Aug 20
Love0

Lessons From China’s Bad Banks Geometry and How India Can Learn

By Banking No Comments

China’s Bad Banks 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!

 

china bad bank geometry, china’s bad bank geometry, bad bank geometry china, china banks, bad banks

Aug 20
Love0
buy now pay later

Buy Now Pay Later: Financing the Financiers of Future!

By Economy, Others No Comments

Buy Now Pay Later

Buy Now Pay Later: Governments of all political hues have encouraged people to save for the future. However, government messages about the value of saving are working with the grain of public opinion. So the reason for declining trends in savings may be due to concrete problems such as lack of money, insecurity, and complexity that surrounds savings products. People want to save – the government needs to make it easy for them to do so!

While the country awaits savings-centric legislation and measures, it’s no surprise that Buy Now Pay Later is on the rise. Given how the pandemic had led to the crippling of state and personal finances due to its immense impact on health and the economic sector, it has further accelerated the BNPL trend. Further, the BNPL explosion can also be attributed to the boom in the e-commerce sector.

Given that the authorities had imposed free movement and travel restrictions, the e-commerce sector was heavily relied on for basic necessities during the pandemic. This had led to a boom in the e-commerce market and hence, the BNPL services. According to various insights being offered by experts, the global BNPL sector is expected to grow 10-15 times its current volume by 2025. Thus, it can be rightfully stated that the BNPL industry might serve as a lucrative business opportunity in the future. 

What will work in favour of the BNPL industry?

But why would such an industry boom even after the pandemic? This is due to the fact that it effectively fulfils a consumer need by providing a simple and lower cost financial alternative to daily arduous payday loans and credit cards. In addition to providing seamless financial services, the industry also plans on deploying technology to deliver a more accommodating customer experience. Better consumer services will help in faster decision-making.

Another factor that will work in favour of the BNPL industry is that it provides short-term credit, usually for four to six weeks, at the point of sale with a better and frictionless experience. The frictionless experience emphatically means that short term credit will be provided without the need for credit checks on smaller purchases which you can bet is an attractive proposition. As it is known that getting smaller loans or loans in general from banks is arduous, to say the least. Thus, such an effortless option to cover your daily expenses will help lure more customers to the industry.

However, it is to be noted that no business is without any risk. This too has its own set of risks attached to it. The risk here is to the consumers in the industry as BNPL is a largely unregulated space. As it is known, other forms of credit involve harsh penalties because of their strict regulations. These penalties include harsh scrutinization of credibility, missing payments and hikes in interest charges if the credit term is extended.

But given the unregulated attribute of the BNPL system, one doesn’t have to go through such odious punishments. Another con in favour of the BNPL system is that while losses for the  BNPL sector financing are low at the moment, there is a huge concern that defaults will effectively spike when a recession occurs.

As aforementioned, the BNPL system might help in mitigating daily financing difficulties but given that there is a huge rise in consumer indebtedness; experts are sceptical about whether such a business model will work in the long term. This particular detestable attribute of the industry has led experts to pay attention to the regulative requirement of the sector. Given the huge plausibility of failure of the sector in future, various regulators have suggested its regulation. As a matter-of-fact regulation will also help drive market expansion.

This is due to the fact that certainty will prevail in the market and this will lure more finance and certainly conscious customers to the market. In a survey conducted of 1000 UK nationals, it was found that 49% of UK citizens that have used a BNPL service in the past 12 months would happily spend more if credit checks had taken place in the industry. As this will lead to more transparency in the industry, more people will be incentivized to use the service.

It is to be noted that increased regulatory oversight also comes at a time when more banks are themselves entering this space. Now, this revelation leads to an inquisitive, pertinent question that is banks better placed to provide more secure and reliable BNPL services? Theoretically, if this question is answered, the answer is yes, banks are more suitable to provide better and more secured BNPL services.

Given the greater scrutinization criteria they follow to evaluate their customers, they should have better insight into their customers’ financial standing. Thus, this can effectively lead to better risk management that in the long run will lead to lesser defaulting on loans and repayment.

But the two most important aspects of such lending that banks need to pay attention to are that to this date, most banks have not been able to use the recorded customer data to provide instant credit decisioning, which effectively is the driving source of the BNPL sector. Secondly, the banks have not managed to break down the data silos within the organization to create a holistic view of the customer. Thus, these two aspects of the banking sector need to be paid attention to.

Given the aforementioned reasons and circumstances, even the banking sector, which is recently venturing out into this space, is not well equipped to enter the business. Thus, deciding to enter the BNPL space shouldn’t be just driven by a fear of missing out. Simultaneously, it is important to empower consumers through education. However, such fears should not discourage Banks from providing BNPL services and providing their customers with services that truly solve their credit needs while being fully aware of the impact of the present-future dichotomy on their behaviour.

 

Tags: financing, paylater, bnpl, buy now pay later, future financiers, buy now pay later financing

Aug 20
Love0
amazon bank

What Would An Amazon Bank Look Like?

By Banking No Comments

Amazon Bank

Leading up to 2020, radically transformed Bank models have emerged. A glimpse ahead shows an emphasis on innovative technologies to vastly facilitate banking – inclusive banking through new types of Bank models, non-traditional alliances to make banking affordable, and Fintech capabilities to make banking customer-centric. Banking in the future will leverage the geographic reach and financial know-how of NBFCs by joining hands with Fintech companies disrupting services with AI, Blockchain, and cyber security tools.

Given the above, it wouldn’t be surprising if Amazon bank one day materialized into a robust conventional banking alternative. Though Amazon is not a bank but the prospects of it becoming one aren’t too bleak. Why do we think so? It is due to one of the eCommerce giant’s traits to boast about its banking attributes and services that it would like to offer its customers that make us wonder if Amazon really thinking of its own bank.

