. So which means that you are not able to market your capital intensive products much to the high income countries but you are able to market it in the low income countries. Whereas China is capable of doing in both the set up the countries in a similar way. So which means that our capital intensive products are not well received by the high income countries. So that's the point over there. Why China is always compared with India. Obviously one because it is our neighbor. Two it has a population more than India. Three it is behaving like India in terms of its availability of the laborers. And of course with the kind of the laborer what we have like how it is there in China and the levels of skill are equivalent. We are comparing ourselves with the bigger neighbor to understand the trends and the patterns right. Difference between assembling parts and assembly and parts and components. See I may not be wanting to prepare a part and component for a particular pen or say for example this pen is being produced in different countries. And my contribution to this pen is they will be sending the parts and I have the skill in order to like fit in and assemble it and then just give it. Or I can produce a part and component of this particular pen fitted and then I can send it. Or I can just produce the parts and components for this pen and then send it across to another country in which country they may be doing the assembling of the products. So either my contribution could be in just a skill giving by assembling the things or my contribution could be in terms of the producing the parts and components and then assembling it. Gain from assembly is basically you are giving your value, service value and then you are gaining from it. Specialization would make India dependent on certain products only. Of course it will make us dependent on certain products only. We are not asking India to stop the diversification. We are only asking India to take advantage of the specialization. FTA is free trade agreement. Can lack of skilled laborer be considered as a reason for India being more focused on diversification? Of course we can. It's not even like that. Diversification comes automatically because when we have surplus in different products, we will be offering the little bit of the surplus across different countries. Of course if we want to do more specialization, definitely we have to work upon the resources as well as the skilled laborers. Will the emphasis in economies of scale and mass production by few big industries compromise the interest of MS and means given the fact that we are on the cusp of industrial revolution 4 will manufacturing really create the number of jobs we are hoping for. If we really want to improve the employment generation, we are asking to focus upon the manufacturing sector. Do the graphs consider services also? No, as of now because it is only focusing upon merchandise trade and merchandise means you know it is about the goods. Manufacturing and merchandise are given differently because the primary and the basic materials will also go into the merchandise graph whereas the manufacturing graph will be corresponding only to the secondary sector. Smaller firms and most of them are known on will this affect? Of course India has lot of MS and means which will affect. What is the meaning of capital intensive? Capital intensive is more technology based rather than and machinery based rather than labor based. Shouldn't the demand be higher or derived demand for us to increase the quantity? Yes, we should be improving our derived demand in order to increase the quantity. If policies are concentrated towards global value chain will it not weaken the possibilities of producing a complete product inside the country thus leading to higher imports? See we are only trying to make additional money by participating in the global value chain. This is not the chapter is not to tell us that comment upon the overall export of the goods and services from the country. It hasn't actually talked much about the services at all in this particular chapter. We know that services are actually exported very well from our country. In the manufacturing sector how else can we improve our earning in the exports is what we are actually doing. We can earn more through the exports and not by producing more but by just being an assembling center also. So that's the additional point which the chapter wants to add on to this. Well assembled in India products will be called as made in India products. If we consume it inside India we can call it but when we are again exporting it it won't be called like that. Who won't increase in quantity and reducing price effect the wages of laborers. It won't because Q is increasing so the overall we will actually increase. India, China, yeah. I think if I go on with one chapter I will never finish all the rest of the questions I will answer after the class is over. So please wait till the class is over. I have a huge number of participants here so I do understand what you are trying to ask. This one question which is on the graph I'll tell you like how it is looking like. This is basically this gap has been constructed from this particular graph. I think here we are having the difference in the quantity effect and in the price effect. And here we are having difference in the specialization effect, diversification effect. All of these things have been converted into percentage and has been presented here. And this dollar value of the exports it will be taken from the total value what China has added through that exports and it is compared with India. So this is only to give an extent of like how much we are behaving lesser when compared to China in terms of the different effects what we have explained in the previous graphs. Why we didn't sign our CEP we will answer those questions. So India the only to have trade deficit, trade deficit in this particular graph we have mentioned it only for the network products. Of course we have a trade deficit overall but this particular chapter talks about in the network products it has a trade deficit. First order impact and second order impact difference. First order impact is if I export I earn more but when I am exporting I am a company who is exporting the spin by producing more of the spin and then making the surplus and then I am exporting. That's one the first order impact. The second order impact is when the parts of the spin I am taking from some other company that company's income generation and employment generation will also improve. So that will be called as like derive a demand. So I am telling company to company this can also happen between countries to countries and when I am doing as becoming part of the global value check when I am putting some parts and components by taking from another company into it. First my value will also increase other company's value will also increase. So we are going to say the other other chains within the company as the second order impact. The raw material availability may impact on parts and components network products how to overcome this as we may need to import more raw material. Of course we also have examples of importing the parts and components making an value addition in terms of assembling those things and then earning more. So overall what we have to see is when we import and then when we export the export should be the export value should be more than what we have spent on the imported. That is the case then we can go ahead with that kind of an activity. Coming to this chapter number six where we are talking about targeting ease of doing business in India we have improved a lot in terms of this business ranking in India. From 2014 to 19 we can see that we have moved from 142 rank to 63 rank and how we were able to do this we are saying like we have done well in seven indicators out of the 10 and which are the things in which we have done the best. One is in terms of like implementing the GST and then bringing in the insolvency and the bankruptcy code which has actually helped the inefficient things to go away from the market. And then the efficient industries are loan retailing back inside the economy. So these things these kinds of reforms have propelled the India's rank from 142 to 63. So I am presenting all the data as survey is presenting from the one one side. So these are the 10 different indicators what they want to say and here is where they are trying to say like India has reached to 63 rank. And over the period of time you can see there are different parameters which you can compare for yourself ease of starting a business 169 to 136. Still we have to do a lot on this though it has shown improvement dealing with construction permits. We have improved a lot in this from one so on today we have come to 27th rank getting electricity also has become much more easier when compared with 2009. Registering your properties the level of difficulty has actually increased. This is not a thing in which we have improved. We have to actually work more in this particular area. Getting credit for your business of course has become a bit more simplified. Protecting minority investors we are doing well in it paying taxes. We are still struggling because we have lots of procedures though we have improved still improvement is required because they have not very greatly improved on that. Trading across borders also we have lots of procedural complexities which we are also going to explain today. So here also you can see that we have done an improvement but still there is a lot of scope to do it. Enforcing contracts is again a very difficult area. Here they say like out of the 10 parameters is the most difficult thing for us to do because the procedures the kind of licenses the kind of permissions what we need to take is all very difficult. The solving insolvency we have improved a lot. This is what was mentioned in the previous slide the insolvency and bankruptcy code has also helped us to resolve lots of issues in the performance of the industries and therefore we have improved from 138 to 152 from there. So overall ranking we have come from 133 to 163 right. So in the first slide that we have written between 2014 where they have mentioned it is from 142 to 163. So some of the global comparisons over the past 10 years and where we have done well where we still have to improve. They have taken the best case situation which is in the case of New Zealand and they have gone ahead in terms of comparing the between the two years from 2009 to 2019. So starting a business still we have like more number of procedures whereas you can see in case of New Zealand it is only one and in half a day you can start a business whereas in India you still need 18 days to start a business. In case of registering property as we said in the previous table the difficulty level has increased from 5 to 9 the number of procedures and the number of days is also increasing. So this is definitely area where we have to work on if we want to improve our ease of doing business in the future. The third thing is paying the taxes. The number of payments has actually been simplified which is why the government claims like bringing in the GST has actually helped us to become better in terms of EODB. And the time and hours but still has to come down a lot because still there is procedural hassle in terms of implementing the GST. And the total tax payable has also come down from 64% to 49.7%. Looking at the enforcing contracts it is very very difficult for us. We can see like it takes like more number of days. We can only see like 365 days in a year but just take like more number of years for