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.