It is to be noted that Amazon has announced multiple credit cards such as theAmazon.com Business Credit Card and Amazon Rewards Visa Signature Card. Secondly, based on its lucrative partnership with Synchrony Bank, Amazon plans for a secured credit card for consumers with bad credits. Sounds much like a bank? Yes, it sure does.

If you think Amazon has just ventured into the vertical of producing multiple cards or releasing new credit cards, you are up for a surprise. Amazon has also launched itself in the lending business by launching small business loans, through invitation only,  through its ambitious Amazon Lending business. Additionally, Amazon Pay has come up with a digital wallet for customers and a payments network for retailers and shoppers. This emphatically shows that Amazon is venturing out into the retail sector. 

Lastly, a final attribute of a bank that Amazon, at the moment, arduously follows is a reputation for unmatched customer experience. Given that both banks and Amazon thrive on customer experience and endlessly are on a crusade to talk about delighting customers, it will not be a surprise if Amazon and Bank in the future might be used as synonyms.

Just like you can store money in a bank, consumers can also store money with Amazon Pay. This is because Amazon Cash works at numerous participating stores that include CVS Pharmacy, 7-Eleven, and Boost Mobile.

The origin of Amazon Bank rhetoric

The topic of Amazon in banking isn’t without credit or just mere speculation. The aforementioned reasons lead to the formulation of a strong case in favor of Amazon bank. In addition to all the banking attributes that Amazon is now inculcating in itself, the claim was backed at Fortune magazine’s recent industry conference.

But is Amazon rooting for the same? Amazon Pay’s vice president and general manager Patrick Gauthier believes that even though they can build something doesn’t mean that they should.

But presenting such contentious analogies doesn’t mean that Amazon would not. The Bank of Amazon according to experts can be closely integrated with the Amazon website. In addition, it can also be integrated with Amazon mobile app, with specialized in-person help desks in its Whole Foods stores. This as aforementioned will be due to its recent expansion in the retail sector. 

Many are also of the view that Amazon wouldn’t have much difficulty in venturing out into the domain of car loans. This is more prominent because consumers can already purchase automobiles through Amazon. The cherry on the cake is that in addition to automobiles, auto parts like tires, mufflers, mats, and garage door openers are also available.

Robust consumer base

Talking about Amazon’s consumer base, it would be an understatement to state that Amazon is just a lucrative business. Its colossal 102 million subscribers on Amazon Prime can offer a huge potential customer base for Amazon. Thus, it can be rightfully anticipated that Amazon can provide an opportunity for finance and offer deals to customers with weak credit history in a few simple clicks. A single destination for shopping and finance, who wouldn’t want that? 

Given all the affirmations in favor of the humungous, lucrative Amazon bank rhetoric it is pertinent to ask is the idea feasible? Many experts believe that banking stalwarts must evolve to compete in the banking sector. In fact, one could also effectively argue that banks will need to become more like Amazon.

Given Amazon’s exceptional organizational skills and excellent customer service, which knows all you need to know about how to engage your customers, banks will have to ramp up their technology and presentation. Due to Amazon’s excellent and seamless customer experience, it effectively completes a transaction and suggests new items to buy in seconds, which can be hailed as an effective marketing strategy.

Thus, if traditional banks can offer a similar customer experience to their users and enhance their ability to connect with them through effective communication relationships with managers via secure video or live chat for smaller requests or questions, where customers can obtain personalized service, banks may get a chance to court more customers.

Will Amazon settle with its curtailed freedom?

Again, it is very likely that Amazon Bank will never materialize. However, given the recent developments where BharatPe and Centrum would rescue the significantly distressed PMC bank by way of starting a small finance bank (SFB), Amazon’s entry into the shadow banking space is not an impossibility.

However, entering into the banking services would mean that they’d have to meet national and state banking regulations. So Amazon would want to avoid elaborate regulatory compliances interlaced with red-tapism at any cost. As a matter of fact, banks can effectively end up partnering with Amazon. But why would they do so?

Partnering with Amazon would mean that banks will be able to track what customers spend on mortgages, rent, or healthcare. Given such useful insights, the more it can serve as a clearinghouse for financial products. Additionally, the onus is on traditional banks to meet the challenge and try to work with the eCommerce giant rather than against it.

While some sectors of the industry will undoubtedly suffer, there remains an opportunity for others to thrive by leveraging the advantages of Amazon’s capabilities. Thus it would be interesting to see in what direction the scale will tip, will it be in favor of a robust, lucrative Amazon Bank or will Amazon priorities its freedom of action and operational, subsidiary revenues over others.

 

Tags: Amazon Bank, amazon rewards, amazon pay, amazon cash, amazon prime, amazon prime video

Aug 18
Love0
delhi boutiques

From Delhi’s Sarojini Nagar to Boutiques By Manish Malhotra: How India is Sending Copycats to Prison!

By Others No Comments

From Delhi’s Sarojini Nagar to Boutiques By Manish Malhotra

Creativity is abstract. The need to innovate and design arises from the need to deviate from standardization and stand out. When it comes to couture, lines are blurred between “creative inspiration” and “plagiarism”. In times when clothes and designs are “knock-offs” by copycats from the ramp and peddled in local boutiques and sidewalks in a matter of hours, designers and fashion houses are turning to intellectual property rights (IPR) to protect their clothing designs, ensemble, artwork and now even sketches and color palettes.

However, this convoluted relationship between IP and fashion has been criticized due to its disconnect with copyright law and bizarre blindness towards creativity and artistry. In India, a plethora of legislation namely the Copyright Act, Designs Act, Patent Act, Trademark Act, Copyright Act, and Geographical Indication of Goods Act aims to secure the intellectual property rights of the fashion industry. But whether the legislation has the requisite tooth and claws to deter and punish copycats is a debatable issue.

