Aug 25
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consolidation in banking sector

An Analysis of Consolidation in Banking Sector in India

By Banking No Comments

Consolidation in Banking Sector in India

“The Indian banking system could be better off if some public sector banks are consolidated to have fewer but healthier entities, as it would help in dealing with the problem of stressed assets”.
– Urjit Patel, Former RBI Governor

Recently, the 93-year-old lender, Lakshmi Vilas Bank (LVB) made it to the list of recent financial sector failures. After several quarters of waning financials, the lender was placed under a moratorium and is set to be merged with DBS Bank India. While bank failures are not a novel occurrence, the material size and quick succession of financial institutions going under the bus are worrisome.

In the past few years, investors have witnessed the failure of IL&FS, DHFL, Yes Bank, PMC Bank, and now Lakshmi Vilas Bank. IDBI Bank, was on the brink of a collapse by Life Insurance Corporation’s (LIC) capital infusion, thereby taking over a majority stake in the bank. While IDBI Bank’s case maybe is inconsequential in size as compared to India’s financial sector but bank failures, put together, throw up some important lessons for the Reserve Bank of India and the country’s financial sector at large.

While there exist two types of bank consolidations – voluntary and forced, the latter is widely prevalent across continents. Globally, the prime driving force for voluntary bank consolidation activity is a stiff competition that puts focus on synergy, growth and operational efficiency, and profitability. The merger of ING Vysya Bank, having a strong presence in South India, with Kotak Mahindra Bank having a stronghold across West and North India driven by synergy and demonstrated clear economic logic.

However, the latter type of bank consolidation is viewed from the perspective of the resolution of a weak bank and the “too big to fail” principle followed by the authorities. As a result, such mergers and acquisitions have facilitated corporate restructuring leading to the emergence of large banking and non-banking financial institutions both in – size and might. 

Section 45 of the Banking Regulation Act, 1949 empowers the Reserve Bank of India (RBI) to make a scheme of reconstruction or amalgamation of a bank with another bank if it is in the depositors’ interest or in the public interest, or in the interest of the banking system as a whole. The operation of the weak bank may be kept under a moratorium for a certain period of time to ensure smooth implementation of the scheme.

Many private sector banks have been merged with other private sector banks or the PSBs under this mechanism. The recently forced matrimony between the Indian arm of the Singapore lender, DBS, and Lakshmi Vilas Bank is a salient example of the applicability of this provision since the onset of the COVID-19 pandemic. Resultantly, LVB will cease to exist and its deposits will appear on the books of the India unit of DBS Group Holdings Ltd., Singapore’s biggest bank.

In hindsight, this approach is a cleaner solution as opposed to the handling of the Punjab & Maharashtra Co-operative Bank Ltd. (PMC) implosion, whose loan book was associated with a bankrupt developer, and more than a year later, the larger PMC depositors remain trapped under RBI’s orders. In another instance of a messy bailout, authorities permanently wrote down $1.2 billion of Yes Bank’s liabilities, wherein the complete loss was borne by Tier 1 bondholders and relied upon State Bank of India for capital infusion.

Such past instances are indicative of the authorities’ past refusal to give a decent burial to a failed institution. However, regulations and notifications passed on account of COVID-19 provide for a convenient regulatory cover to delay recognition of stressed assets, and therefore, the success of such bank consolidations may not be known until March 2022.

Banks as a whole have exhibited sluggish performance followed by an increase in Non-Performing Assets (NPAs) in recent years. As a result, such consolidation or merger of financial institutions can help them ride off troughs with relative ease and bring Indian banks into competition with global banking giants. In the case of DBS-LVB, DBS being Singapore’s largest lender is well-capitalized and has deeper expertise to handle large credits and large NPA, provided the consolidation is well-calibrated and based on sound economic logic.

On the flip side, the merger of a weak bank (here, LVB) with a strong bank (here, DBS) may lead to a weaker merged entity in the event the merger process is handled inadequately. Issues inflicting the weaker bank such as higher NPAs and capital shortages may get transmitted to the stronger banks due to unduly haste or a mechanical merger process. Moreover, the existence of large-sized stressed banks may lead to systemic implications as the governments almost always bail out banks that are “too big to fail” using taxpayers’ monies.

Finally, in view of the above, the RBI must act preemptively when a financial institution has weakened beyond repair. For instance, in the case of Lakshmi Vilas Bank, its books revealed the need for a rescue for over a year, however; the institution was left high and dry to the point of complete capital erosion.

Therefore, the RBI’s decision to broaden the search beyond a “national team” is a good sign and indicates that the regulator wants control of banking assets to be in strong hands. While such forced mergers may be detrimental to the wealth of bidder banks, time shall reveal whether the DBS-LVB merger is fair and equitable to both banks involved in the merger. 

