02nd JANUARY 2019

A) On Elizabeth Warren’s U.S. presidential bid: Democratic hope?

Elizabeth Warren Makes The First Move Towards A U.S. Presidential Bid

Elizabeth Warren, Democratic Senator of Massachusetts, has announced her likely candidacyfor the 2020 U.S. presidential race. In her statement she put racial and gender-based inequality front and centre in her campaign agenda, as much as income inequality faced by the middle class. For these ills of the American economy, she blamed the excesses of under-regulated Wall Street corporations and billionaires with the money muscle to bend political rules. Although Ms. Warren, who won a second six-year Senate term in November, had declined to enter the 2016 general election and challenge Hillary Clinton in the Democratic primary, she made a name for herself as a top-tier Democrat by taking on President Donald Trump, describing him as a “thin-skinned racist bully”. However, she attracted criticism for an unnecessary controversy over taking a DNA test to establish her Native American heritage, after Mr. Trump used racistepithets to provoke and smear her ethnic antecedents. Notwithstanding that blip, the former Harvard law professor, who hails from a blue-collar background in Oklahoma, has repeatedly underscored her credentials as a champion of multiracial populism. Over the past year she has sharpened her attack on Mr. Trump’s politics, arguing that he deflects attention from the impact of his divisive policies on ordinary American families and instead blames “other working people, people who are black, or brown, people born somewhere else.”

the formerHarvard law professor, who hails from a blue-collar background in Oklahoma, has repeatedly underscored her credentials as a champion of multiracial populism. Over the past year she has sharpened her attack on Mr. Trump’s politics, arguing that he deflects attention from the impact of his divisive policies on ordinary American families and instead blames “other working people, people who are black, or brown, people born somewhere else.”

Despite the considerable achievements of Ms. Warren, who had not held public office before 2013, the obstacles ahead for her proposed presidential run are formidable. First, the general expectation is that the field for the Democratic nomination will widen considerably over through 2019, given that more than three dozen Democratic candidates-in-the-making are said to be considering joining the race, several of them for the first time. Some, such as Kamala Harris of California or Cory Booker of New Jersey, could hold stronger appeal with millennial voters and people of colour. Second, it is hard to predict how Ms. Warren will fare against self-professedDemocratic socialist candidate Bernie Sanders, or Senator Sherrod Brown of Ohio, both economic populists who could hypothetically cut into her share of voters of a similar ideologicalpersuasion. Finally, the risk of pursuing a populist theme from the centre-left of the political spectrum is that she would be an easy target for Mr. Trump and conservatives, who are likely toderide her as an out-of-touch liberal academic and a threat to free enterprise. Nevertheless, as a candidate for the nation’s highest office, Ms. Warren’s ideological moorings are set. It is notinconceivable that, given how bitterly polarised the electorate is today, Ms. Warren’s bold liberalism could offer hope to millions of voters dismayed at what Mr. Trump has done to their nation.


B) Signs of a turnaround: on RBI’s Financial Stability Report

Regulatory Vigil Should Not Ease After The Half-Yearly Decline In Banks’ Gross NPA Ratio

The fog of bad loansshrouding the banking sector appears to be lifting after a long period ofsustained stress. The Reserve Bank of India’s Financial Stability Report reveals the first half-yearly decline in the ratio of gross non-performing assets (GNPA) to advances since September 2015. The ratio across all scheduled commercial banks has eased to 10.8% as of end-September 2018, from 11.5% in March, with both public sector and private sector lenders posting drops in the key indicator of bad loans. A stress test for credit risk at banks that models varying levels of macro-economic performance shows that for the baseline assumption, the GNPA ratio would narrow to 10.3% by March 2019. This prompted RBI Governor Shaktikanta Das to prognosticate that the sector “appears to be on course to recovery”. Still, state-owned banks continue to have higher levels of bad loans than their private sector peers and are projected to show slower improvements over the second half of the fiscal. The GNPA ratio for public sector banks (PSBs) is posited to only inch lower to 14.6% by March, from 14.8% in September. One reason is that PSBs have a disproportionately higher share of bad loans from among large borrowers, who accounted for almost 55% of loans advanced by all banks as of September. The GNPA ratio for this category at PSBs was 21.6%, compared with just 7% at private banks.

Interestingly, the RBI’s Prompt Corrective Action (PCA) framework, which attracted criticism including from a government appointee on the central bank’s board, has significantly helped lowercontagion risk to the banking system. A contagion analysis that assumes there would be no sovereign guarantee provided for the 11 PSBs placed under the PCA curbs, in the event of a simultaneous failure, projects that solvency losses due to such failure have more than halvedover the four quarters ended September: to ₹34,200 crore (3.1% of total Tier-1 capital) from ₹73,500 crore (6.8% of total Tier-1 capital). Data on banking frauds are also a cause for concern. Close to 95% of the frauds reported in the six months ended September were credit-related, with PSBs again bearing the brunt of mala fide intent on the part of borrowers. The RBI’s report has justifiably spotlighted the urgent need to tighten the oversight framework for financial conglomerates in the wake of the IL&FS meltdown, which continues to ripple across the financial system, including at mutual funds and non-banking financial companies. As Mr. Das said in his foreword, “…the recent developments in NBFCs have underscored the need for greater prudencein risk-taking.” Regulators and policymakers need to work together to insulate the economy from the risks of similar fiascos.