Presently, the Indian IP rights, besides trademark law, safeguarding apparel designs are the Design right and a Copyright. These rights can be granted and claimed for fashion or garments which rest with the actual fabric design. Designers and fashion houses may choose to protect drawings on any garment design/shape of the garment itself, attributing to its unique fabric and tailoring.

However, this right cannot be held indefinitely. The design right grants protection for a maximum period of 15 years and is limited to original, novel designs that have not been disclosed to the public whether in India or anywhere in the world, significantly distinguishable from any known designs or combination of designs. In 2017, Rohit Bal became the first Indian designer to copyright his entire collection, which was followed by numerous designers thereafter.

Despite the various legislations, this industry is plagued with piracy and infringement. Duplication of goods has now accelerated due to the penetration of the internet to consumers from every corner of the country. Such prevalent practices raise questions about India’s IPR enforcement mechanisms and also cast a shadow of doubt over the competency of present IP laws in the fashion industry.

It is observed that design piracy culture is not merely a middle-class chase for a luxury lifestyle but the practice exists among the designers themselves. Among other things, this also discourages fashion designers from investing in and creating original works of art and couture.

Another viewpoint is that a restrictive and limited monopoly granted by the traditional copyright regime would stifle and restrict the free distribution of fashion garments. As a result, designers in India and also fashion-forward countries like France turn a blind eye toward unlawful acts by small reproducers. For the longest time, it has been common practice in the industry to turn a blind and deaf ear to such acts of misappropriation.

Nowadays, woke fashion houses have resorted to unconventional methods of protecting their designs in recent times. Designers have appointed couture watchdogs like Diet Prada and Diet Sabya, who call out knock-offs to expose the highly prevalent copycat culture in India and abroad. Therefore, copycat-conscious citizens with robust legislation together can provide a conducive environment to designers and fashion houses for growth, and financial success balanced against innovation and artistry.

They say imitation is the highest form of flattery. But Indian IP laws must do more than just identify and punish those to swear by this saying! In spite of a number of legislations to curb unauthorized imitations, piracy and other acts causing an infringement of intellectual property, some instances of unauthorized imitation may continue to occur in cases of personal consumption.

Aside from the moral rights argument in favor of such local creations inspired by high-end designers beyond the reach of over 99% of India’s population, the fashion industry’s response is its stimuli to a market that has survived for so long without an IP regime with its financial ability to withstand the acts of piracy. Ultimately, it goes without saying that the inherent nature of this industry makes piracy a positive test of its popularity – because only the test of fire makes fine steel!

 

Tags: boutiques, fashion industry, apparel designs, delhi boutiques, boutique shop

Aug 17
Love0
ransomware crisis

Why The Ransomware Crisis Suddenly Feels So Relentless!

By Others No Comments

The Ransomware Crisis

The onslaught by cyber attackers is on the rise. Some of the world’s largest companies, schools, and even hospitals have fallen prey to their malicious and discreet attacks. It is to be noted that no one should be lulled into a false sense of safety that any breach of privacy by leaks of information is not a prominent risk to one’s identity. An analysis of such data leaks and information usually finds its way on the dark web.

Further, the scrutinization of such data leaks shows that organizations are quite increasingly and definitely falling victim to such cyber-attacks. But given the false sense of safety that is offered by such organizations, it can be increasingly understood that the organizations are trying to hide them from the public.

Furthermore, it is quite common for affected companies to pay millions to cybercriminals to regain data access. This emphatically shows the detestable, incompetent cyber laws in the country. It is to be noted that though such unscrupulous means, in terms of law, are opted for, as a matter of fact, such a course of action is not recommended.

Malware, as we all know, is ransomware or ransom-malware. The most common malware that encrypts systems or files, requests ransom payments to recover access. Recently, in a 2020 survey of entrepreneurs, more than half the CEOs ranked pandemic and cyber-attack as the most severe enemy or threats to their organization. On the other hand, given the rise of cryptocurrency, a contentious digital asset, such cyber-attacks pose a more odious threat to the finances of a young investor.

To double the contentious views on the currency, it guarantees an anonymous nature to the cyberbully which makes it quite easy for the attacker to escape the clutches of authority. Therefore it can be rightfully stated that a ransomware attack nowadays can not simply be related to a business interruption cybersecurity incident but also be associated with a data breach or theft.

Now, this gives rise to a pertinent, inquisitive question, that has cyber-attacks recently cropped up or they have always been there? Ransomware has been around since the 2000s and it originally targeted individuals i.e. it wasn’t prevalent on a large scale. Since then, varieties have evolved which has led to extensive spreading, evading detection, encrypting files, and pressuring users into paying ransoms. This also leads to another assertion, that given the more prominent use of technology in the pandemic, more and more populations and organizations have fallen prey to such malware.

The odious double fallacy

Paying ransom for the recovery of your work, to some might seem the highest form of technological exploitation, but it is to be noted that you could very likely also become a double victim. Some “file recovery” companies effectively negotiate a lower ransom with criminals and bury the matter by paying the lower ransom but to serve their end purposes of profit-making they charge the affected organization the ransom.

Quite detestably, in some cases, the margin can be significantly higher than the ransom value. Call it smart business or profit-mongering detestable tendency, the consumers are the ultimate victim.

Technicality behind non-detection

Given advanced technology sprouting across the world, current advanced evasion techniques allow cybercriminals to quite skillfully build customized attacks circumventing security controls. Thus, cybercriminals, quite masterfully, are not only using various techniques to avoid detection but are also targeting specific individuals to increase their chances of infection. Thus, various security tools might not be enough to detect and block ransomware attacks on individuals and organizations.