us to enforce a particular contract and start with the bigger things. So the cost of the debt is also higher still higher. So this is also area where India has to still improve. Looking at the starting at business and comparing it with different other countries other than New Zealand which was on the top you can see the comparable countries where you can. Still we are like lesser than China which is our major counterpart which we always compare versus and the number of days required is also higher than in China. Registering your properties also we are lesser than like the major partner. Paying taxes of course we are still having more number of payments and more hours are required. And enforcing contracts also we are actually lesser than our major counterpart which is China right which is the major clear. Looking at the logistics sectors that we are working around we can see again it is being compared with the comparable countries and turnaround time it is actually very high for India. And we can see only India is having 80% rate smaller enterprises whereas all other countries are having more of the larger enterprises. And how many days does it take to reach the port or the commodities it takes minimum of like 7 to 10 days. So our logistics sector has to definitely improve if we really want to improve the ease of doing business. So this is also one of the areas where improvement is required for India. Coming to this trading across borders which is in this particular table they are trying to compare with Italy. They have said like Italy is on the top in terms of like the easiness with which the trading is conducted from the sea port and from the airport and other things. You can see like the number of hours required for export import and all is like 0, 1 and all whereas in terms of in case of India it is actually very high. They have taken like two major places from where the trading can happen daily in Bombay. The border compliance the number of hours required for Delhi and Bombay it is all like 54 and 50 documentary compliance. Both for the exports as well as for the imports we can see like the procedures which are required to be completed actually takes a lot of time. So we have procedural complexities, multiple documentation, multiple agencies which are involved. So all of these things are actually hindering our trading across borders. For this now they are suggesting us to become part of this AEO scheme which we are going to say in the next slide which is about the authorized economic operators. Who are these AEO? When will I be called as an AEO? When I am registering myself under this program World Customs Organization. It's a standard program, it's a framework program where you can be calling yourself as a secure trader and a reliable trading partner. So who are all the people who can apply for this AEO registration? Like the trademark registration you can call yourself as an authorized economic operator by registering under the program. So who are the people who can do this? All these importers, exporters, logistics providers, right? And then the warehouse operators, custom brokers all these people they can be applying for this. So once I'm identified as the AEO tier one, tier two and other things like when I am like becoming a registered person under this program. Then sometimes they just verify my documents only. Sometimes only they will come for the onsite verification depending upon the kind of AEO registration what I have in my hand. So this AEO authorized economic operator registration actually is going to smoothen the process for registered exporters and importers. So this is one of the things which we can do if we want to still improve the ease of doing business, right? And then they have given like who are all the companies who can or the exporters are the importers who can be applying for it.  They should not be involved in the fraud and other things and you can see how many number of people are having this AEO status in India and based upon this our trading across borders can improve. Under the case study is also being presented. There are lots of like case studies being presented in this chapter where they are trying to give you examples how the complexities and the procedures and the time taken at the ports and in the multiple agencies approval requirement, the license requirement, the transportation problems all of these things are resulting in delay in the trading across borders. We have given you three cases here and what are these three cases telling us in a nutshell. So one exporting apparels in this particular case. They are talking from Maharashtra how this exporting is happening. Here the processes takes like up to 14 days just to give the approval for them to export. But the infrastructure is very poor, the roads are very narrow and very bad quality and misalignment in time for completing the process. All of these things are the reason why it takes 14 days to export apparel from Maharashtra's Navaseva port. Whereas in case of importing carpets it takes eight days whereas Italy takes only one day and the point which the survey wants to make is compared to the exports the imports are actually processed much more easier. The number of days and the processes required is lesser for importing of the commodities. In case of electronics they are saying it is through the air services in which case they are seeing the efficiency is very good particularly for that authorized economic operator registrants at the airport. So this has been studied from Bangaloo and they are saying like seaports are inefficient whereas airports have improved a lot both for the imports as well as the exports the airport procedures in the complexities are much lesser when compared with the seaports. So there is a suggestion like we should actually go ahead with the kind of simplification of the processes at the seaport and improve the infrastructure at the seaport if we want to really do a better job in trading across the borders. So this particular chapter is actually summarizing you what is this improvement which is required for improving the ease of doing business and the major areas which have been identified for still improving your slide when you have to work on registering your property the foremost of us to difficulty what we are still facing is about the enforcing of the contracts and still we have to reduce the time which is all required for paying the tax so if we do these things our ranking may still become better. So the global comparisons have been given and we have also seen like however procedural hassles in the complexities have affected the trading across borders with a few case studies which are from the specific segments which are highlighting that our seaports are requiring more attention than the average so that summarizes this chapter what do we mean by exhaustive in nature AEO list they will be telling you who are all the people who can be getting the AEO tick we have told you including the brokers they will be able to register themselves as authorized economic operators. So we will go ahead to the next chapter which is about nationalization of demands and how it has actually helped India whether it is still continuing to help or not we are going to take a stock of what has happened to the banking sector we are seeing like India's economy is the fifth largest in the world but we don't have many banks from India which are beginning into the top 100 actually we should have at least minimum of six banks coming into the top 100 but we have only state bank of India into the list and we can see like public sector banks are actually performing up to 70% of the total banking system of the country and so they are the people who are actually taking forward the credit system in the country to a larger level so they have the responsibility of providing credit to the larger sections of the market but if you look at that performance government is like the one which is why we call them as public sector banks so the government it is nationalized and so when we are saying like government invest in public sector banks equity it is actually losing 23 paisai per every rupee investor but as if you and me we are investing in the private sector banks we are gaining 9.6 paisai per rupee so this is the current situation so we are saying we are not reflecting ourselves in the global level banking system we have excessive dependence upon the public sector bank but they are not seeming to be performing to that extent because we are seeing that the investments in those things of public sector banks are actually resulting in losses for us the private sector banks are seeming to be giving day so where do we actually stand? why is this kind of a situation happening? so that's what we are going to look at now so this is an illustration only to show that we have only one bank in actually on the top global 100 into 2019 India is at the end which is the state bank of India and these two graphs you can see that there is a rectangular box which is given which will be for India and whenever you see a line and then countries above and below you should read the title and then you should say this line is a discipline the meaning of that is countries GDP per capita and penetration of credit in the country the meaning of that is when your GDP is actually increasing your credit penetration should also increase increasing because it is an increasing line this is the best fit for the particular country so if India is on the line to the level of the GDP per capita that is what is there in the X axis to our level of GDP per capita we should have been in the penetration of the credit in the country at this level but to the level of the GDP per capita what we have we are there very below the line what we should have been actually at but you can see there are lots of other countries which are way above to their levels of GDP per capita they are giving more credit there are other countries which are on the right hand side but at least to their level we are getting closer to the line we are very far away from the line and our level of GDP per capita is also low which means that our credit penetration is still not up to the mark what is it and the countries population and penetration of credit in the country right so this is a negative fit line which means that as the countries population is declining the penetration of the credit in the country should be increasing here also we are not actually fitting onto the line we are actually performing lesser than what is expected from us right when you are looking at the bank credit growth the public sector banks you can see that the red line it is actually declining our credit growth through the public sector banks is lesser than when compared to the private sector banks and comparison of the forward loan written on taxpayer money invested in the public sector banks with the largest of the city debt so we said in the first slide like if you are investing in the public sector banks you are actually resulting in losses so the kind of a loss what we are having due to the investment in the public sector banks is pitted here and shown like how much of like money is actually going as a subsidy in these kinds of public sector banks you are investing so much but you are actually resulting in losses so it has seemed like a subsidy which you are giving to the banking system now with the other larger subsidy heads you are seeing so the good subsidy is given to this many crores of money we can see that banking sector is also attracting money which is equivalent to the it is actually higher than what you give us the health and education and other