 

Tags: consolidation in the banking industry, consolidation in the banking sector, consolidation in banking sector, banking sector consolidation, financial sector failures

Aug 25
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vodafone vs india inc

Vodafone vs India Inc: The Many Twists and Turns That Lie Ahead

By Telecom, Others No Comments

Vodafone vs India Inc: The Twists and Turns

The legal tussle between the telecom giant, Vodafone and India Inc. tied at deuce with Vodafone’s recent win in a tax liability case at The Hague. A unanimous decision of the Permanent Court of Arbitration at The Hague ruled in favour of Vodafone on the grounds that India’s retrospective demand of Rs. 22,100 Cr. as capital gains and withholding tax imposed on Vodafone violated the “fair and equitable treatment” guaranteed under the investment protection pact between India and the Netherlands i.e. the Netherlands-India Bilateral Investment Treaty (BIT).

While the tax dispute involving Rs. 12,000 crores in interest and Rs. 7,900 crores in penalties started with Vodafone’s acquisition of Indian mobile assets from Hutchison Whampoa in 2007 where-after the Indian government insisted on payment of taxes on the $11 billion acquisition, while Vodafone disputed against it before the Bombay High Court, which ruled in favour of the Department of Income Tax, and subsequently rejected by the Supreme Court, which held that Vodafone was not required to pay any taxes and demanded Income Tax Department to refund Rs. 833 crores in taxes to Vodafone Idea.

However, the convoluted tussle took another turn in 2012. To prevent abuse and plug the loophole of such indirect transfer of Indian assets, the government in 2012 amended the law thus empowering the Income Tax Department to retrospectively tax such deals, as a result of which the onus of paying the taxes fell back on Vodafone which the firm contested through international arbitration.

Thus, the recent setback at The Hague leaves India Inc. with one most obvious option i.e. challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996 which provides for limited grounds to challenge an arbitral award.

A party to a dispute, if dissatisfied, has the right to challenge the award and in light of the persuasive effect, it is likely to have on other treaty arbitrations that concern retrospective tax measures, such challenge is justified. The government should consider damage mitigation strategies after losing against Vodafone in the backdrop of similar, but separate lawsuits such as the Cairn Energy tax dispute.

On the flip side, as the Permanent Court of Arbitration situated in The Hague had passed the award in favour of Vodafone, there lies no further authority for putting up an appeal. The government can only go back to the Permanent Court of Arbitration on some technical point, but that will not serve any purpose.

Furthermore, the Indian Arbitration Act obliges the government to implement a foreign tribunal award, Vodafone can ask for the same in case the award is challenged in Indian courts. However, in the present scenario, since all the property, both tangible and non-tangible of Vodafone, lies outside India it will be difficult for the government to successfully challenge it in Indian Courts due to jurisdictional issues.

Alternatively, India Inc. may choose to gulp in the award passed in favour of Vodafone and do nothing. However, still, waters on the legal front may have a ripple effect among investors. At the outset, the legal wrangle may appear to have no additional negative impact on investor sentiment as they recognise those challenge proceedings are part of the norm, appealing against an international arbitration award may disincentivize investors in the long term.

The reason is, that a change of legislation against the spirit of the Supreme Court judgment on the subject by resorting to retrospective legislation certainly creates an unpredictable and unstable business environment. From an international investor’s perspective, investment in countries leading to change in legislation when companies get entangled in legal tussles with governments for non-compliance with international orders jeopardizes investor interests and hurls them into an abyss of losses.

Besides discouraging investors, it creates interruptions in the ease of doing business in such countries and thus disincentivizes them to make any investments or indulge in any form of funding. Vodafone’s victory at The Hague may accord partial relief in the backdrop of its mounting AGR dues owed to India Inc. However, it is likely to have implications on other international arbitration cases over retrospective tax claims and the cancellation of contracts.

If other companies like Cairn Energy and a dozen others were to follow suit, the Government of India could end up paying to burn a hole in its treasury for damages if it loses. It is debatable whether the fault lies in the tax laws and the amendments made thereof, however, the after-effects will have to be borne by the entire economy regardless.

 

Tags: india bilateral investment treaty, vodafone acquisition, bilateral investment treaty of india, india bilateral investment treaty, vodafone acquisition, vodafone mergers and acquisitions, vodafone vs india inc, merger and acquisition of vodafone and idea

Aug 25
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right to privacy

Right to Privacy : A Fundamental Right for All & Duty of Some?

By Others No Comments

Right to Privacy:  The Fundamental Right

Digital privacy, a basic millennial need often brushed off by legislators, resurfaced with WhatsApp’s insidious privacy update. The updated terms of service mandate information-sharing with Facebook and its partner companies under the pretense of service integration raised eyebrows on social media and hurled users into a frenzy. WhatsApp’s my-way-or-highway approach forcing users to accept the new privacy policy has set off alarm bells ringing for the privacy-conscious users, who are now making a beeline to dump the app and shifting to more secure and reliable alternatives, such as Signal and Telegram. 