The proliferation in attacks is not new, but asking for record-high ransom is. It is to be noted that it does have significant financial and operational impacts. In a case of a detestable ransomware attack, an organization should be ready to mitigate the disaster as soon as possible. There can be various approaches to recovery that an organization can opt for.

Firstly it can effectively restore from a backup. This technique usually involves well-maintained and well-made backups. Though the idea is not as unadorned as it might sound as the cybercriminal may have already attacked the backup of the organization. Secondly, such a technique of restoring your backups is usually odious and expensive which might ultimately lead to paying of ransom. Another attempt to deal with the detestable problem is to break the encryption.

Lastly, the most aversive option of all is to pay the ransom and follow the attacker’s instructions.
Should ransom be paid?

Given the description of all the harrowing cases and the never-ending vicious cycle to escape the problem, it is quite pertinent to state that sometimes files are recoverable. Additionally, there is also a good reason to believe that you might not fall prey to the double fallacy assume companies do offer honest file recovery services. However, it is to be noted that these are rare and do not guarantee recovery.

Taking the advice of the cybersecurity experts, paying the ransom is not recommended as it is considered unlawfully financing criminals. However, as per the latest findings, the ways to part from such an odious predicament are limited as the majority of companies falling victims to ransomware attacks do pay the ransom and are on a rise. In many cases, as aforementioned, paying the ransom is considered cheaper than recovering resources otherwise.

Given the lifestyle changes that transpired on account of the pandemic, we’re all more connected and insecure than ever before. Then there lies the unavoidable fact that weak cybersecurity combined with ubiquitous connectivity equals increasingly vulnerable targets. Everything in India—from our companies to hospitals—is connected to the internet, but a lot of it is not adequately secured. What appears to be an individual threat will increasingly become a threat to national security!

Thus, instead of watching the cybercriminals multiply like many countries across the world, it is sagacious to obtain a documented position and robust legal framework to identify and punish offenders promptly. Moreover, what must happen to change this is a global partnership between countries and companies to take ransomware head-on.

Given the burgeoning number of cases that are being registered daily, it is quite pertinent for authorities to reflect on their incompetent malware tracking and mitigation technology and policy in India. The odious situation that presents them at the moment demands an upgrade of archaic mitigation technology. There is momentum to change the status quo, but the work is only beginning.

 

Tags: ransomware, ransomware protection, ransomware attack, ransomware crisis

Aug 06
Love0
bitcoins in india

The Indian Battlefield Of Bitcoins: Ban Or Buy?

By Economy, Others No Comments

The Battlefield Of Bitcoins in India

Indian government’s relationship with the volatile crypto can be best described as aversive and antagonistic. The battle against Bitcoins in India had raged long ago. But given the discovery of odds in favour of crypto, the Indian government is all ready to alter its stance. Earlier, reflecting India’s detestable, stern attitude towards cryptocurrency, India had effectively proposed a law to ban cryptocurrencies.

However, this rushed, immediate act of the government could actually have hurt the crypto economy and was on its way to becoming the world’s strictest policies against cryptocurrencies, which could have criminalized possession, issuance, mining, trading and transferring of the red-hot assets.

Along the same lines, a restrictive circular by RBI effectively banned all the banks from issuance and maintenance of crypto assets in 2018. This stringent, detestable stance of the central bank had put many enthusiastic investors on the wrong side of the law.

But it is to be noted that since then, the government’s stance has not much altered as the measure of a blanket bank was in line with a January government agenda that called for banning private virtual currencies such as Bitcoin while building a framework for an official digital currency. But hopefully and positively, the recent government comments have raised investors’ hopes that the authorities might go easier on the booming market.

Bitcoin, the world’s biggest cryptocurrency, had hit a record high of $60,000 during the pandemic. The popularity of crypto can also be assessed by the fact that in India, despite the government’s glaring threats of a ban, transaction volumes were swelling, so much so that, 8 million investors held 100 billion rupees in crypto-investments, which even now is rising. This effectively shows that even though people are panicking due to the potential ban, greed is driving such not-so-illegal choices.

The changing tide in favour of the contentious digital asset

Ripples have been sent across the crypto market since El Salvador accepted it as a legal tender. In another similar event, Miami hosted its ambitious Crypto fair in order to court various crypto investors in its state. Interestingly enough, various ambitious and promising entrepreneurs like Jack Dorsey and J Zay have also come up with a bitcoin fund that will help in endorsing and funding crypto development in developed and developing countries like India.

While all these events have great potential to shake global markets but it is yet not unambiguous whether it will be the future global currency or not but it emphatically projects that economists, governments, political leaders and investors are increasingly recognizing the robust and significant potential of a decentralized financial system. But to count India in this group of enthusiastic supporters of crypto will be a gross misjudgment.

Given all the successful points in favour of crypto, why is the Indian government so reluctant? It is due to its volatile, ambiguous, dubious and unregulated aspect that India is aversive. In support of such hostility, several prominent personalities have also stepped forward to spew their hate on the contentious digital asset.

The former President of the United States of America, Donald Trump, has aired his suspicion about the digital asset and has called for an effective ban. Similarly, after months of canvassing and endorsing, Tesla’s CEO has now come forward to debunk all the claims that crypto can be the future currency by claiming that it is not real money.

But is such a stern attitude required? Many economists and experts have come forward to express their concerns. For India, it can be a boon in disguise as the adoption of cryptocurrency and innovative technology can eventually soften India’s dependence on the US Dollar. This can materialize if global trade eventually moves to a decentralized cryptocurrency. Consequently, the country and its export-oriented companies can have better predictability with respect to trade and payments.