social sector subsidy but even after giving so much of subsidy to the public sector back you are ending up in a loss that is what we already mentioned now here we are trying to say how well the public sector bank is reaching the people there are lots of microfinance institutions these microfinance institutions since 2000 they had been trying to reach the nooks and corners of the country either these microfinance institutions have taken money from the banks and then they have given it to the required people and they have tried to improve the business of the country or these microfinance institutions they themselves became into banks later and you can see that they have benefited lots of women SESC and all and they have tried to help the marginal sections of the society basically the survey wants to say this public sector banks, the nationalised banks which have got nationalised in two different fields 1969 and 1980 and these microfinance institutions all of these things are actually helping trying to help the larger sections of the society by giving them proper credit but how had been the performance of it the performance of it had not been to the expected level because to the GDP growth our credit penetration is very very lesser to our level of population also the credit penetration is actually lesser our credit growth from the public sector banks is also lesser so there is something like grossly going wrong with the public sector banks we have to understand what it is and we have to give some suggestions how can we improve the performance of the public sector banks so that's what is the nutshell for this chapter so benefits of nationalisation obviously you will know like deposit mobilisation, rural credit, agricultural credit, priority sector and everything improved but survey also says like apart from these benefits which have happened there had been other positive benefits which were happening at the same time so we can't say that only because of nationalisation of the banks the credit on the deposit mobilisation increased maybe because the green revolution has resulted in increase in the income of the farmers which is also one of the reasons why the deposit mobilisation increased similarly anti-poverty schemes and RBA supervision upon the banks all streamlined the performance of the banks and it improved so they called these as conforming effects which means like we can't be saying that these things improved only because of nationalisation so this is a caution which the survey is trying to give to us now it is a saying like there are lots of weaknesses associated with the public sector banks you can see 70% of the bank credit is going from public sector banks but 80% of the NTS are aligned with the public sector banks and whatever cases which are becoming into fraud cases the meaning of that is the willful defaulters are falling into place they are all through this public sector banks and amount whatever is being lost through this fraud thing assuming like 100 crores are being lost in the country because of these cans 85 crores will be lost through the public sector banks channel so they are actually worried that public sector banks are not performing well one because they are not able to recover the loans two the amount which they are losing by non-recovery is very huge so these are all some of the other evidences in comparison with the private sector bank how public sector banks are not actually doing very well you can see all the red lines in this graph as public sector banks as the black dappled line to be the private sector bank you can see that this is on written on assets so whatever assets the banks are having in terms of the financial assets if we are having a particular amount of assets the return on it when you are investing in government securities or whatever it is with financial assets within the banks it is actually declining for the public sector banks declining but still it is better than the public sector banks similarly when you are state bank of India when you are floating out your shares people are buying their shares but the return on the equity on that particular share is actually declining for the public sector banks whereas it is looking better for the private sector banks and you can see like gross non-performing assets you know like MPS are very fast increasing for public sector banks when compared to private and net non-performing assets to the advances there will be adjustments in the type of the MPS what you can be making the gross into the net in that case also you are seeing like you are having higher non-performing assets overall MPS are higher with the public sector banks when compared to the private sector and this is about the capital adequacy ratio if you mention about the capital adequacy ratio you have to talk about the tier 1 capital and the tier 2 capital and the numerator if you remember divided by the risk weighted assets so that's a formula here also you can see that the capital levels in order to meet with the risk is lesser with the public sector banks when compared with the private and tier 1 alone they have taken and mentioned here which is again lesser for the public sector banks when compared to the private sector and this is what is about the number of the cases the fraud cases in which you can see 90% the fraud cases are coming from the public sector and amount also like around operation wise some of the fraud cases based on amount involved so this is based upon amount here also you are having huge loss through the public sector banks and I think this is the graph which we already saw in the previous chapter where we were discussing about the pro-business and pro-prone policies of the government and we were saying like there are lots of like comparison between the willful defaulters and the non-willful defaulters or the non-defaulters and the distressed defaulters wherever you see an orange color in this particular graph they are all corresponding to the willful defaulters you read the title of every graph you can see that percentage of promoter holding pledged this was discussed in the earlier chapter just to recall I'll tell you certain things assume that I'm a company and I have a project starting up and the project cost is 100 pro rupees I have to invest that much and then start with the project but if I take like make some shares like up to 50 crores and then sell it and then if I start the project depending upon the money which comes from others and if I'm not able to pay it back I'll be becoming into a problem but that's what these people do they give a major share of the promoter holding up to 50% you can see that the percentage is closer to 50% mobilize the money from the people sometimes they default they don't give back the money to the people so this is all becoming a problem and the net outstanding loans to the related parties so this is what we wanted to call them as the pro crony thing so you get the project from the government by a partial treatment to you or a preferential treatment to you and then you start giving loans to your related parties you don't disclose whatever you do with your related party transactions so all of these behaviors why we are again talking about this particular graph in the context of the banking system is if you find a company which is doing this kind of a behavior they are asking you to take this as an early warning signal and not to finance these kind of companies in the future so that's the context in which this particular graph is being brought back from chapter number 3 to this particular chapter where we are talking about how do we improve the efficiency of the public sector banks so when we are talking about improving the efficiency we have to be talking about reducing the NPS when we talk about reducing NPS we are going to tell the public sector banks don't give to these kinds of companies which have become into like willful defaulters in terms of other performance indicators by which you can take the warning signals now moving on to the slide we can say about enhancing efficiency of public sector banks so now you know they are weakened by certain things how do we enhance that performance you can help them by giving artificial intelligence and machine learning basically you are trying to ask the public sector banks to work with the big data by picking up the credit analytics why do we have to do this manually which is not possible for us to correlate the different indicators and find out whether there's below us like credit worthy or not a company is credit worthy or not for us to give a loan to them these types of artificial intelligence will definitely bring in friend whatever the credit worthiness of those people to identify the credit worthiness of a company and then give a loan to them and they are also mentioning about print tech like the technologies which we can use in order to help the public sector banks in order to identify the net worthiness and credit worthiness of the companies before giving loans to them and credit recovery infrastructure of course now a lot of improvement is happening regarding this including the insolvency and bankruptcy code which is helping them to recover the thing so that is the policy which is happening but here you should have a better infrastructure from the banking side to implement the policies and recover the loans which are becoming in technology and jam trinity is another thing which they are saying like the banking services have to reach the roots and corners in which case also it will help you to improve your performance in terms of deposit mobilization so if you are having good base of deposit then your credit performance will also start improving and you can also reach many sections of the society increasing digital transactions improving digital infrastructure these are all essential for today's life as we can see like everything is happening through the e or the online mode so public sector banks should be equipped very well in doing these kinds of transactions and one more thing what they are trying to say is if the employees of the public sector banks are worried about taking risks and then analyzing a particular company and then giving them the loans then good loans will not be given and the recovery will also become a problem and the performance of the public sector bank will be appropriate so if I am an employee of state bank of India they are suggesting that I should be incentivized so that I can work more for the bank in a proactive way and then bring in more profit to the bank how can I do that the shares of the public sector banks say for example SBA is a share some of them I myself can buy so employees talk ownership plan if you are going to offer to me and then if you say like a good returns will be given upon the stock then that will also be adding as a motivation for me to work better for the bank it will be sounding like an incentive and I will have more ownership towards the banking system and I will do my best and some of the representation in the board can also be taken from the employees which will also become like a motivation for the employees to perform well with the banking system so these are all the methods by which they are mentioning and when they are talking about this credit recovery infrastructure, credit analytics increasing digital transactions schematic presentation has been given for the improving the financial technology in the public sector banks so you can see that there is a customer who is approaching the public sector bank asking for the loan and there should be a network here first we ask for we ask for the KYC we are going to ask for all this more