However, surprisingly WhatsApp operates within the existing legal framework of India’s privacy legislation, therefore, jeopardizing and compromising the privacy of Indians leaving them with little to no respite from data privacy violations. Recently, India marginally moved closer to realizing the Right to Privacy guaranteed under Article 21 of the Constitution with the enactment of the Personal Data Protection Bill, 2019.

Unfortunately, several nuances, procedural and administrative details have not been adequately clarified under the Bill. Therefore, the Bill lacks tooth and nail to fight against rising data breaches and cyber attacks in an increasingly digitized commercial environment amidst the pandemic.

Moreover, the Information Technology Act 2000/2008, suffers from grave shortcomings on the data privacy front. For instance, the IT Act provides for data collection and usage standards but overlooks establishing a framework for data storage techniques, user consent, and data processing standards. In an effort to surmount the shortcomings, the IT Act was amended to include Section 43-A and Section 72-A, which give a right to compensation for improper disclosure of personal information.

Subsequently, additional rules issued by the Information Technology Rules, 2011 impose additional requirements on commercial and business entities in India relating to the collection and disclosure of sensitive personal data or information which bear some similarities with the GDPR and the Data Protection Directive, which recognize the right to privacy. However, expectations from the Bill and its Data Protection Authority to be at the standard of G.D.P.R. without any experience is a tall ask.

This lack of a robust data protection regime and regulatory inexperience provides a conducive environment for heightened data breaches and privacy violations. Although the PDP Bill urges the adoption of ‘privacy by design to maintain transparency and accountability regarding its general practices on the processing of personal data, implementing appropriate security safeguards, and implementing procedures and mechanisms to address the grievance of data principals.

Thus, the mere existence of the PDP Bill and Right of Privacy as a Fundamental Right without implementation of an appropriate mechanism and framework has invariably led to a dead letter regime. 

Therefore, the light of the mass digitization of businesses followed by an increased dependence on the internet for business and leisure on account of the pandemic necessitates the need to plug the gaps and provide the country with a robust data protection law.

The recent privacy policy update by WhatsApp indicates the need for stronger, comprehensive legislation and propels the privacy-conscious users to address the legal vacuum left unattended otherwise. In view of the fast-evolving online commercial industry, it is imperative to establish an Authority that helps identify and penalize offenders so as to materialize Privacy in letter and spirit and save it from being left as a half-baked promise. 

 

Tags: privacy policy, privacy update, right to privacy, data privacy violations, privacy legislation, data privacy act

Aug 24
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pre pack paradigm

A Critique on The Pre-Pack Paradigm in India

By Corporate Law, Others No Comments

Pre Pack Paradigm in India

Corporate rescue, as a precursor to insolvency resolution, enforcement against or liquidation of a company, is a prominent feature of insolvency laws across the globe. Corporate rescue provides creditors of a stressed debtor company with the tools to formulate a plan to salvage the status of such debtor company and revive the business again. The Insolvency and Bankruptcy Code, 2016 aims at business revival under strict timelines, however adherence to the adjudicatory timeline prescribed by the Code remains a challenge.

While the Code facilitates the recovery of dues with minimum losses for creditors, the timely revival of debtor companies is often delayed. Furthermore, other issues exist such as formal engagement of third-party advisors, direct and indirect costs, operational disruptions, and loss of goodwill of the debtor company, to name a few.

Legal luminaries opine that introduction of the pre-packaged insolvency resolution process (pre-packs) with necessary checks and balances could change the course of insolvency resolution in India. The Indian economy is grappling with mounting non-performing assets (NPA) and creditors including banks, financial institutions, and other lenders are left high and dry with sluggish recoveries. Pre-packs across jurisdictions are known to plug this wide recovery gap.

Typically, pre-packs are known to combine “the best of both worlds” so that insolvency proceedings cause nominal disruption to debtors’ company’s operations by combining speedy resolution, cost-effectiveness, and value maximization with a focus on business continuity. With most pre-packs having the potential to reduce litigation, due to their consensual and informal nature; their success is subject to the binding effect it has on the debtors, creditors, and other stakeholders.

However, meticulous studies of pre-packs reveal tailor-made features to suit each jurisdiction and none of these variants can be replicated in India without dovetailing it from the legal framework.

Further, past trends regarding out-of-court settlement and restructuring schemes indicate little to no success and often end up before the courts. Furthermore, private negotiation among stakeholders prior to commencement of the formal process, which contributes to the advantages of pre-pack, is often a source of distress. Therefore, balancing transparency during the pre-pack process without risking the confidence of creditors, customers and employees may be a challenge.

Another major concern is that pre-packs pay no consideration to the future viability of the new company emerging from a pre-pack sale. The current laws state the legal responsibility of the insolvency practitioner towards the creditors of the old business; however, the long-term interests of stakeholders of the new business should also be taken into account with good intention.