In addition to future innovations in the cryptocurrency space, the right set of regulations can also lead to job creation and economic growth. Thus, Cryptocurrencies and blockchain have a significant and effective potential to fuel India’s goal of becoming aatmanirbhar.

Giving thought to the same, the government has altered its stand on cryptocurrency. The government has come forward to state that they are not closing their minds to the innovative, lucrative idea but are effectively looking at ways in which experiments can happen in the digital world and cryptocurrency. In fact, the plan is to ban private crypto-assets while promoting blockchain – a secure database technology that is the backbone for virtual currencies but also a system that experts say could revolutionize international transactions.

However, we will have to wait and watch to see whether the scales will tip in favour of the volatile money or fall in the government’s protectionist lap. In hindsight, cryptocurrency is the bus that the Indian government cannot afford to miss. Therefore, calibrated response and regulations of cryptocurrencies would be far more effective than imposing a toothless blanket ban on its trading, mining and possession.

 

Tags: cryptocurrencies and blockchain, nft crypto, cryptocurrency in india, india cryptocurrency, crypto india, india crypto, bitcoins in india

Aug 05
Love0
lease rent

Lease and Rentals: Are These Operational Debts Under The IBC?

By Corporate Law, Real Estate No Comments

Lease Rent Debts Under The IBC

The pandemic spread like wildfire and pushed economies to an unprecedented standstill, placing a period on the rental incomes of landlords. To combat a spate of homelessness, the government announced a slew of measures to protect tenants. While some state governments attempted to pitch in for deficient rent payment by tenants, others prohibited landlords from evicting them on account of non-payment during the pandemic.

The message from the government was clear: during the lockdown, landlords should act responsibly towards their tenants. Aggressive enforcement of lease obligations was to be discouraged.

Given the changing dynamics between landlords and tenants, be it residential or commercial, both began to renegotiate the terms and conditions of their leases. As a result, legal treatment of rental dues was brought under the scanner during the pandemic. While a tenant cannot legally insist that their landlord offers a rent-free period or waives a rental or other payment, landlords may voluntarily offer tenants rent-free periods. These, however, were commercial, not legal, decisions.

Recently, homebuyers were brought under the purview of the Insolvency and Bankruptcy Code, 2016 (IBC), and because of the same so have – rental dues. Under the IBC framework, rental dues were neither recognized as financial nor as operational dues and consequently left tenants and landlords remediless under the Code. Given the ravaged state of the economy, this latest inclusion shall assure that IBC will be put to increased usage this year.

Given the intricacy of the situation, multiple views have been offered. The NCLT Delhi and NCLT Hyderabad have effectively or rather stringently held that lease rent dues are not included under operational debt. Whereas, NCLT Kolkata, NCLT Chennai, and NCLT Ahmedabad have taken a contrarian view and have maintained that such dues could qualify as operational debt.

In addition to this, a landlord can be counted as an operational creditor under the Code. A landlord can be counted as an operational creditor as he provides the lease that can be treated as equal to providing services to the corporate debtor.

Deciphering the intricate issue of rentals

To decipher the status of the rentals as operational debt, it is quite pertinent to first describe what its definition effectively states. It is to be noted that operational debt has been defined under Section 5(21) of the Code. The operational debt effectively covers the provision of goods, provision services, including employment, and debt effectively arising under any statute and payable to the government or local authority.

To answer the question, if the Bankruptcy Law Reforms Committee Report is scrutinized, it differentiates between a financial creditor and an operational creditor. It emphatically indicates the fact that the lessor, whom the entity rents out space is an operational creditor to whom the entity owes monthly rent on a three-year lease. Thus, here it can be noted that the BLRC’s recommendation treats lessors, also known as landlords, as operational creditors.

However, the NCLAT clearly clarified that the legislature has not completely adopted the BLRC report. Thus, it is to be noted that only the claims in respect of goods and services have been kept in the definition of operational creditor and operational debt. But why didn’t NCLAT give the BLC committee’s recommendation any heed? This is because NCLAT believes that the definition does not give scope to interpret rent dues as an operational debt.

Thus slashing hopes of rents being included in the wider definition of the IBC code, the NCLAT gave stricter interpretation to Section 5(21) of the Code. In an unadorned explanation, it means, that only when a claim by way of debt falls within one of the three categories mentioned in Section 5(21) will it be effectively categorized as an operational debt.

The hurdles

In addition to all the aforementioned reasons, it is to be noted that for a debt to qualify as operational debt, the debt must rise with a nexus of direct input to the direct output produced. Based on the very same argument, the NCLAT has taken a stringent stand against the rentals being included under operation debts. Additionally, a lease of immovable property cannot be considered as a supply of goods or rendering of any services. Thus, it cannot be considered operational debt.

Hence if the past judgments of NCLAT and various other benches of the NCALT are to be scrutinized, it highlights the diverse, multiple, and intricate views on the contentious subject matter. Given the intricacy of the issue and the NCALT’s stringent stand against a wider definition, the issue has now traveled up to the apex Court.

As aforementioned, considering, the conflicting stands taken by various benches and courts, it has become imperative for the Supreme Court to consider the larger issue of such claims. The very claims that arise due to the use of the immovable property and other connected services. Thus, the Supreme Court has been burdened with the prominent task of finally putting to rest the question of rent arrears qualifying as operational debt.

Overall, the message from the authorities is clear that a fair and transparent discussion between landlords and tenants over rental payments during the coronavirus pandemic will enable collaboration and cooperation within the sector and help ensure that no one part of the chain shoulders the full burden of payment.

 

Tags: lease obligations, ibc code, ibc framework, lease rent, insolvency and bankruptcy code, ncalt, lease agreement, rental agreement

Aug 04
Love0
normalize monetary policy

RBI’s Next Big Question: How to Normalize Monetary Policy?