customer related details and then we are also going to see like the credit worthiness of this customer making use of different data services then we are going to take the risk of giving the loan to him and then we are going to see whether we will be able to recover underwriting in terms of your share market standing for a company is a different context here in this context we can say like the bank is going to take the risk of giving the loan to the customer it has to ensure that the money has to come back which is why it is going to ask a variety of KYC documents from the customer as well as it is going to ensure from different data sources what are these data sources these are the four things which are explained one is the account aggregators meaning of that is I may be having account in four different banks so all of these things can be aggregated by this account aggregator and they will understand the kind of transactions what I have had across the different banks and you can also see my tax payment related details on the government sources data to understand my credit worthiness and if you have a credit rating like civil rating and other things your civil rates will also be checked to see whether you have defaulted earlier whether you have paid your EMI in time or not and you can also look at ultimately data like whether you are mobile phone bills and then who is your provider whether you are able to like pay clear of all the bills properly in time so all of these kinds of data sources will be taken here and the customers eligibility for the loan will be verified and then this public sector bank can be giving the loans to the customer it can also be a company so all of these data can also be checked for the company for its credit worthiness and net worthiness and then we can decide so they are suggesting these kinds of ensuring of the things in order to provide the credit to the people and then make it all not ending up in increase in the period so this is one of the suggestions which is given by the chapter from economics there are lots of questions from the previous chapter which is continuing till up to the current chapter Kharshah has asked can small businesses apply for ALO like trademark if you are involved in export or import you can apply can we conclude C ports are more secure than airports no it is not the question about security it is about the easiness with which the processes are handled airports are actually easy to complete the processes in compact C ports that is what the survey mentions here who are minority investors they need to see the context in which you are mastered what is ALO how is it different from ALO T2 so basically there will be different gradations in the ALO it will be like if you have a T1 T2 you may be just asked to show the documents and then onsite verification of the products may not happen so how much are you probed for the procedures this what will be the different layers of AEO if I have to give 3-4 verifications I may be at the lower end if I am on the top I may not be verified for many things I can just book for exports and then send it off right so AEO is authorized by the economic operators I already told you it is under the world customs organization it is a program it is going to make you announce as a secure trader under reliable trader so if you have this kind of a certificate with you it becomes very easy for you to export or import because when you show this certificate the number of procedural verifications will come down but even within this AEO there are 3-4 gradations in which different levels of verifications will happen so it will be improving the trading across border that is the main benefit which we can see as being the registrant of AEO the criteria for the registration under AEO scheme I think we have given in the box item we did mention that we should be a company who is involved in exporting or importing functioning for the last 3 years having good financial credentials we should not be in any fraud or a case or any other kind of a crime activity all those things are satisfying then they will be allowing you to register under the AEO scheme it is not a must for you to do business right now there are lots of non-AEO traders also but if AEO is there then the number of days which is taken for you to export may come down then now coming to the current chapters Hasha has again asked to explain the credit growth rate difference between the public sector and private sector banks we already said like assume IMD public sector bank and Hasha you are the private sector bank out of the 100 rupees which is given as credit in the country I give 70 rupees and then you give 30 rupees the credit growth is whether the 70 rupees is becoming into 75 rupees in the next year, 80 rupees in the next year that's what they see whereas whether your 30 rupees is becoming into like more and more in the next year so suppose if you are giving 100 rupees to a person are you giving 110 rupees, 120 rupees in the subsequent year that is the case which we want to mention here public sector banks are now reluctant to give more loans because of the increasing NTS whereas private sector banks as such they give only less number of loans so their NPA level is lesser so they are coming forward now after verifying the KYC in a proper way to give more loans so that's the difference we have many operations for reducing NPA so why PSBs are showing the decline the problem is like when you are talking about the public sector banks there are lots of infrastructural projects from the government side itself which you may be finding suppose if you are giving to a private company and that is turning into NPA it is very easy for you to go and recover I will not say it's very easy though it is possible now to go and recover and reduce it as an NPA but when you are giving it for funding it for infrastructural projects and mini projects which the government itself runs and if it is getting into a trouble then where is the possibility of reducing NPA which is one of the reasons why NPA for the public sector banks actually it may be declining but it cannot be declining to the extent to how the strict monitoring measures are being taken right now basically we say like the loans and advances when you have the security and then you give an amount against it you can actually basically call it as the advance loans are all like it can even include your personal loans right from that anything which you borrow from other person for a rate of interest can be called as the loans right so generally when we talk about the liabilities of the banks we make use of the words loans and advances what do you mean by jhan trinity jhan trinity is jandan dojna agar khand and the mobile number so that was seen as the major financial inclusion program in the country which was launched during the modis the one month this was like a flagship program from them what does this jhan trinity mean this is going to help all the people in the country to open up the savings account with the banking system why do we have to do this they wanted to do this jhan dan dojna means every person in the country needs to open a bank account agar card you have to link your agar card with your bank account then your mobile number will also be linked so that the communication between the bank and you can be improved and any benefit if I want to give you what is the benefit as a government to give you mainly because of the subsidies the direct benefit transfers whatever I give it to you when your agar card is linked with a particular bank account I will be depositing the direct benefit transfer into that particular account so that's the jhan trinity which is a major flagship program to improve the financial inclusion of the people in the country they are saying like by bringing in more number of people into the banking system we can have a larger base and larger deposit mobilization can happen which itself will be helping us to give credit to more to the people if I mobilize more deposits I can give more credit right so that's the jhan trinity expectation and they also give some insurance cover to the people who open up the account under the dbt scheme like the jhan thing credit penetration is basically to tell you like how much credit are we giving or rather how much loans have been sanctioned if you are having 100 crores with your bank and if there is a demand for so many like 80 crores or 150 crores or whatever it is there in your particular area how much credit have been given or how much money has been given as loan in a particular area say for example you are assessing this based upon in a district you can say these many lakhs or these many crores of money has been given as loan for the business for the agriculture sector for the MSME sector for the export promotions so you can put it across different categories and then you can see how much loans have been sanctioned in one particular financial year in a particular district level so you can do this and then you can aggregate it to the country level so how much amount has gone as loan in the country and as what we want to call it as an investment in the country so that can be set as a credit penetration and then public sector banks done different from private sector banks to show up all the MBAs what the PSB done different from private sector banks see public sector banks activities are mostly not under the control of them itself they will be assessing the risk of the people who come and ask for the loans and they will sanction the loans but the government will make the public sector banks to finance lots of its own projects which are also one of the reasons why the NPA is actually sure in slide number 89 as assets portion include physical assets also what is the difference between the gross NPA and net NPA gross NPA and net NPA is lots of technicalities and not getting into it what we are talking here is only about the financial assets it doesn't include the physical assets basically financial assets of the bank will be including whatever the deposits it is mobilizing whatever the government securities it has invested as part of its statutory liquidity requirement how much of gold is it holding and assets means basically you have to talk about the types of loans what you have given so if you have 100 rupees as the deposit you know you have to maintain some basic CRR with RBA you have to do like 4 rupees through RBA and then you have to maintain some like around 18-19% of the SLR so that will also be taken into the financial asset and how much have you given out as the loans so the total deposits against which how much have you given out as loans loans are actually called as the assets for the assets for the banks so how much loan you can give actually depends upon the deposits but you can call here the financial equity the cash in hand and the government securities the gold what you have done and how much of loans the varieties of loans what you have actually given to the customers all of those things you can create another financial assets and you can also like talk about the equity thing the equity thing is the profits which you gain by selling the shares of the company that can also get into the financial assets right Jan Trinity I think I have explained man can we save employee stock ownership will have spillover effect like insider trading but not exactly like that creditworthiness of the man can be manipulator it is not like insider trading you don't have to sell it outside and then see insider trading is actually a negative concept we are not talking about that the state bank of India and I am creating stock worth of like 