Besides, pre-packs also give rise to the concern of ‘serial pre-packing where pre-pack is used to avoid loan repayment and perpetuate unviable businesses. The informal process of pre-packs involving private negotiations of high-value businesses would only exacerbate the existing problems. Therefore, pre-packs should be designed to enhance transparency in India, although different countries across the world have varying levels of transparency, but usually less than the CIRP.

In view of the above, corporate rescue and specifically pre-packs would prove useful since the liquidation of borrowers seems far from a viable solution to cure the longstanding malaise of NPAs in India. However, its impact at the grassroots level can be gauged only after the meticulous implementation of the Pre-packaged Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016.

Thus, as creditors await pre-packs, the hope is that legislators succeed in resolving the existing NPA problem and default culture; and not promulgate just another corporate rescue method riddled with implementation ineffectiveness and woes.
 

Tags: pre packaged insolvency resolution process, pre pack sale, pre packs, pre packaged insolvency, pre pack paradigm, pre pack liquidation, pre pack paradigm in india, critique on pre pack paradigm

Aug 24
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ott self regulation

OTT Self Regulation Code: A Balancing Act Between Artistic Expression and Consumer Protection

By Others No Comments

OTT Self Regulation Code

In a slew of changes witnessed during the pandemic, about 40 over-the-top (OTT) platforms like Amazon, Netflix, and Hotstar have become frontrunners in providing high-quality entertainment for a user base who has transitioned to a home-bound lifestyle.

The rising prevalence and user base of OTT platforms have propelled the I&B Ministry to promulgate an overarching statute that provides for the self-regulation of OTT platforms. For instance, films are governed by the Central Board of Film Certification, TV channels are broadly regulated under the Cable Television Networks Regulation Act, and the print media has the Press Council of India, however, the digital media space has been unregulated till now in India. These bodies, however, lack the necessary tooth and nail in terms of review, enforcement, and penalization powers for violation of their guidelines.

Admittedly, such self-regulation brings the television, print, radio, film, and digital media on a level playing field; however, a heavily regulated structure may hamper the industry’s ease of doing business thereby affecting the existence and effectiveness of such a regime in attaining its primary objectives. However, such regulation is especially necessary in times where sensitive video content and fake news travel faster than the speed of light.

The I&B Ministry received numerous complaints regarding foul language, violence, and adult content shown on OTT platforms, which is inappropriate for audiences below the age of eighteen. Moreover, complaints against single-shop digital new websites have also risen in regards to the circulation of fake news without retraction or clarification. These complaints were largely dealt with by the Communications and IT ministry with provisions under the Information Technology Act and the Indian Penal Code as armor and/or sword. However, the proposed regulation is likely to accord a higher degree of protection to its viewers in a previously unregulated domain.

Moreover, this regulation is likely to address and provide redressal of consumer complaints on OTT content. Currently, bodies like the Press Council of India and the News Broadcasting Standards Authority’s powers to govern the media industry lack the necessary teeth, due to the absence of review, enforcement, and penalization powers regarding violation of their guidelines.

Thus, the proposed move is indicative of the right mindset, however, the government must be wary of an overly regulated regime, which may prove to be counterintuitive to the sustainable development and regulation of different media platforms under a single regulatory framework.

In summation, the Self-Regulating Code is a positive step taken on the part of content providers to regulate their platforms. Such a code would provide creative freedom to content creators while imposing “reasonable curbs” on OTT platforms to regulate the domain.

The code is likely to address peripheral issues as well as core issues through such self-regulation, subject to an adequate and honest implementation by digital platforms like Hotstar, Amazon, etc. Although OTT platforms are at a nascent stage in India, the conjoined efforts of the government and content providers will adequately balance creative freedom with regulation. 

 

Tags: artistic expression, consumer protection, balancing act, consumer protection act, ott self regulation, consumer rights, consumer affairs, consumer law, consumer act, consumer rights act, the balancing act

Aug 24
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bank nationalization

A Robust Shadow Banking System For NBFCs – A Must For The Indian Economy Having a High Quantum of Micro Borrowers

By Economy, Banking No Comments

NBFC Micro Finance Institutions

Customers for micro-entrepreneurs have dwindled. With this significant loss of demand coupled with the supply-side shock, most cannot ply their trades with any significant level of certainty and consistency. With overburdened banks and a substantial non-performing asset portfolio, the shadow financing industry’s inclination is to percolate downwards leading to a wider reach among the economically weaker sections of the society across India. In addition to this, the limited prudential regulation pertaining to NBFCs further attracted a high quantum of micro borrowers in India looking to pave their way out of the pandemic situation. 

In the past, the interests of micro-borrowers were compromised in the single-minded pursuit of increased profits by lenders with a scarce focus on the well-being of borrowers. To address this problem the Reserve Bank of India (RBI), 2011, introduced comprehensive regulations on micro-credit with “master directions” for NBFC Micro Finance Institutions, which covered products, leverage limits, market segments, pricing, and the interface with customers.

