Daily Editorial Analysis for 26th June 2021

A stand for peace

Why in News

• In the UN Security Council debate on the UN Assistance Mission in Afghanistan on June 22, India’s External Affairs Minister stated that India is concerned about the spike in violence in Afghanistan and has been strongly pressing for a comprehensive ceasefire.

Violence in Afghanistan

• For centuries, this hapless land has been in the grip of a vicious circle of violence and bloodshed, with the balance of power shifting back and forth between warring tribal groups, leaving instability and abject poverty in the wake.
• Caught in the middle are ordinary Afghans, who have borne the brunt of the excesses of conflict. The UN Secretary-General report issued last week reaffirmed that the intra-Afghan talks have not resulted in a reduction of violence in Afghanistan.
• The peace deal which the Trump administration reached with the Taliban on February 29, 2020 affected the interests of the Afghan government very adversely.
• The US had agreed to withdraw its troops completely by May 1, 2021 which Biden has postponed till September 11, 2021, the 20th anniversary of the 2001 attacks.
• Moreover, the US agreed to lift sanctions against the Taliban. In return, the Taliban agreed not to allow al-Qaeda or any other extremist group to operate in the areas they controlled.
• The deal also provided for a prisoner swap between the Taliban and Afghanistan government.
• If Trump really wanted to bring peace to Afghanistan, then the withdrawal should have been made only after the talks between the Afghan government and the Taliban reached an acceptable outcome.
• By announcing the withdrawal timetable in advance, Trump played into the hands of the Taliban and their backers in the Pakistani government, especially the ISI.
• The Taliban quickly realized that Trump had made up his mind to pull out US troops, and they built their strategy around procrastination and erecting obstacles in their talks with the Kabul.
• It must be noted that the US knows full well what is happening on the ground. General Kenneth McKenzie, head of the US Army Central Command (CENTCOM) said in February 2021 that the Taliban are clearly responsible for violence in Afghanistan, with civilians and Afghan security forces taking the brunt of the bloodshed.
• The long-awaited intra-Afghan dialogue between the Kabul government and the Taliban started on September 12 last year but it was stalled and is far from achieving any results.
• The Afghan government backs the current socio-political system, while the Taliban wants to reimpose its version of Islamic law as the country’s system of governance.
• The Taliban are insisting on adherence to the Hanafi school of Sunni Islamic jurisprudence, but the government negotiators say this could be used to discriminate against Hazaras, who are predominantly Shia, and other minorities in the country.
• For enduring peace in Afghanistan, terrorist safe havens and sanctuaries must be dismantled immediately and terrorist supply chains disrupted.
• Those providing material and financial support to terrorist entities must be held accountable. A durable peace in Afghanistan requires a genuine “double peace” — peace within Afghanistan and peace around Afghanistan. It requires harmonizing the interests of all, both within and around that country”.
• As is well known, this ‘double peace’ is being derailed by Pakistan, which has always tried to create strategic depth for itself in Afghanistan.
• Pakistan wants to ensure that India is prevented from having any role in Afghanistan. The Pakistan Foreign Office spokesman had unambiguously enunciated his country’s position in January 2019 when he had said “India has no role in Afghanistan”.
• The partnership is built on the specific needs and requirements worked out with the government of Afghanistan.
• India’s assistance has taken various forms such as scholarships to students, infrastructure and transportation projects, medical teams to treat Afghans, and building institutional capacities at the ministry level.
• The USD 290 million Afghan-India Friendship Dam (also known as the Salma Dam), the USD 90 million Afghan Parliament building in Kabul and the USD 135 million Delaram-Zaranj highway are just some examples.
• India has also pledged to provide USD 236 million for building a second dam on the outskirts of Kabul. The Shahtoot Dam, as it will be named, is planned to be completed in the next three years.
• To provide greater regional connectivity, India has operationalized air freight corridors and the Chabahar Port.
• India also extended humanitarian assistance of 75,000 MT of wheat to Afghanistan through the Chabahar Port to overcome food insecurity during the pandemic.