100 crores I can decide that a part of this stock I will sell it to my own employees and whatever benefit is going to come through the increase in the value of the stock will be shared with my own employees which will be seen like an incentive when I allow them to do this I see that as a way of incentivizing my own employees it may not be it need not be manipulated because only the bank is performing well and if its profits are increasing year after year the value of the share can actually improve so minimum percentage of the share whatever the bank is creating can be shared with employees the rest of it will be actually floated into the primary market or the secondary market the value of the share will be actually depending upon the demand with which the people are buying accordingly this employees stock value will also improve so it need not be seen like by making the stock being sold to the employees and then they buy it as a result of which an artificial demand is created and as a result of which the prices are going to increase we need not go to that extent we can simply understand the market is going to determine the price according to that market the prices are going to increase and if I am the employee I am going to get benefited because of the increase in the prices due to the secondary market credit penetration is basically how much loans we are going to give to the different sectors and that will be estimated as percentage of GDP as a denominator how many crores of loans have you given in the country how can court authorities amendment be seen as a solution to the seaports issue of trade definitely it will help to improve the efficiency because it may be simplifying the procedures what is the reason for customer confidence on private banks in the equity market and profit of private banks even though total deposits are more in public sector banks customer confidence in private banks because less of NPA they give out lesser loans but they recover the loans so therefore the levels of NPAs will be lesser in the private banks this is one of the reasons why their profit margin is higher and therefore when their profit margin is higher the amount what they share as dividends with the share holders will also increase and this is one of the reasons why people want to buy the private sector banks share rather than the public sector banks share minority investors is a parameter and the table of ease of doing okay minority investors is like like the MSMEs right so you have to take care of all the segments in the while doing the business so even if you are a very small micro enterprise still I have to take care of you and then see whether you are becoming the better of in the in terms of doing the business or not whether in the EU category companies get special preferences of course the procedures with which they can send the exports and imports get the imports will become easier and we use the solution of privatization or just restructuring of the governance boards of the banks and issues with NTS and public sector banks when asked in main sense restructuring of the governance of boards of the banks will be better instead of suggesting privatization because the banks if they have the public sector banks if they have to be privatized either they should be becoming insolvent or they should be having very high levels of NTS you know there are lots of amalgamations and mergers happening among the banks within the public sector banks rather than calling it as a solution of privatization of the banks in bank nationalization list are we focusing on public or private sector banks if you say banks nationalization it is upon the public sector banks underwriting means actually if you are talking about the share market it means different and if you are talking in terms of your credit market with just a bank what I said it actually becomes different I will tell you a very small example if you want to understand what is underwriting assume that Shankaray's academy is selling some shares and assume that I want to sell like around 100 shares first I will be wanting to know how much will be the value of one share how much should I fix it then I go and ask the IDBA bank the IDBA bankers are the people who had been supporting us for almost like 5-10 years by now and they can also stand for Shankaray's academy so don't consider IDBA bank as a bad performance as of now I am just giving it as an example what IDBA bank can do is it can go and do a market analysis it can come back until the end of the academy why don't you say like one share value of you as 100 rupees and then it will stand for us the meaning of that is if it stands as an underwriter though many of them may not know our academy they may be moving IDBA if you are not very comfortable with IDBA I will call it as state bank of India so state bank of India can stand for Shankaray's academy so because of the the giantness of state bank of India people will trust that when state bank of India stands as an underwriter for us which means that underwriter will find out the value for one share and assume that I am floating this 100 shares and people are not buying it in the share market the bank will buy these shares because it has guaranteed it has stood as an underwriter for us so that's actually the concept of underwriting here in terms of like giving the credit assume that I am just a company going and asking a loan from state bank of India it is going to give me the loan after assessing all the risk right so what is the risk assessment if I am a customer if I am going and asking SBA I will be assessed based upon all alternative data sources as I told you as well as based upon the know your customer related data so if any product mentions as made in India then it means parts and components and assembling is everything done in India you can't assume like that you will measure of banks help in recovery of NPA sometimes of course it will have micro finance sector micro finance sector is it another way how public sector banks have reached the roots and corners of the country I have already mentioned micro finance sector micro finance institutions including the self-help groups that they have taken loans from the banks and they have helped the production sector they have helped the lots of women they have helped the lots of vulnerable sections of the society so they have said two ways how micro finance sector has interacted with the public sector banks one they have partnered with them they have taken loans from them and then given to other people number two as they are slowly improving in their own size I hope you are all like familiar with the concept of payment banks small banks and all so these people they themselves got converted into the smaller banks and then they were able to reach out to the vulnerable section like how they were able to do earlier right so not through the payment banks if they recommend to smaller banks that's when they can actually give credit but somehow they are trying to partner with the public sector banks and they are trying to give more loans to the required sections of the society majority of NPA is from beautiful defaults so how much of an impact can be made by assessing creditworthiness if they are not ready to repay in the first place that's why we showed you another slide these people how they are behaving with the rest of the economy how much shares are they selling how they are giving loans to their related party transactions so when you see a company behaving in a pro-prone way if I am a bank I should not be funding such a kind of a company because I should expect them to become into beautiful defaults in the future so that's a caution for me can you explain figure 3 and 4 higher amount of loan may lead to higher NPAs right higher amount of loan will lead to higher NPAs need not lead to higher NPAs because the intention with which I am giving loan is to promote investment in the country if you recall back the first circular flow of income what we have studied in the first class of economics we have always said like household will be doing the savings with the banks and the savings should be going out as loans to the business sector if we want to if we want to make the circular flow of income as well through the economic growth so you have to give out the loan there is no point in keeping the money with yourself as a bank and then say that I don't want to make NPAs to become into higher exactly that is what is the banks are doing right now because though RBA is reducing all these reports and other things there is lot of liquidity with the banks but the banks are reluctant to give out the loans because they are worried that the NPAs will increase that's not the way how the mechanism should be there this is actually called as monetary transmission mechanism then RBA says give more money to the people banks should give if they don't give then it is not actually helping the monetary policy to complete the object with which it is implemented so higher amount of loan may lead to higher NPAs if it is given without analyzing the credit protein of the people so we should be improving the efficiency in that why NPAs are higher in public sector banks I have explained data sources is basically where and how you can actually verify about a particular person and then view the loan I can go and find out account aggregator all my bank accounts can be checked all my bills can be checked my taxes payment can be checked so my KYC documents have to be checked after checking varieties of data sources I should be given with the loan so that's what is the government right now defaulters willful defaulters are non-defaulters that we can answer pertaining to this particular chapter willful defaulters I borrow the loan and willfully knowingly I am not repaying it back non-defaulters I borrow the loan I give back the money in time stress to defaulters means they will want to give back the money but they will not have the ability to give back the money so they are called as stress to defaulters we don't have to memorize the way I am only sensitizing the issues which are going around us obviously you cannot remember these numbers and then go and write it in the examination there is no way that we can remember so many facts and figures and then present it what we are trying to do through every chapter is we are trying to understand what are all the issues going on in the economy and what policy suggestions can be grossly made if you understand the magnitude of the issues with the public sector banks and the last slide which is said about how do we improve the efficiency of the public sector banks that is what is the learning what we are expecting you to have from the survey and mostly all the chapters which are here in the volume 1 will be pertaining to the mains examination because these are all not things which you can memorize and write for the preliminary examination but trends and patterns can also be asked for the preliminary examination so when you spoke about credit recovery infrastructure we should improve our credit recovery infrastructure could you be more specific because we already have institutions like asset recovery or debt recovery agencies then there is debt financing for banks then when you come to policies there is insolvency and bankruptcy code fugitive economic offenders act so what exactly do they mean by credit recovery infrastructure we already have a system in place so what are the improvements that are being suggested here see if you have a system it should be implemented properly that is the major thing insolvency and bankruptcy code is being implemented much better than the