Editorial 1 : Curbing exuberance
Introduction: The recent surge in consumer credit, especially of unsecured loans, has become a source of increasing concern. In July, the Reserve Bank of India had, in its financial stability report, pointed out that retail loans had grown at almost twice the pace of gross advances over the past two years.
What are secured and unsecured loans?
- Secured loans are those that are backed by collateral, which is an asset that the lender can seize if the borrower defaults on the loan. This asset acts as a form of security for the lender, reducing their risk and allowing them to offer lower interest rates. Examples of secured loans include: Home loans, car loans, gold loans.
- Unsecured loans are those that are not backed by collateral. This means that the lender is taking on more risk, and they will typically charge higher interest rates. Examples of unsecured loans include: Personal loans, credit card loans, student loans.
What is matter of concern as per the RBI’s report?
- What is especially troubling is that during this period the composition of secured and unsecured loans in total advances had changed, with the latter’s share increasing.
- The report also pointed out that for unsecured and secured advances, the share of special mention accounts (loans where the principal or interest was overdue) in the retail segment stood at 9.8 per cent and 9.2 per cent respectively for public sector banks and 4 per cent and 5.4 per cent respectively in the case of private sector banks.
- In his October monetary policy statement, RBI Governor Shaktikanta Das also noted that certain segments of personal loans were growing at a very fast pace, and that these were being closely watched by the central bank for any signs of stress.
RBI’s advice to banks and NBFCs
- RBI governor advised banks and NBFCs to “strengthen their internal surveillance mechanisms” and “address the build-up of risks”, if any.
- This has been followed up by the central bank last week raising the risk weights for consumer loans, other than housing, education, vehicle and gold loans, by banks and non-banking financial companies.
- This seems to be aimed at curbing the exuberance seen in loans to certain specific segments, especially the unsecured segment in the sub Rs 50,000 category, where NBFCs have high exposure.
- As the NBFC sector tends to rely on bank funding, a rise in the risk of repayment could have ripple effects across the financial system. (As per data from the central bank, loans/borrowings by households from NBFCs rose from Rs 21,432 crore in 2021-22 to Rs 2.39 lakh crore in 2022-23.)
Impact of RBI’s measures
- The measures being taken could translate to an increase in the cost of capital for such loans, possibly impacting both supply and demand sides.
- The growing concern over the spurt in unsecured loans, a riskier loan segment, could be due to worries over the repayment ability of borrowers as there are some indications of a buildup of stress.
- For instance, in a recent study on unsecured loans, analysts at UBS had said that the risk of default was rising.
- The study noted that the share of borrowers with multiple loans had risen and that new loan disbursements to borrowers with weaker credit profiles exposed this segment “to a potential downcycle”.
Conclusion: There is a need to be vigilant about the possible risks. More carefully crafted and targeted regulatory interventions could help mitigate potential risks in the financial system. The central bank must continue to closely monitor it for signs of stress.
Editorial 2 : A new cure
Introduction: Last week, the UK became the first country to approve the use of Casgevy, which uses the gene-editing tool CRISPR-Cas 9, and which could be a hope for millions of sickle cell anaemia patients across the world, including in India.
What is gene-editing?
- Gene editing is a technique that allows scientists to make precise changes to the DNA of an organism.
- This can be done by adding, removing, or changing specific DNA sequences.
- Gene editing has a wide range of potential applications, including the development of new treatments for diseases, the creation of new crops and livestock, and the production of new biofuels.
What is sickle cell anaemia?
- Sickle cell anemia is a group of inherited blood disorders that affect the shape of red blood cells.
- Normally, red blood cells are round and flexible, so they move easily through blood vessels.
- In sickle cell anemia, some red blood cells are shaped like sickles or crescent moons.
- These sickle cells also become rigid and sticky, which can slow or block blood flow.
Cure and remedies of Sickle cell anaemia
- There is no cure for sickle cell anemia, but there are treatments that can help manage the symptoms and prevent complications.
- The current remedy for the disease involves chemotherapy, hydroxyurea, which reduces the frequency of complications in patients.
More about UK’s regulator’s decision
- The UK regulator’s decision was based on Casgevy’s impressive ability to eliminate painful inflammatory attacks in more than 90 per cent of trial participants.
- The green light could pave the way for approvals by the US FDA — it’s slated to take a decision on December 8 — and other regulatory bodies.
Challenges in making the therapy accessible to all
- Making room for edited cells in the body is a complicated procedure.
- Vertex, the company that manufactures Casgevy, hasn’t quoted a price for the therapy, but estimates from the UK and the US have pegged treatment costs for an individual patient at about $2 million.
How does the new therapy work?
- In sickle cell disease, the oxygen-carrying protein in red blood cells, haemoglobin, is compromised. Red blood cells with normal haemoglobin are disk-shaped and flexible.
- They move through the blood vessels easily. The haemoglobin-deficient cells are an almost exact contrast.
- When they lose their oxygen, these cells assume a crescent shape. They die much more rapidly than their normal counterparts.
- Their shape makes the sickle cells stick to blood vessels, blocking the movement of oxygen-carrying blood and leading to life-threatening conditions.
- With less healthy red blood cells circulating in their body, patients become chronically anaemic. The disorder is genetic.
- Casgevy does not remove the mutation that is at the root of the disease.
- But it’s designed to compensate for the haemoglobin by reviving the fetal haemoglobin, which gets switched off shortly after birth.
India and sickle cell anaemia
- India has the second highest burden of sickle cell disease, which predominantly affects the country’s tribal population.
- The Union Budget 2023 introduced the National Sickle Cell Anaemia Elimination Programme to address the challenges posed by the disorder.
- The programme — envisaged when preliminary results on the gene therapy were trickling in — aims to eliminate the disease by 2047.
- At current costs, Casgevy seems prohibitive for the country. However, research institutions should explore the possibilities offered by gene editing to develop affordable therapies.
Conclusion: Gene research institutions played a significant role in the management of Covid. But research on cell editing therapy is, by all accounts, at a relatively nascent stage in India. Casgevy’s success should spur investments in this field.