However, the potential effect of similar such comprehensive regulations was wiped off with the onset of the pandemic hurling a substantial population of micro-borrowers into a fathomless abyss of debt and penal interests. In addition to this, the recent government-led relaxations have induced a lopsided effect of pushing the demand side upward while the industry continues to be plagued with disrupted supply chains and the unavailability of the labor force.

With the attainment of demand-supply equilibrium appearing as a distant reality, the resilience of the shadow financing industry will be put to a litmus test. Therefore, safeguarding customer interests is as critical as helping the shadow financing system stay afloat when depressionary forces are mightiest. 

Adding to the woes of NBFCs is the lack of fund flow and evaporating liquidity which started from the IL&FS fiasco but continues to exacerbate under the pretext of the pandemic. For the lack of government support in this year’s Budget, the involvement of NBFCs in sensitive sectors such as real estate and infrastructure has led these shadow banking segments to gorge on public money. Evidently, the cash influx from the authorities is not sufficient to eliminate concerns among investors about NBFCs and raises concerns of rising bad debts in the coming quarters. 

The past few years have severely impacted the financial well-being of the shadow financing industry; however, they have gained a position of prominence by assuming the role of banks on some occasions.  This invariably raises an essential question of whether to bring NBFCs under similar scrutiny levels as banks to ensure the sustainability of NBFCs. The need for a strongly regulated shadow banking system was urgently felt to be addressed by the RBI to address the systemic risks inherent to NBFC in the country.

The proposal to place micro-borrowers under the least stringent regulations is likely to facilitate growth and promote the shadow financing industry which plays an integral role in lending support to micro borrowers in rural and urban areas. However, in doing so, the loss withstanding ability of various classes of NBFCs should be carefully assessed.

Since NBFCs attract a high quantum of borrowers, a robust system would enable the NBFCs to assign credit scores to individuals. Thus, propelling the existing framework towards a fool-proof one would mitigate default risks that caused the collapse of the sector in the past. As NBFCs operate more like banks and provide similar banking services at present, the current practice demands a stricter regulation on the NBFCs wherein checks and balances at regular intervals would ensure the overall financial health while securing the interests of micro-borrowers at large.

 

Tags: rbi guidelines for microfinance, nbfc microfinance, micro finance rbi guidelines, micro finance nbfc, nbfc micro finance institutions, rbi rules for microfinance, rbi guidelines for microfinance institutions, rbi guidelines microfinance

Aug 23
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watertight

Where There is a Will, There is No Other Way – Drafting Watertight Wills

By Real Estate No Comments

Drafting Watertight Wills

Watertight Wills: One can measure laws’ commitment to justice and equality by understanding the impact of historically disempowered groups such as women, children, low-income or poor families, from a bare perusal of the laws of intestacy, watertight will, contest, and construction of trusts to name a few. Will play a quintessential role in the protection of loved ones after one’s demise, and laws provide the necessary support thereafter. 

A Will is a “legal declaration of the intention of a testator with respect to the distribution of their assets upon their death.” Hence, it is the sole ground on which the distribution of property takes place. However, a written Will cannot be held as a gospel of truth, therefore can be contested in its capacity.

The provision of modification of a Will at any given point makes the document a complex and tricky one, nevertheless in the absence of a blatant lie or explicit medical evidence proving the incompetence of the testator, contesting of the Will can be onerous. On the flip side, if a person dies without leaving a Will (i.e. intestate), this triggers rules under the laws of intestate succession under which the deceased’s properties pass to relations specified under the laws. However, these default rules will not apply with respect to the property bequeathed under a valid Will.

However, an ambiguous Will means drawing a line in the sand against their validity. Thus, it is imperative to draft a watertight Will that ensures it is uncontested, valid in the eyes of law, and therefore, people suffering an ailment, having a property under dispute, or being involved in a matrimonial dispute, are recommended to draft the Will pursuant to their wishes.

Additionally, it is paramount that details of movable and immovable properties are mentioned in minute detail without any ambiguity which shall also include the value and extent of the property, the name of all the individuals who shall inherit the said property with the monetary benefit arising from the same. 

Moreover, to circumvent disputes, in case any non-member of the family is made the beneficiary, it is prudent that the reason for the same is mentioned in the Will.  More importantly, registration of the Will though not mandatory is advisable as it gives authenticity to the document whereby it is difficult to challenge the same.  Furthermore, a quintessential watertight Will would also include a name of an executor who shall be responsible for dividing the property and the same could be smoothly carried out if the Will is executed and sealed before the Magistrate or the public notary.

The executor is further required to file a probate petition in the court of law to establish their said right as an executor. Another fundamental requirement for making a Will is to affix the signature of the testator in the presence of credible witnesses, as a result of which the intention of the testator is crystal clear. 

