Current Affairs 31st May 2023 for UPSC Prelims Exam

Current Affairs 31st May 2023 for UPSC Prelims Exam

Participatory Notes (P-Notes)

Context:  According to recent SEBI data, the value of Participatory notes (P-notes) investments in Indian markets — equity, debt, and hybrid securities — stood at Rs 95,911 crore at the end of April as compared to Rs 88,600 crore in March-end.

About Participatory Notes (P-notes)

• P-Notes are financial instruments required by investors or hedge funds to invest in Indian securities without having to register with the Securities and Exchange Board of India (SEBI).
  • Investors save time, money and scrutiny associated with direct registration.
• P-Notes are among the group of investments considered to be Offshore Derivative Investments (ODIs).
• Constituents: The P-Notes include investments in equity, derivatives, debt and other hybrid instruments.
  • Majority of the investments is in the equity space.
• Issuer: P-notes are issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part of the Indian stock market without registering themselves directly
  • They, however, need to go through a due diligence process.

Advantages of Participatory Notes

• P-notes can be easily traded in foreign countries via endorsement and delivery.
• They are well known as investors, and hedge funds can enter Indian markets anonymously and go about their operations.
• Some individuals and entities are investing through P-notes so that they can benefit from tax laws in particular countries.

Current Affairs 30th May 2023 for UPSC Prelims Exam

Held-to-Maturity (HTM) Securities

Context:  According to Moody’s Investors Service, banks in Bangladesh, China, India, Mongolia, the Philippines, and Taiwan, hold sizable volumes of HTM (held to maturity) securities.

About Held-to-Maturity (HTM) Securities

• Securities that are bought by businesses with the intent to hold them until maturity are known as Held-to-Maturity (HTM) securities. They differ from trading securities or securities open for sale as they are not held until maturity.
• Debt instruments such as corporate or government Bonds typically make up the investments.
• The most popular HTM investment types are bonds and other debt instruments.
  • They are bought to be held until the maturity period and have predetermined payment schedules and fixed dates of maturation.
• Stocks aren’t considered HTM securities as they lack a maturity date.

Advantages of HTM Securities

• Holding securities until maturity has very little risk. Returns are guaranteed if the bond issuer does not Default.
• Since the returns on a bond are predetermined at the time of purchase, they are not sensitive to news events or Industry trends (i.e., the Face Value, coupon payments, and maturity date).
• They are lower-Beta assets, allowing investors to diversify their Portfolio risks and plan their long-term investment portfolios.

Disadvantages of HTM Securities

• Held-to-maturity securities impact the company’s liquidity.
• Companies cannot rely on these assets to be sold if they need cash in the short term, as they commit to holding these securities till maturity.
• As the returns on these securities are predetermined, there is also a limited upside potential while downside protection exists.
• The company’s returns won’t increase if financial markets rise overall.

Beluga Whale

Context: Recently, Hvaldimir, the beluga whale, was spotted off the Swedish coast.

• It was first spotted off the coast of Norway in 2019 wearing an alleged Russian spy camera.

About Beluga whale

• Belugas are also called white whales, and their unusual colour makes them one of the most familiar and easily distinguishable of all the whales.
• Belugas can produce a series of chirps, clicks, whistles and squeals, which give the beluga its other name, “the canary of the sea.”
• They can grow up to 6 m long, and are related to dolphins.
• Distribution: These whales are common in the Arctic Ocean’s coastal waters around Greenland, Norway and Russia, though they are found in subarctic waters as well.
  • Arctic belugas migrate southward in large herds when the sea freezes over.
  • They can also be found near river mouths, and sometimes even venture up river.
• IUCN: Near Threatened.

Evergreening of Loans

Context: RBI Governor has raised red flags against innovative methods employed by banks for evergreening of loans.

What is Evergreening of Loans?

• Evergreening of loans is a form of zombie lending that acts as a temporary fix for the bank. It prevents an account from turning into a non-performing asset (NPA), thus impacting their profitability.
  • Banks usually dress up bad loans and provide additional funds to companies who don’t have the capacity to repay.
  • Evergreening usually takes place due to the unholy relationship between bankers and borrowers.
• Different methods adopted:
  • Bringing together two lenders to evergreen each other’s loans through sale and buyback of loans or debt instruments.
  • Persuading good borrowers to enter into structured deals with a stressed borrower to conceal the stress;
  • Adjust borrower’s repayment obligations by using internal or office accounts.
  • Disbursing new/additional loans to the stressed entities closer to the repayment date of the earlier loans.
• Need for evergreening:
  • Evergreening of loan accounts is done to keep the reported NPA levels low. This was encouraged between 2000 and 2014 as a form of liberal restructuring.
  • In some cases, evergreening becomes a necessity to try save a borrower from becoming NPA by extending temporary liquidity.
• Effects of evergreening:
  • Evergreening of loans leads to crowding-out effect where credit is being diverted to weak entities without creation of any assets.
  • Good borrowers will be excluded from credit for expanding their business.
• Preventing evergreening:
  • Regular audit must be conducted by RBI to detect such cases.
  • Imposition of penalties through cancellations of unvested stock options.
  • Withdrawal of monetary bonuses of officers involved in evergreening.

Spear Phishing

Context: Spear phishing campaigns have been initiated by hackers, targeting specific individuals or groups.

What is Spear Phishing?

• Spear-phishing is a method of attempting to steal sensitive information such as account credentials or financial information from a specific victim.
• Modus operandi:
  • The attackers operate by obtaining personal details on the victim such as their friends, hometown, employer, locations they visit, and what they have recently bought online.
  • The attackers use this information to disguise themselves as a trustworthy friend or entity to acquire sensitive information, either through email or other online messaging.

• Effectiveness:
  • Since spear-phishing attacks target a particular victim, and messages are modified to specifically address that victim, to disguise it as coming from a familiar entity and containing personal information.
  • Since personal information is contained in the emails, it is more difficult to identify spear-phishing attacks than to identify generalized phishing attacks.
• Objectives of spear phishing:
  • Attackers try to obtain as much confidential information as possible to access different websites such as banking.
  • They also trick the victim in downloading malware or malicious codes after clicking on links or open attachments.
• Preventing spear phishing:
  • Avoid posting personal information on the internet that can be used by attackers.
  • Avoid using same passwords for multiple accounts.
  • Use anti-virus software to scan malicious emails or files.
  • Data protection programs have to be implemented in organizations.

Sharing is caring!