GS1
CATEGORY: GEOGRAPHY
- High Temperature at Death Valley
Why in News
Recently, Death Valley (USA) registered a temperature of 54.4°C which, once verified, could be the highest temperature in more than a century.
- The temperature was recorded at the USA National Weather Service’s automated weather station at Furnace Creek on 16 August 2020.
- The Death Valley in southeastern California is the lowest point in the North American continent, and is a National Park. It is also the hottest and driest part of the continent.
Key Points
- The temperature has been termed as preliminary and not final as it awaits verification.
- According to the World Meteorological Organization (WMO), Death Valley’s all-time record high is 56.7°C taken on 10 July 1913 at Greenland Ranch.
- It still stands as the hottest ever recorded on the planet’s surface. However, since the temperature-recording mechanisms a century ago were not as advanced, many have doubted if that reading was reliable.
Cause:
- The high temperature is a result of a ‘heat dome’ that is smothering the west coast of the USA.
- Heat Domes: High-pressure circulation traps hot ocean air like a lid or a cap trapping heat at the surface and favouring the formation of a heat
- Higher daily peak temperatures and longer, more intense heat waves are becoming increasingly frequent globally due to climate change.
Effects of Extreme Heat:
- According to the World Health Organization (WHO), extreme heat can exacerbate pre-existing health conditions, including respiratory diseases, heart conditions and kidney disorders.
- The immediate effects on the human body are heat cramps, dehydration and even potentially fatal heat strokes.
- It can also have a severe impact on agriculture and forests.
- It either causes vegetables to wilt and die or encourage the spread of plant diseases.
- It causes wildfires which lead to forest cover reduction and death of fauna.
- It affects infrastructure too by straining power grids and causing blackouts. It can ground planes, melt roads and cause the inside of vehicles to overheat to dangerous levels.
GS2/GS 3
CATEGORY: GOVT. POLICIES / ECONOMY
- Partial Credit Guarantee Scheme 2.0
Why in News
The government has extended the scope of the Partial Credit Guarantee Scheme (PCGS) 2.0 to provide greater flexibility to state-owned banks in purchasing bonds and Commercial Papers (CPs) of Non-Banking Financial Companies (NBFCs).
Key Points
Background:
- The PCGS was announced in July 2019, allowing public sector banks to purchase high-rated (BBB+ or above) pooled assets from financially sound NBFCs and Housing Finance Companies (HFCs).
- A pool of assets is basically a securitisation of loan portfolio e. conversion of a loan into a marketable security, typically for the purpose of raising cash by selling them to other investors.
- These are sold by NBFCs/HFCs to banks in return for an advance payment. NBFCs/HFCs get the much needed money and banks get the interest paying assets.
- Credit ratings is an analysis of the credit risk associated with a financial instrument or a financial entity. These range from AAA to C and D.
- As a part of the Aatmanirbhar initiative, the scheme was extended in May 2020 (PCGS 2.0) to cover primary market issuance of bonds/CPs by NBFCs, HFCs and Micro Finance Institutions (MFIs) with low credit ratings.
- The Centre provided 20% first loss sovereign guarantee to public sector banks for purchase of bonds/CPs, resulting in liquidity infusion of 45,000 crore into the system.
- The scheme covered papers with ratings of AA and below, including unrated papers, aimed at providing access to fresh liquidity support to non-bank lenders.
Latest Extension:
- The Scheme has been extended for three months, giving public sector banks time till 19 November 2020 to build their portfolios of bonds and CPs from non-banking financial institutions.
- Further, the government has allowed banks to invest upto 50% of total investments under the Scheme in AA and AA- rated bonds.
- This decision was taken as the earlier limit for such investments at 25% was almost met.
Criticism:
- The latest announcement is a step towards increased funding for bigger NBFCs which have higher ratings, while the actual objective was to provide greater funding to small and medium NBFCs.
- Less than 100 NBFCs have been covered under the scheme as a majority of small and medium NBFCs turn to term loans, instead of raising funds via bonds or CPs.
Note:
- Bonds: Borrowers issue bonds to raise money from investors willing to lend them money.
- Commercial Paper: It is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for meeting the short-term
- Primary Market: The primary market is where companies issue a new security, not previously traded on any stock exchange. Securities issued through a primary market can include stocks, corporate or government bonds, notes and bills.
- The secondary market is where investors buy and sell securities they already own.
Way Forward
- NBFCs play a crucial role in sustaining consumption demand as well as capital formation in the small and medium segment, thus it is essential that they continue to get funding without disruption, and the extended PCGS is expected to systematically enable the same.
- The government can further expand the scope of the Scheme so as to extend the guarantee cover to term loans of banks and financial institutions given to NBFCs.
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