By Economy, Banking, Others No Comments

How to Normalize Monetary Policy?

Global growth is fragile and uneven. Winds of change are blowing across the world again amidst the pandemic. While some economies are attempting to rise from their ashes, others remain in a fiscal fathomless abyss of misery and debt. Throughout the pandemic, India’s central bank has been making crucial decisions for the economy—trading off between inflation and growth. Additionally, on the foreign exchange front, Asia’s third-largest economy has been the largest recipient of foreign portfolio money, or ‘hot money emanating from developed nations.

This is due to the accommodative monetary policies adopted by the developed nations like the US, European Union, and Japan which has led to the increased inflow of FDI in India. What made India a preferred choice of investment and stand out amongst its peers was its macroeconomic stability as well as its investment-grade sovereign credit rating.

If the object of India’s Central Bank is to be scrutinized, the monetary policy committee (MPC) throughout the pandemic has kept it straightforward: don’t rock the boat. It is no news that the second wave of the pandemic has increased the uncertainty around the near-term growth outlook. But given the latest economic numbers, India has been seen recuperating from the pandemic as various indexes indicate growth. Moreover, given India’s falling infection rate, it can be maintained that the economy would not have to impose yet another stringent lockdown to curb the virulent nature of the pandemic, and hence the economy will be given some space to breathe.

The monetary policy framework in India has undergone fundamental modifications. RBI, throughout the pandemic, has kept an accommodative stance prioritizing growth over inflation. But after one successful year of maintaining such a stance, RBI now finds itself in troubled waters as headline inflation looks likely with burgeoning WPI and CPI numbers.

Moreover, the public has already been feeling the pinch of increasing fuel prices and has been demanding its inclusion in the GST regime. However, RBI is of the stance that India is facing transitory inflation which will much likely recede in the future. But given that CPI, for the month of June, was above RBI’s comfort range and the supply constraint persists in the economy due to crippled capacity and partial lockdowns, inflation is doomed to rise.

Moreover, the output gap is still negative and the recovery has not yet been secured, thus growth measures and RBI’s accommodative stance appears to be the right strategy. Thus, RBI at the moment finds itself at the crossroads of difficult choices—to maintain its accommodative stance at record low rates or to end its accommodative stance at a high rate.

The MPC may choose to give fresh time-based guidance, or one or two additional quarters, to stay accommodative, or shift to state-based guidance but an immediate overhaul to control inflation seems highly unlikely. On the other hand, markets seem to prefer the former choice of an accommodative stance, but given the circumstances, the MPC should opt for the latter to give itself maneuverability over the medium-term for various reasons.

First and foremost is the economic stimulus of Rs. 6.28 lakh that has been recently introduced by the government. Given rising inflation in the economy, economic stimulus just adds to the money supply of the economy and hence inflation. Though it is to be noted that the economic stimulus is a replica with some repeated measures of the last stimulus, its impact is too crucial to be ignored.

Secondly, the economic impact of the second wave will be limited, owing to less stringent lockdowns and as consumers and businesses have adapted to the new normal. To support this claim, high-frequency data has suggested that while mobility and passenger transport have been hit, the goods sector continued to chug along. In addition to this, growth should also be supported by medium-term tailwinds from ongoing vaccinations, a synchronized global growth recovery, and lagged effects of easier financial conditions. Hence, while sequential growth may weaken during April-June but growth, at the moment, doesn’t seem like a far-fetched idea as it did previously.

Thirdly, risks to underlying inflation are burgeoning. It is to be noted that near-term inflation moderation is largely due to the volatile vegetable component. Whereas higher freight costs and a broad-based rise in commodity prices have squeezed manufacturers’ profit margins and resulted in some of these costs being passed to consumers. Though the recent WPI and CPI data show that the producer’s cost has not yet been transferred to consumers but it is only a matter of time before it does. Initially, services inflation was subdued, but there is early evidence of higher prices in categories like recreation.

Lastly, the external environment could turn malevolent for emerging markets in the future. This will be due to the US’s growth outperformance given its higher growth rate and robust vaccination campaign. Higher US yields or the Fed’s plan to taper off its asset purchases could trigger capital outflows. Given more enticing returns in the US or any other country, capital flight in India could be triggered.

On the other hand, India, a developing economy, shouldn’t use ambitious and privileged tips from developed countries’ playbooks as in developed economies, central banks are willing to tolerate higher inflation.
Given such a strategy, the near-term versus the medium-term monetary policy strategy differs. What is meant by this is that, while policy continuity could be the correct strategy in the near term, the medium-term or long-term growth-inflation tradeoff argues for gradual policy normalization. This calls for an effective measure to assign a higher weight to inflation, relative to growth.

It goes without saying that besides the standard tools, unconventional measures to address market dislocations were introduced by RBI like asset purchase schemes, opening up of a special liquidity window for the mutual fund industry, regulatory forbearance, loan moratoriums and restructuring of debt significantly eased the pain in the financial sector.

With the pandemic-induced damage to the economy relatively unknown coupled with RBI’s multi-pronged response, credit growth is muted due to concerns over lending risks, and the sovereign bond market is again on tenterhooks.

Thus, RBI which currently faces a conundrum to make a sagacious choice for the economy will be interesting to see which strategy it prioritizes, whether it will be its long-term stabilization program, or will it be its near-term growth strategy program. As clear communication as possible on the speed, timing, and sequencing of the normalization could help guide expectations.

 

Tags: monetary policy, monetary policy normalization, normalize monetary policy, normalization of monetary policy, rbi monetary policy

Aug 03
Love0
cryptocurrency legal status

Cryptocurrency in India: What’s The Government’s Stand, Legal Status and Its Future?