other things what you actually mentioned as the policies we even had something called a surface act right from the beginning but whether they are all getting implemented properly is always a question so recovery infrastructure is there but the implementation should improve that is what we are repeatedly telling right it is not that we are saying lack of credit infrastructure recovery infrastructure we want them to perform better so that we will be able to recover the employees so it is not like trying to suggest something better it is not suggesting anything new here it is only mentioning right so it is but it is mentioning about this artificial intelligence and all for the credit analytics it says like humanly but it is not possible to analyze so much of big data and find out who will be defaulting and to pick up the early warning signals and all those things why don't we make use of the financial technologies or like the artificial intelligence the kind of programs which will help you to identify the early warning signals yes chapter is again going to be very like technical may actually be needed with this much of details for the examination I am only going to summarize the major points in this I am not going to get into each and every detail often because to this extent we wouldn't be requiring either to write in the preliminary examination or in the main examination what is required for the examination purpose I am going to definitely tell you there are n number of graphs in this I have brought in only your graphs to make the explanation possible right so this is actually a lot of technological terms goes into it I am not wanting you people to memorize these things and then present overall we see where is this problem with the NVHC sector is happening and how we can suggest to the NVHC sector to become better in terms of its financial the previous chapter when we talked about the public sector banks we said the NPAs are increasing capital adequacy ratio is declining so we have certain indicators to tell that these are all the things which are not good about you and therefore why don't you improve these aspects and become better when you are coming to the NVHC sector similarly we want to tell the NVHC sector you are not actually doing well in certain ways when you say NPAs are increasing for the public sector banks similarly you can say that there is a particular kind of a risk for the NVHC sector and you can suggest to the NVHC sector if you rework upon these things and reduce your risk how you can become better that is what is the essence of this chapter the soft technical terms don't get worried about those things just get the essence of the the overarching parts of the chapter right so first when we say NVHC is a banking financial company we know the meaning of them they do activities like the bank but they are not banks and you can also call them with varieties like some of them are deposit taking some of them are not deposit taking they may not be taking money at all from the people they may be investing from the share market and government securities and other things they can bring in that money and then they can give it as for the financial activities the NVHC sector in with the varieties deposit taking non-deposit taking in that NVHC is non-deposit taking you will also have something called a systemically important those companies which are having more than 100 crores as the capital they can be called a systemically important so these are the things which we have seen now we are asking question to ourselves non-banking financial companies if they are taking deposits they take deposits from the people they give money to like the bank they like the bank in activities but they are not the bank because they are financial companies that's it whereas when you come into the categories of non-deposit taking non-banking financial companies where does the money come from so they have to source from other places which I said earlier now one of the things what they are wanting to tell here is they are having lots of dependence upon certain instruments in the market particularly we want to call something as a commercial paper what is a commercial paper? commercial paper is like a smaller certificate you want to call it as a promissory note and it is for a shorter duration Shankaray's academy is issuing assume I am an NVHC I issue a promissory note and then I will say like in less than one year I will give you so much rate of interest I sell this to you I take 100 rupees from you and I agree to give you some rate of interest at the end of the year so this is commercial paper so now what we are trying to say here is this NVHC sector is actually depending excessively on certain instruments like the commercial paper and it is getting into trouble how do we identify this trouble and there is a health scorecard they are saying like like the NPA's identification like the capital adequacy ratio over there here they are giving for the bank so here we are giving certain indicators like health scorecard which the government wants to propose and then say that we can identify early warning signals making use of this health scorecard and then we can set right the financial problems of the NVHC sector so we are going to give you some data evidence on like how NVHC sector is first falling into the problem then we will tell you the solutions we can identify the problem and then give that solution so here we are making use of the word short term wholesale funding so we need to have some funding which is coming in wholesale way and it is coming in short term where is it coming from it is mostly coming from the liquid debt mutual funds which is mainly in the form of the commercial paper so we will see one by one first we are giving some evidence like money market outflow was there I am sure by now you are all very familiar with the concepts of FDI FIA and all and you would have heard the concepts of money is flowing out of FIA the meaning of that is global level investors they would have come and then they would have invested in India in the Indian share market if something goes wrong across the world some policy in US changes or any other situation these global investors will be withdrawing the money from the FIA whatever they have done which is a bad signal because of which our share values will also go down and then because we are pulling back the foreign exchange our currency will also start depreciating all these things will happen a similar kind of a thing then companies non banking financial companies they fail in their financial performance like the DHF which happened in the last year they are showing you certain graphical presentations here by which they are telling like how this money which was invested in mutual funds as well as in the money market funds they were all withdrawn so that is the meaning of this diagram where they want to say like how much lakhs and lakhs of money they were taken away from the money market see basically when you say markets you will be hearing to words like money market and capital market money market will be including the banking system it will be including smaller instruments like the commercial bills commercial papers these are all things as part of the money market capital market is the one which has the primary market and the secondary market where you will be buying and selling shares so here we are talking about the money market funds and the mutual funds I hope you all know like the mutual funds basically a set of people they will be investing through a particular mutual fund the company see assume that I am a mutual fund company I will go to the investors assume in this room there are like 50 people I collect the money from the 50 people I will be giving them an offer document saying like I am going to go and invest in the instruments of these these companies and then I invest your money into them and then when I get the profits I am going to share the profits with the investors who invested through the mutual fund company and here in this case when I collect the money from different people when I am say liquid debt mutual funds I can also go and invest in non convertible debentures I hope you all know the difference between equity and debentures debentures are seen as debt instruments and also I can go and invest in the commercial paper commercial paper as I told you a non banking financial company can be launching the commercial paper and it may be saying that one the commercial paper this value of like around 100 rupees so this mutual fund companies can be going in investing in the commercial paper also so commercial papers also part of your money market funds right so these are all varieties of instruments which are available for the investors to invest but these investors they have taken away money from the money market in these particular time mainly because there are lots of scam going on and the issues going on so now we want to introduce a word which the survey is mentioning very clearly through this chapter which is called as shadow banking system what do you mean by this shadow banking system so here we are going to say that which are all activities which are done out of the traditional commercial banking sector that's what we call it as the shadow banking activities who will do this shadow banking activities that can be a single entity or there could be a chain of entities like I'm a mutual fund company and there will be another person who will be taking money from somebody else and then investing somebody in the company so there are entities which are between the investors and the companies as such so all of these set of people they are going to be called as part of shadow banking system which do outside the traditional commercial banking sector and they may be regulated but not to the extent of the banking system as such RBI regulates the banking system in a very prudential way whereas the regulation of these companies or these sets of entities which are becoming part of the shadow banking system they will be regulated less when compared with the commercial banking system or the banking system right so here it is mentioning that there are three segments of the shadow banking system which the tractor wants to discuss one is about the non banking housing finance companies then the retail non banking finance companies housing finance companies means these NDFCs they will be giving money for the housing developments retail means for purchasing of anything for a kind of like two wheeler purchase or smaller things the retail non banking financial companies and liquid debt to mutual funds so we have already said like these mutual funds where do they go for the investors right so they can invest even the government's activities they can invest in the pressure e-bills they can invest in the debentures all those things so now when we come back to the NDFCs which NDFC are we going to talk about this retail non banking financial companies which is part of the shadow banking system as described by the survey we can see that where do these NDFCs go as source of funding they either go to the loan banks and then ask for the long term loans or they are going to this mutual funds thing and then take the money through the debentures or by floating the commercial people so these are the ways how by which how the NDFCs are actually making money in order to give loans to the people or to give finance to the people basically we want to make this so this is a diagram which I have made this is not there in the economics survey and just trying to explain the concept which is called as the risk which will be faced by this if in