Most Wills smoothly sail through the process; however, the testator’s signature is susceptible to be challenged on the grounds of the testator’s unsound mind, the undue influence exercised by interested parties, or the disposition is apparent to be unnatural which raise suspicion towards the free will of the testator.

Therefore, Wills can be beneficial to the descendant family, one that is free from ambiguity and includes the exact details of the assets, names of beneficiaries, and the extent of the benefits along with a declaration to the effect that the Will is the last Will which is free from any coercion or fraud as affixed by the testator in the presence of credible witnesses would help to uphold the legitimacy of the document thereby making it watertight in a true sense.  

 

Tags: water tight, watertightness, construction trusts, construction contest, watertight, construction will

Aug 23
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women rights on ancestral property

Women Rights on Ancestral Property– Fractional Justice Or Not?

By Real Estate No Comments

Women Rights on Ancestral Property

Property rights lie at the juncture of our cultural ethos, economy, and the law. They are collectively shaped by societal transgression, development, and legal considerations. Though the Hindu Succession Act 2005 served as watershed legislation on many counts to adduce women’s rights, it failed to redeem itself from the clutches of gender orthodoxy. Simply put, the Hindu Succession Act 2005 emerged as a classic case of “fractional justice”. For instance, the husband was bestowed with a veto power with regard to all aspects of women’s property, therefore, evidently, the right of widows and divorced women were practically non-existent.

It was, at best, a half-hearted measure to improve the position of women. It retained the Mitakshara coparcenary whose membership was confined only to males. Sons would not only get a share of their father’s property but also their own interest as coparceners in the joint family property. Daughters would only get an equal share in the paternal property. This was the main point of contention that called for legal reform in 2005.

India is yet to have a Uniform Civil Code, as a result of which the current laws pertaining to the rights of widows and divorced women are largely governed by the Hindu Succession Act, 2005 and the Indian Succession Act, 1925. The law relating to widows and divorced women’s rights in the ancestral property of the husband is intact to the point that the share in the ancestral property that belongs to the husband shall be equally bequeathed upon the widow and her children in the event of the husband’s demise.

Likewise, in the case of a divorced woman, she is entitled to the same share that she would have been entitled to had she been married to him.  However, the law provides for the right to be conferred upon a widow and a divorced woman only in case it is inherited from the husband, which means that she is not made the co-owner but merely holds the right of inheritance.

Remarkably, Uttarakhand Government set a precedent for other states to follow by upholding the status of a wife as a co-owner instead of just holding inheritance rights. However, the right of a co-owner ceases to exist if a woman remarries.

However, suppression of women’s rights persists despite the above-mentioned ordinance as it is only passed in Uttarakhand and the women in the rest of the country are currently governed by the laws which impede upon their rights as an owner of the husband’s property as their rights in the said property is limited to the share allotted which can be exercised only upon inheritance.

Thus, there is a dire need to look at the laws governing properties through a gender-neutral perspective which would empower women of the country who have been oppressed over the years and have been disavowed of their rights. The same can be overcome by involving women in the law-making process that affects them and making small changes in the law for instance replacing the word ’wife’ with a spouse could go a long way in creating an inclusive law.

Additionally, women in the rural areas farm on ancestral property while their husbands migrate to cities for a better standard of living, but women are prohibited from availing of a loan without the husband’s consent. Thus, beholding women as co-owners is a pragmatic move that enables them to invoke their rights in the said property. 

Hence, despite having numerous women-friendly laws, the persistence of stereotypes and conservative attitudes have a major impact on the advancement of women’s rights which is not only depriving them of the same status as the other gender but also making it tiresome for them to survive in a male-dominated environment.

A radical change in the existing culture pertaining to gender and justice is imperative. Therefore, it is undeniable that providing co-ownership rights to women on the husband’s property is not only the right thing to do but is the way forward to eradicate poverty, hunger, and violence. At the same time, it will give women a better footing to stand on to claim their rights in such ancestral properties.

In hindsight, though women’s property rights have emerged as a contested terrain wherein lived ideas of tradition and modernity have been revisited and dissected frequently in the public sphere, the recent judgments and ordinances come off as a breath of fresh air as opposed to the biased laws that continue to be in force even today.

Property being the fulcrum for patriarchal bargains and negotiations within the private and public domains for women, it empowers women in exclusive ways — allows them to make choices about livelihood, provides security against poverty, and advocates autonomy. So it is rightly said, “Women’s rights are human rights” – be it for property or otherwise!

 

Tags: women rights on property, property rights for women, women’s land and property rights, women’s land ownership rights, supreme court ruling on women’s property rights, women’s rights in ancestral property, women rights on ancestral property, ladies property rights, women’s right to inherit property

Aug 23
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due diligence in real estate transactions

Real Estate Risk Evolution: Adapt Through Corporate Governance

By Real Estate No Comments

Real Estate Risk Evolution

The significant risk lies ahead on the real estate front on account of the unprecedented global impact of the Covid-19 pandemic. The influence of Covid-19 has been swift and the stay-at-home-policy has stagnated real estate and other economic activities. 