Conclusion

• As a part of its endeavor to help Afghanistan tide over the COVID-19 pandemic, India has supplied vaccines to Afghanistan, both bilaterally and through the COVAX facility.
• Afghanistan is at a critical juncture and the United Nations needs to step up its role. In this evolving scenario, India’s role in Afghanistan assumes greater significance and could be helpful for the Afghan government as well as for ordinary Afghans.

GS PAPER III            

Private banks need more monitoring

Why in News

• In the wake of recent corporate governance failures in the banking and financial services sector, Reserve Bank of India (RBI) released a circular on appointment of directors and constitution of committees of the banks’ boards on April 26, 2021 after extensive stakeholder consultation.

New Circular of RBI on appointment of directors and constitution of committees of the banks’ boards

• The RBI stipulates that maximum tenure of Managing Director/Chief Executive Officer (MD/CEO) or Whole Time Director (WTD) is not more than 15 years. Further, no person is allowed to continue as MD/CEO or WTD after she/he attains the age of 70 years.
• The RBI’s objectives are to improve governance and avoid bank failures.

Failure of private banks

• In 2004, Global Trust Bank was failed and forcibly merged with Oriental Bank of Commerce, by the RBI.
• Global Trust Bank had excessive exposure to capital market and violated the RBI norms which precipitated its fall and loss of trust among its stakeholders.
• YES Bank’s case was similar before the RBI and State Bank of India came to its rescue.
• The then CEO of YES Bank, decisions escalated its non­performing assets (NPAs) beyond the threshold levels. The aggregate credit exposure of YES Bank on Anil Dhirubhai Ambani Group, Cox & Kings, Dewan Housing Finance Ltd., Essel group, Infrastructure Leasing & Financial Services, and Jet Airways was higher than its net worth.
• The RBI did not mince words in its letter addressed to YES Bank’s board, and stated that persistent governance and compliance failures reflected on its highly irregular credit management (including divergence in NPAs), and serious deficiencies in its governance practices.
• Chanda Kochhar, ex­CEO of ICICI Bank, also did not make several mandatory and appropriate disclosures which led to ‘conflict of interest’
• According to the Srikrishna Committee report (2019), she was a member of credit committee of the bank that had sanctioned a loan of ₹3,250 crore to Videocon group companies, which in turn invested ₹64 crore in NuPower Renewables Ltd.

The future path

• So not all private banks’ boards are efficient and independent. The directors, including the chairman, are sometimes handinlove with the CEO.
• The independent directors hardly have ‘independence’ as they are chosen by the MD/Chairman. Therefore, RBI should tighten the norms related to ‘fit and proper’ criteria while selecting the directors of banks.
• Suitable weightage should be given to integrity, track record, expertise and qualifications of the directors of banks.
• The RBI should not permit CEOs of banks to have a tenure of more than 10 years (as against 15 years). Stock options, to be exercised after five years, must be part of the top management’s remuneration package to discourage window dressing of accounts.
• RBI must also appoint ‘governance officers’ to conduct business of the banks in a legal and ethical manner.
• By emulating the best practices of Central Bank of Singapore, RBI should be ownership neutral, and impose heavy penalties on banks if they engage in regulatory arbitrage/ mis­selling of financial services to customers.
• Besides, RBI should improve its market intelligence through more on­site inspections rather than relying only on off­site surveillance to unearth the hidden risks.
• The government may have to revisit the role of RBI with regard to regulation. Given the increased complexity and dynamics of financial markets, having different regulators for banks, financial institutions, Non-Banking Financial Companies, and the like may be a better option.
• There is a compelling need to protect the whistleblowers in private banks against possible reprisals.
• To monitor the functioning of private banks’ CEOs, there is an imperative need to revive the shareholders’ activism by giving enough voice to the foreign stakeholders (including Global Depository Receipt holders) and minority shareholders.
• There is an urgent need to infuse a sense of accountability among the top management of Indian private banks to promote a strong risk culture. Constant vigilance of private banks is the need of the hour to ensure high quality of governance, to uphold the fiduciary trust of depositors and also to prevent systemic risk thereby ensuring financial stability in the markets.