the case of the banking system commercial banking system I can simply say that I am the bank you are the customer you take the loan from me and you are not paying it back to me so it becomes into an NPA like that a parallel thing which we are trying to explain through this diagram here assume that the non banking financial company is like issuing the commercial papers and it is raising the funds and then the company is not actually working very well and then now I have to give back the money which I have taken through the commercial paper and I don't have money actually to give back the thing so it is going to result in something called as refinancing this the meaning of that is I will be reworking on the value of the commercial paper so assume that I have given you a commercial paper of 100 rupees and then I have taken the money from the investor if I say that now the commercial paper is going to be like 80 rupees or something like that it is going to be called as a refinancing risk right so this is going to affect the real sector I will tell you the definition of exactly how the rollover risk is being said frequent repricing exposes MVFCs to the risk of facing higher financial cost right so that is also there it is going to reflect bad on the cost part as well as they will be giving credit lesser because they are not able to raise much funds out of it they won't be able to give the credit also properly they won't be able to make money in that way also so that kind of refinancing risk are all called as a rollover risk right so I am a non banking financial company I go to the bank take the money and then I can give the loan or I can be giving out commercial paper making take the money from the mutual funds and then making use of the money I can be financing somebody else but if as a company I have given an out loans I am not able to recover them and I am getting into trouble to give back the money who gave to me in the form of this commercial paper I go on repricing them which will be reflecting bad upon the investors as well as in the total mutual funds market so I am having a risk which is called as a refinancing risk right I am not able to manage the sources of the fund for the non banking financial company I am nowadays not depending much upon the banks I am depending too much upon these commercial papers that's the point which the chapter wants to make I am depending too much upon the commercial papers when I make the money from that and then I give loan to another person and then when I am getting financial risk because the loan is not being brought back now it's time for me to give back the money to the commercial paper investors they may not be having enough money to give back so this is going to be creating a problem among the investors because they don't get back the money and I keep on repricing the values of the commercial papers and this all will be ending in rolling over the risk or which all will be called as the refinancing risk it is like between the deposit mobilization and the loan giving in the banks here I am raising money through different sources and giving out the loans but if I fail if I am not able to recover back the loans and I am going to get into concepts which are called as the refinancing of the rollovers so that's what we have explained through here issues on high depends on short term wholesale funding by the NBFCs and how do we assess that financial fragility they have given different indicators by making a health scorecard now there are issues with NBFCs there are varieties of NBFCs in the market for the two types of NBFCs one is housing finance companies another one is the non-banking financial companies this is what we saw in detail in the previous slide so for these two kinds of the companies what are the things which I have to take care in the health scorecard so that I can assess that financial fragility and then I can protect them from getting into problems so here they have given lots of indicators right from asset liability management profile I think this is a very commoner term any company it should give it a list of assets it should give it a list of liability liability should not be more than the assets and then short term volatile capital how much money are you taking it from the commercial papers or which can be very easy exchange to it so that should be seen asset quality definitely you have to check whether it is like becoming NPA or if it is not becoming NPA short term liquidity you can again see how much of cash is there in terms of the total capital what you are having how much of cash you are able to handle immediately when there is a requirement provisioning policy is basically to tell you like how much money have you kept ready in case if there is a loan which is not actually getting recovered are you ready to meet with a bad situations and the capital adequacy ratio of course like your banks these people should also have enough capital in form of they may not be having CRR because it is non-banking financial companies but they will be having SLR SLR is like you have to set aside some amount of capital with yourself in order to meet with those situations so are you having that much of capital adequacy tier 1 capital are you having that much enough with you or are you selling your shares and then making enough equity capital within this capital adequacy ratio so those are the things which they see for the housing finance companies apart from this in the non-banking financial companies they are seeing how much exposure are they are getting themselves to the commercial paper issued by this retail non-banking financial companies how much commercial paper money have I raised through issuing this commercial papers and liquidity buffer levels similar to this short-term liquidity they have to see like whether they have enough of liquidity with them short-term volatile capital and similar to that and one more additional thing here is operating expense ratio which is like how much of operating expenses is this non-banking financial company facing to the total money whatever it is making every year or every month that they should have a ratio to assess themselves so there are various indicators remembering all of these indicators is not actually essential for our examination purpose this is only for you to understand that there is a health score card which is assessing the levels of liquidity assets quality asset liability management or capital adequacy issue all those things for the non-banking financial sector also you are please remember capital adequacy ratio CRR is not there because they are non-banking they will be starting from SLR the equity capital and other capital what they have invested in the government securities they can keep that as a capital adequacy ratio over here so what we have done as an analysis through this chapter is they have studied some 5 major health financing companies and 15 major non-banking financial companies and they have seen like how they have performed between this particular year like 2010 11 to 2019 they have done the analysis and you can see like health score card of a stress DNBFC all the things which are in red color below the line they all will be stress DNBFCs whereas the blue color they are like performing well according to the health score card and this is asset liability management as percentage of the total assets you can see here for all the assets which are like which are like for the more than 5 years long term assets only they are having good asset liability management situation for all the short term assets like which will be maturing like that less than 1 year or so for all those things the assets versus liability it is a seeming to be on the negative side which means that the management of all the short term assets is actually bad whereas the long term assets the management is much better so that's what they want to say through the diagram and reliance on short term wholesale funding you can see that reliance upon the commercial paper how much are they borrowing it has like has increased a lot among the non banking financial company particularly after 2015 they have started their dependence too huge on the commercial paper as an instrument to generate the funds for themselves and you can see cumulative abnormal returns versus change in the health score of a stress gain BFC see what they want to say is when the health score card is actually improving then your cumulative returns is also improving right so we need not get into that much of a detail but they are basically negatively related what we want to try to say it is like one declining trend like what we saw like population on the credit penetration here also we are trying to say like if there is a change in the health score and if you are actually doing well in it then you will be getting more returns in the future which means that the health score is going to sensitize you to understand how much of returns can you be earning as you are improving in the health score you should be coming reducing in terms of the negative indicators and becoming better off in the positive indicators that improvement will be resulting in improvement of your return so that is the essence of this basic this particular graph and when you are talking about the housing finance sector housing finance sector was usually it will be a long term thing as we have seen in this non banking financing sector all the long term reliability management is better here naturally this will become applicable to the housing finance sector because it will be basically long term in nature but that is also not performing well in the past one or two years in terms of health score card of the housing finance sector is also becoming negative here and this housing finance sector and the non banking financial sector dependence on these kind of liquid debt mutual funds you can see that retail non banking financial companies are having dependence on the wholesale trading whereas even in the housing finance sector this trend has started increasing maybe that is some of the reasons why this kind of health score card is becoming negative with the recent years right so liquidity buffer of top 15 like liquid debt mutual funds you can see that which are all the things which are like highly liquid moderately liquid and illiquid you can see that the moderately liquid levels are actually higher in case of your in case of your all your liquid debt mutual funds and highly liquid things are becoming lesser so converting these papers immediately into money will be a problem and moderately liquid only is actually increasing so if these non banking financial companies are going to have excessive dependence on the highly liquid instruments it is going to become a problem for them also right so the next thing is cash as per cash percentage of borrowing you can see that they have described this non banking financial companies according to different sizes the large medium small and the housing finance companies cash as a percentage of borrowing is actually very high among the small non banking financial companies may be where you can see that the light blue color is on the top whereas the housing finance companies dependence is a bit lesser when compared to this but in the recent times you can still see that the large and the medium non banking financial companies are not going in for cash as percentage of borrowing this is all like your short term liquidity what they are doing that's one of the indicators of the health score so here they are housing finance company is still having the same 5% as compared with the March 14 to March 90 whereas the large and the