By Economy, Corporate Law, Others No Comments

Cryptocurrency Legal Status in India

If cryptocurrency is to be described, it can be best described as a highly volatile market. What corroborates such claims is the recent volatile rise and fall in the crypto world, including Bitcoin’s freefall from its highest in April at $65,000 to below the $40,000 mark. The main currency manipulator, setting all the trends in the crypto market is Tesla’s CEO Elon Musk.

In a recent turn of events, Elon Musk’s statements have brought back focus on laws around the governance of cryptocurrencies, of which India has taken a special note with full enthusiasm and will to enforce it. Given, crypto’s soaring profits and returns, it can be claimed as the best enticing alternative to conventional investments. Indian investors, especially have been profoundly impacted by such skyrocketing profits, so much so that around 7 million Indians have already pumped in over $1 billion into cryptos.

Government’s stand

Indian government’s relationship with the volatile crypto can be best described as aversive and antagonistic. Given, crypto’s burgeoning following around the world, so much so, that El Salvador has given it a legal status, the Indian government has been forced to alter its antagonistic stance. From outright banning cryptocurrencies in India, the Indian government has taken an encouraging step toward regulating digital currencies in India.

Given this encouraging step, the Ministry of Corporate Affairs (MCA) has made it significantly mandatory for companies to disclose crypto trading during the financial year. This can be seen as a step to regulate the unregulated market of crypto in India to tackle any extreme situations of a financial bubble. Such a step is welcomed, as it is known that bearish and bullish activities in the stock market change rapidly, so much so that sometimes irrationality clouds the better judgment of the markets.

Expertstoo sees it as a positive step and expects the taxation rules to follow through. Given, that crypto is an unregulated currency, it usually leads to a loss of revenue for the government. Thus this is being emphatically considered the first step toward regulating cryptocurrencies in India.

Additionally, such regulation and accounting of crypto assets are aimed at curbing illegal activities and circulation of black money for nefarious purposes of money laundering and a black market that take place via cryptos. Other affirmations of such an approach include improved corporate governance with more transparent disclosures.

Crypto’s volatile legal status in India

First and foremost, a fact: Cryptocurrencies are not illegal in India. But as aforementioned, the crypto market in India does not have a regulatory framework to govern cryptocurrencies. The government had constituted an Inter-Ministerial Committee (IMC) on November 2, 2017, to study virtual currencies and had flagged the positive aspect of distributed-ledger technology but the Centre had raised concerns about its misuse and had suggested a detestable blanket ban in India.

However, witnessing changing tide in favor of crypto, some claiming it to be the future money, cryptocurrency, after all, may not face a complete ban in India. The Centre may soon set up a panel to regulate them.

The ban story

Through a circular in April 2018, RBI had stringently advised or rather threatened all entities regulated by it to not deal in virtual currencies. Such an ominous ban was also extended to not providing services for facilitating any person or entity in dealing with or settling them. Consequently, the finance ministry too had issued a hostile statement suggesting the elimination of the crypto-dominated payment system.

Moreover, in mid-2019, a government committee had suggested banning all private cryptocurrencies. It would be shocking to discover that even a jail term of up to 10 years coupled with heavy penalties for anyone dealing in digital currencies was suggested. However, such a detestable order was overturned by the Supreme Court in March 2020.

But is everything, as mentioned above, working in favor of cryptocurrency? Apparently not. The diverse nature of the world guarantees a multiplicity of views. Though El Salvador might have declared it as a legal tender, China on the other hand has ordered a complete ban on mining to curb environmental degradation.

Coupled with this stringent move, the crypto endorser, Elon Musk to has raised concerns over his hypocritical turn to no longer to accept it as a payment for Tesla and denying to give it the “future money” status. Thus, if the Indian government can be swayed by the positive tide in favor of crypto, it can very well also develop a stern attitude towards it.

While the government has some reservations regarding cryptocurrencies, it is also working on its ambitious digital currency project. Ironically, India has been promoting digitalization but has been resisting this technological development, hence it is about time that the Indian government and its bodies familiarize themselves with technological innovations, fast, as with the advent of technology comes a higher risk of uncharted novel crimes with little to no legal recourse for those at the receiving end.

Realizing the tremendous potential that the industry carries including capital appreciation and wealth creation, the introduction of a digital rupee would prove to be a head-turner for many investors. However, with the fast-changing digital currency landscape, the government must concentrate on fine-tuning existing laws to bring cryptocurrencies under the regulatory framework and also formulate a mechanism to safeguard the interest of investors in this highly volatile, but popular market.

Thus in this fight to accept and deny crypto’s existence, will the scale tip in favor of the volatile money, or will it fall in the favor of the government’s age-old archaic stance on the ban. We’ll have to wait and watch to see if RBI’s confidence in the virtual currencies remains high flying or tanks.

 

Tags: cryptocurrency in india, cryptocurrency future, cryptocurrency legal status, crypto ban india, crypto future, crypto india, cryptocurrency future in india, legal status of cryptocurrency, india cryptocurrency

Aug 03
Love0
anti trust legislation

India Needs Genuine Anti Trust Legislation to Control Corporate Monopolies

By Corporate Law, Others No Comments

Anti Trust Legislation to Control Corporate Monopolies

When one takes a picture of the entire world, it becomes quite clear that the problems of concentration of economic power, monopoly, and restrictive trade practices are present in almost all the democratic countries of the world. However, with increasing globalization and industrialization, competition among companies and countries is becoming vigorous and complicated leading to monopolistic tendencies.

Monopoly market, a market where avarice and profit-making drive decision making, social welfare usually takes a backseat. Apparently, Adam Smith’s free-market economy pivots around the quintessential prospect of minimal government intervention so that markets can self-regulate and operate rationally. Unfortunately, in most cases, such an unregulated environment allows the rise of monopolies through organic or inorganic growth.