From a property perspective in the real estate sector, transferring risk through insurance is not sufficient. Effective Corporate Governance is something that should play a prominent role in establishing its most potent foundations in the real estate sector. The need for the development of corporate governance becomes essential when risk managers present a broader perspective for the introduction of enterprise risk management to drive resilience for the long-term stability in the real estate market.

Among various other threats to the real estate sector which include property technology usage, environmental risks occupy the top prominent position in terms of likelihood of occurrence. This claim can be corroborated according to various data which have provided detestable statistics of property loss due to environmental concerns. The most famous of all is the Mangkhut in 2018. Additionally, it is to be noted that odious environmental concerns not only pose grave likelihood risks but also hold a prominent position among the exhaustive list of most impacting elements.

According to reports, it has been found that effective loss control measures and risk surveys can help reduce both the frequency and intensity of losses. Consequently, risk surveys and control measures can also positively affect values. As a basic rule of risk management, it is to be noted that an effective strategy to mitigate losses lies in a quick, effective loss mitigation move that saves the day.

As they say, time is of the essence and it perfectly fits in the strategy of effective risk management techniques. On the contrary, a failure to take swift, effective action will result in higher costs, more ridiculously expensive insurance premiums reduced income, etc. through detestable business interruption. Nor will it just hit the business in terms of monetary value but also in terms of weaker tenant demand which will ultimately translate itself into lower capital values.

What has been described above is a long-term solution to the real estate odious problem. It is to be noted that alternate short-term solution includes insurance solution. Why is insurance a short-term solution? Because it must be renewed each year.

The real driver: Tenant Experience

Due to the very fundamental, rudimentary requirement and nature of the real estate market, it can be effectively discerned that tenant experience largely drives the market. And as per basic principles of Corporate Governance to measure and mitigate risk, the focus of your real estate investment should emphatically focus on the physical and operational aspects of improving the tenant experience. As we know better the physical ambiance, the better the tenant experience. Other ways to effectively boost tenet experience are by improving wellbeing, business continuity, and resilience.

Risks that should not be condoned

According to the responses recorded to the GRPS, many viewed societal risks as presenting the most odious dangers over the coming 2–3 years. This is due to a very pertinent fact: the Pandemic. Given the virulent nature of the pandemic, people are now effectively ranking infectious diseases and the subsequent livelihood crises as the most dangerous threats.

Given the aforementioned risks and dangers, Real Estate tenants are emphatically reviewing their occupancy footprint. It is to be noted that it is not always reviewed to downsize, but with greater scrutiny and awareness of risk factors. Here it is to be noted that property owners can maintain their tenant footprint by conscious investing in response to changing occupier preferences. Additionally, future-proofing of assets can also go a long way as it offers security and resilience in the long run.

Property technology: boon or curse?

Given that our lives have turned virtual due to physical constraints imposed by the pandemic, the online mode has evaded our lives big time. With everything turning to online mode, people have been made more susceptible to cybercrimes and felonies that are on the increase daily. Additionally, given the success in the Real Estate sector, it has become more reliant on technology. But why is technology in the real estate sector so important? Due to a very unadorned reason of the need for robust cybersecurity strategies that is critical for everyday operations.

Also, the robust, exclusive use of technology in the real estate sector has led to the shaping of the retail fabric of major cities as large online retailers have assumed an enhanced role. For the Real Estate sector, the usage of proptech has become a threat due to its increased and continued rollout of physical infrastructure, building operations, and occupier activity. An effective strategy to counter such mishappenings is that implementing data protection should be a priority throughout enterprises. This strategy should be coupled with tighter and more effective, competent cybersecurity laws in the country.

Therefore, in conclusion, good corporate governance will help enable the real estate business to identify and measure risk which will effectively drive demand. Thus, Real Estate owners and occupiers can indeed make informed decisions regarding possible risk transfer according to individual risk profiles. Therefore, in a statement, it can be summarized that effective Corporate Governance provides for better stewardship and risk management for Real Estate owners throughout their tenant experience and real estate development.

Fears in relation to income streams, such as rental incomes, and mortgage payments, which are already being affected negatively in the short term may worsen in the long term due to economic recession. Therefore, good governance forms its basis in 2 scenarios, namely: the economic recovery scenario and the use of legal context to mitigate pandemic associated risks across the sector.

Therefore, good corporate governance enables your business to identify and measure risk, which is also a step towards savvy financial planning. As risk transfer is generally viewed as a cost, in the form of insurance, retained risk can also be quantified in financial terms to be taken into consideration by Real Estate companies.