medium non banking financial companies they are not going for cash borrowing which is done only by the small non banking financial companies you can again see these people have started moving towards the highly liquid liquid debt mutual funds right so that is basically the commercial paper kind of a thing that's what they are moving towards they are not even concentrating much upon that cash they are wanting to go and end up with the commercial papers short term liquid debt mutual funds so all these graphs are basically only trying to tell you that these non banking financial companies which are medium and large are basically the retail non banking financial companies dependence upon the liquid that are highly liquid or the commercial papers waters actually increasing that increasing dependence itself has resulted in increasing financial agility of the non banking financial company so that's what they want to say so commercial paper as percentage of liability so this is the major part of that LDMA so you can see the housing finance companies dependence on it is actually coming down but the large size retail it is higher again you can see across the different sizes I think one of these things they should be written as large and medium size so medium size to large size as well as the small size they are all actually seeming to be depending more upon the commercial papers as percentage of total items so they want to source the funding from the commercial paper right so when you look at the average health scores of the retail non banking financial companies you can see that large ones are having better scores when compared to the small and the medium but medium is actually improving only now small actually they may not be depending they may be even going much for the cash rather than getting into the commercial papers and getting themselves into trouble so probably the average health score of the medium term retail MVFCs have to improve a lot whereas the large are somehow managing because of the largest scale operations so basically the chapter wants to say that the health score methodology can help identify early warning signals and capital infusions can be planned if they are really getting into capital infusions not with the government because it's not a public sector bank or anything they themselves should be planning for themselves because they are getting into financial so basically to identify the early warning signals they are wanting them to construct this kind of a health score making use of these things of indicators and identify the financial fragility and improve themselves so that's the essence of this particular chapter I know it was like a bit of like technical chapter but we just absorb the things what we majorly require out of it what are the problems in implementing external benchmarking in bank loans we need to set up a standard for the external benchmarking in bank loans bank means it is totally under the control of RBA so RBA has to decide which benchmarking does it want to follow is LIC under shadow banking it's about the insurance thing yes of course we can call LIC as part of shadow banking what does repricing here mean repricing means it's basically like you keep on changing the value of the commercial paper initially maybe setting a particular price and then you will again keep changing your prices because you won't be able to view back that much of money which was initially taken the rates of interest can be the rates of interest can be changed that also can be called as repricing and of course I will share the PPT is capital adequacy ratio applicable to the NVFC yes it is applicable as I told you already CRR will not be part of it SLR will be part of it because non-banking financial companies should also maintain statutory liquidity ratio based on norms to apply only to the banks they are not being applied to the financial companies health score is directly proportional to the cumulative confused as you said it is negatively related there are various indicators in the health score the point what the survey wants to make is if you say there is higher short term liquidity it may not be actually good see every indicator will be meaning differently overall if the health the health score is improving your returns will improve that's all if your health score is a deteriorating it means like you are getting into trouble and your returns will get affected that's the essence of it how do you construct the health score I have given you a list of indicators if you are saying you are having very good asset liability management it is a positive side if you are having a very high short term liquidity maybe it may not be seen as a good thing if you are having very high short term volatility the meaning of that is if you are having more dependence on the commercial paper out of the total essence that may not be seen as a good thing so the combination of the indicators inside the health score itself is different one is positive another one is negative so over hacking they will be putting one value to the health score so you just have to interpret it in such a way that if health score is increasing my returns will improve if it is decreasing I should be taking it as an early warning signal saying that something is going wrong in the company that's how you should interpret it in what metric does Indian NBFCs perform more and why so NBFCs are not very good regulated like in a regulated in a good manner we can say RB is giving certain restrictions to them and SB SEBI is also giving like restrictions to them when they are getting involved in the capital market but there is no very strict regulations upon them which is why we are placing them under the shadow banking system that is also one of the reasons why they are not actually performing very well see if they get into trouble if they get into financial fragility if there had been a regulation and regulation they wouldn't have ended up like that so somebody should go and tell them don't depend upon this kind of short term funding too much and if there is a very strict regulation they can also avoid becoming financially fragile which is not possible because there is no proper regulatory mechanism and there are lots of companies with their register but they may not be even maintaining a proper SLR which means that you won't be able to do any kind of a capital depreciation on analysis so basically you should become bigger you should make yourself getting this credit score and the civil score if you get all those things then people will start looking at the NBFC company as a bigger company a responsible one with a good credit rating and you should be like financially performing well so that you don't get involved in these kinds of stress you should be selecting the projects in such a way and then giving loan in such a way that you don't end up in financial fragility and your sources of funding should be stronger either like you depend upon the long term funding you should not be depending too much upon this kind of short term volatile funding so these are the regulatory things which are expected out of NBFC so that they can perform better if you ask which is more efficient banks or NBFCs definitely I would say banks but non banking international companies are reaching lot of informal sector or the unorganized sector so for that reason we should give them equal importance but they should be regulated well re-pricing of commercial papers again I am telling you either the value could be changed or the return what you give on the commercial papers can also be changed which is not seen as a good practice short term wholesale funding and liquid mutual funding they are like the words which are actually interchangeably used with your in this particular chapter Divya case has asked it so it is like short term means you know for a very short period you are giving funding and where does it liquid short term they are go hand in hand debt to mutual funds I already told you mutual funds means you take the money from the investors and then you go and invest in certain instruments what are these instruments non banking financial company I give you a commercial paper there is a mutual fund company which takes the money from the investors comes and invest in the commercial papers in financial companies so commercial paper is seen as a source of financing for the NBFCs commercial paper is seen as an instrument for the investors and mutual funds they are the people who will be facilitating all of these processes to happen and if I a non banking financial company get more of my funds through the commercial paper investment which is a very short term liquid funding I will be I have to be responsible giving back this money to them and in case if my project fails or the fund to which I have given the particular project fails how will I give back my money so here is that all this financial fragility comes because I have to return back the money within a short time so the owners and the responsibility and the liability lies very high upon me so the regulation is that I should not be taking more funds from these kind of liquid debt mutual funds it is not really commercial papers liquid debt mutual funds will also improve the treasury bills short term government securities there are lots of other instruments into it but this chapter specifically focuses upon raising money through the commercial paper shadow banking system is not informal banking system it is formal it is not a banking system it is outside the banking system why is high dependence on commercial papers not appreciable because it is highly liquid short term and you have to give back the money with the proper rate of interest to the people from whom you have borrowed why high dependence of in that is what I have answered please explain short term volatile capital and provisioning policy again see short term volatile capital is how much funds have you raised through this commercial paper because it is seen as very volatile volatile means very short term so they are insisting again like if you are raising 100 crores of money how much money have you raised out of the commercial paper that can be seen as a short term volatile capital whereas in case of provisioning policy assume that you are like you have given like 50 crores of money and you think that there is a risk it is like the capital but you have to be having some amount with you some provision with you in order to meet with this kind of default so something happens immediately so as a company how much of provisioning policy have I kept aside how much of money have I kept aside as a provision in case if these loans what I have finance what I have done doesn't come back right short term liquidity short term volatile capital the difference goes like this short term volatile capital is how much money are you actually taking the form of the commercial papers short term liquidity is how much cash are you having in your hand out of the total money what you have raised so that's the liquidity what is available and you remember we said something upon the operations expenses ratio also so you should be having short term liquidity enough so that you will be able to spend it for your operating expenses also so they are all connected indicators risk interconnectedness with the LDMF this is basically to that I have explained you the channel with which it happens right so assume that this classroom this room is filled with 15 investors assume that there is a person who is like this who is the mutual fund company who has taken the money from all the investors assume that this mutual fund company comes and invest in my com