During the time of license raj, monopolies and the Restrictive Trade Practices Commission were denounced by all shades of liberal opinion. However, even after the British raj, monopiles persisted due to India’s socialistic and archaic structure. However, such a detestable taste in expansion and restricted entry in the market was altered in 1991 through LPG policies.

Need for Antitrust laws

It is no news that the exponential rise of big techs like Google, Apple, Amazon, Facebook, etc. mimics the dominance enjoyed by these particular trusts in various vulnerable markets. Over the past years, according to their conduct and corporate behavior, many of these firms have systematically engaged in predatory conduct to drive out competition by various ways of “killer acquisitions”.

Though the monopoly situation of Microsoft was buried long ago in 2001, the embers have again been fanned with a growing consensus that big tech now wields overwhelming power, so much so that they cause tangible harm to competitors and consumers alike. Given Amazon’s alleged report of mistreatment of its employees, with plummeting social welfare, such monopolies need curtailment.

Now, if the problem is considered in the Indian context, such firms do operate in India too, to such a large extent that they are increasingly taking over the e-commerce and welfare sector in India. Given the precarious presence of such tech giants in the country, it is time that India starts considering a revamp strategy for its anti-trust laws.
As aforementioned, the impact of the west’s events in India cannot be, by any chance, downplayed.

Given the globalized era that we live in, the Competition Commission of India (CCI) has a penchant to mirror the US and the EU antitrust authorities. Thus, given the EU and US antitrust bodies’ stringent stand against tech giants like Facebook, WhatsApp, etc., there is a high probability that the CCI might initiate investigations to assess the detestable dominance of big tech firms in India and assess the requirement for a breakup of various power-wielding corporations.

But are India’s Antitrust laws ready for such significant change? Perhaps not. The western countries were the first to introduce the mammoth Competition laws to mitigate unfair advantages that money mongers enjoyed and to divest monopolies to protect the competitive integrity of relevant markets. But the story of the Competition Commission of India is quite different.

It is to be noted that the Indian competition law is not bothered about dominance by any single money monger or player in the market. The competition commission of India only objects to the use of such prominent power by an entity to unfairly control the market and manipulate prices for their products and services.

This particular denial of the competition act of 2002, to weed out the prerequisites for the determination of unfair dominance is in sharp contrast to the western antitrust laws which emphatically view every move by companies to consolidate their position with suspicion. Such a western approach has its merits, which kills unfair monopolies in their nascent stage.

Moreover, Section 28 of the Competition Act, 2002 which effectively empowers the CCI to divide a dominant firm to ensure that no firm can abuse its dominant position is ill-planned and doesn’t lay out a coherent, robust foundation for the act. This is due to the fact that the said section does not effectively require the CCI to make an actual finding of abuse to direct a firm’s division. It is to be noted that just mere apprehension of abuse by a dominant firm is sufficient to trigger the operation of this provision.

Thus, it is quite surprising that the robust foundation on which CCI laws are based is ill-defined and thus ill-omened. The Act itself does not effectively provide any guidance for determining justifiable triggers. Mere apprehension, in many cases, can lead to unjustifiable and ill-omened divestment because many firms go for mergers and acquisitions to expand capital and to earn large-scale benefits and economies of scale, which as a matter of fact is good for the economy. But a mere apprehension of an unjust takeover can have debilitating consequences.

Thus, such apprehensions, can in many cases also lead to slower growth, a restrictive business environment, and the threat of being mishandled. Given India’s NPA crisis, acquisition and merger seem to be the perfect ways out for various debilitating firms, thus mere apprehension as a base of divestment and antitrust procedures does not speak well of the antitrust laws in India. But on the other hand, this lack of guidance severely expands the scope of this provision and strengthens the CCI’s power.

But even after such ‘turbo-charged anti-competition law, Indian corporates have grown immensely and have associated themselves with everything that is undesirable in corporate clout. The reason why such leniency takes place in dealing with the big fish is politics and lousy policy formulation.

Some glaring examples of the same are Reliance Jio and ‘Salt to Steel’, a nice catch line associated with Tatas for a long. There is hardly any activity that one can cite, where these group entities are not present in India. In fact, Reliance has expanded so much across India that even the agriculture sector has not been spared of its charms. Reliance’s hold on the agriculture sector has already become all-pervading, with no specific sphere of activity, that one can think of, which has been spared.

Reliance’s footprint in the country’s agricultural sector might be new but Mr. Anil Ambani is leaving no stone unturned to sweep the market with his all-pervading presence. As a matter of fact, Reliance has launched an all-encompassing ‘farm-to-fork business’, which offers to deliver on many grounds like providing prominent help with the delivery cycle from harvest to the store by sourcing nearly half of all vegetables and fruits required for its retail chain. It is to be noted that this has grown by leaps and bounds through meticulously planned acquisitions and yet CCI has never been apprehensive about it.

Thus, all in all, in view of the fast-paced development, the recent surge of investigations by the CCI against big techs like Google and Amazon and the growing power of Ambanis, Adanis, and Tatas in the country can significantly and effectively act as a catalyst for the CCI to test the waters within the realm of its powers.

Thus, in order to maintain a balanced equilibrium between encouraging healthy competition and ensuring companies adhere to Anti-Trust laws, it is imperative to set a strong narrative against global giants operating in India according to their whims and fancies and therefore it will be interesting to witness how a genuine Anti-Trust Legislation to control corporate monopolies will take effect in India.

 

Tags: corporate monopolies, restrictive trade practices, anti trust legislation, monopolistic tendencies, monopolistic competition, monopoly market