 

Tags: real estate evolution, corporate governance, good corporate governance, corporate governance system, corporate governance policy, evolution real estate, real estate risk management, real estate risk

Aug 20
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china's bad bank geometry

Lessons From China Bad Bank Geometry and How India Can Learn

By Banking, Others No Comments

Lessons From China Bad Bank Geometry

The NPA crisis in India is burgeoning. While the RBI and Government take steps to strengthen the hands of bankers in the recovery and rehabilitation of stressed assets, the impact of these measures will be visible after a time. To worsen the state of the financial sector in India, the increasing failure of banks due to their operational issues coupled with pandemics can quite rightly be stated as a recipe for disaster. In its newest initiative to deal with the financial crisis in the country, India has been getting ready to operationalize a new scheme- Bad Banks.

Starting an aspiring scheme to mitigate the crisis, a little perspective and scrutinization of similar successful policies in other nations might be necessary, even if it is coming from the territorial aggressor – China. India can effectively scrutinize the Chinese experience which should inform Indian policy on bad banks.

The aftermath of the Asian financial crisis was a setback for many economies around the world. Its effect on the Indian financial system was so immense that many consider the Asian financial crisis as the origin of the NPA crisis in India.

Even though India, at that time, might have swept the problem under the carpet but China had set up dedicated bad banks for each of its big four state-owned commercial banks. As a mandatory function of bad banks, they acquired non-performing loans from debilitating, stressed banks and timely resolved them.

Given the global financial crisis of 2008, their tenure was extended indefinitely. Deciphering the success of such a strategy, in 2012, China had emphatically permitted the establishment of one local bad bank per province.

The strategy of bad banks to counter their bad loans was utilized to such an extent that by the end of 2019, China had 59 local bad banks. Such a conscious, timely approach to mitigate the NPA crisis in China can serve as an opportune example for India, which at the moment, stares at a long, never-ending path of NPA crisis.

According to various researches, it is to be noted that Chinese bad banks have been hailed for their notable contribution to concealing bad loans. According to reports, banks finance over 90 percent of non-performing loans. 

The mechanism

China’s bad bank strategy works on bad banks reselling over 70 percent of the NPLs at inflated prices to third parties. Additionally, it is to be noted that the third party usually happens to be borrowers of the same banks. However, all is not as rosy as many reports might state. This is due to the fact that there are a plethora of reports that are there, on the contrary, maintain that in the presence of binding financial regulations, the bad bank model could create perverse incentives to hide bad loans instead of resolving them.

The lessons India should pay head to

The Chinese bad bank’s experience teaches India four important lessons. First and foremost, the tenure of bad banks is the key. This effectively means that a bad bank should ideally have a finite tenure. This is due to a very prominent reason that bad banks are typically a swift response to an abrupt economic shock which can lead to quick, orderly disposal of bad loans. However, it does not leave much space for long-term restructuring and in-depth resolution. Thus clearly, such a bad bank has a temporary purpose.

The second lesson to be learned from China’s bad bank experience is that a bad bank must have a narrow mandate with clearly defined goals. It is to be noted that mere transferring of bad loans to bad banks isn’t the ultimate solution but a full-fledged, in-depth resolution strategy is required to mitigate such a crisis.

If such a mechanism is not paid heed to, a Bad bank scheme might become a vicious non-ending cycle of transferring bad loans to a third party. As a matter of fact, overdependence on bad banks might even lead to financial instability in the long run.

Thirdly, it is not news that the nature of occurrence of NPAs and nonpayment of huge loans in India is recurrent even after they are transferred to asset reconstruction companies, also known as bad banks. Additionally, it is to be noted that sources of funds for ARCs have largely been bank-centric.

This effectively means that some banks also continue to hold close to 70 percent of the total security receipts (SRs). Thus, to address such an odious problem, RBI has tightened bank provisioning. This has been done by liberalizing foreign portfolio investment norms. This initiative has been taken to help reduce bank holding in SRs.

Lastly, the resolution of the NPAs in the economy should happen through a market mechanism and not through a multitude of bad banks. As a matter of fact, the regulatory arbitrage between ARCs and AIFs needs to end.
While AIFs should be effectively allowed to purchase bad loans directly from banks, ARCs on the other hand should be allowed to purchase stressed assets from insurance companies, bond investors, and mutual funds.

Thus, ARCs should be effectively trusted to be allowed to infuse fresh equity in distressed companies, within IBC or outside of it. Thus, given all the aforementioned experiences of the Chinese bad bank strategy, India might now have a clearer perspective on the road map it needs to take for a successful resolution of its bad bank crisis.

The Chinese experience should even nudge Indian policymakers to facilitate market-based mechanisms for bad loan resolution in a steady-state while avoiding excessive dependence on bad banks for its NPA resolution. Therefore, India must pick cues from its territorial aggressor and avoid creating a superstructure Bad Bank on an unworkable infrastructure!

 

Tags: china’s bad bank geometry, bad bank geometry china, bad banks, china bad bank geometry, china banks, lessons from china bad banks