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National Education Policy

The National Education Policy 2020 may provide a runway for the education sector to take off despite challenges posed on account of the pandemic. Announcement of the NEP attracted criticism from industry experts, but it may place India on the global map for sought-after educational haven of the world. The National Education Policy 2020 replaces the old education policy which was framed in 1986 and ushering in an era of new educational reforms.

This is the first policy that seeks to unshackle students from the tyranny of administrative constraints with multiple-choice, multidisciplinary learning, and multiple chances. However, the policy has been scrutinized and dissected by industry experts and thus have witnessed conflicting views. 

The policy aims to create a robust digital infrastructure in the education sector that ensures uninterrupted learning even during unprecedented circumstances. The National Education Technology Forum (NETF) will be established for ensuring that the technology is integrated adequately and efficiently in the education process and ensuring the enhancement of the access of education to all sections of the society even in these tumultuous times.

Various contours of this policy aim to radically improve the Gross Enrolment Ratio in higher education and to achieve the objective of 100% youth literacy. Moreover, the said policy has also been predicted to reduce social and economic gap between students, which has magnified in wake of the pandemic.

A system that promotes meritocracy, equal opportunity and equity is good, but there lies a gap between theory and practice. In addition to this, the NEP elucidates the need of homeschooling and multi-language learning whereby until the 5^th grade and in exceptional circumstances, no later than 8^th grade, the mode of education shall be in the mother tongue/local language of the student.

Despite the all-encompassing façade of the new policy, its success shall be put through a sceptical lens with rising concerns for the students during higher education and in their professional journeys. It is particularly problematic in light of the right of the people to move from one state to another since the inter-state movement shall result in the change of the local language and the mode of education. 

The policy has also been criticised due to the legal complexities surrounding the applicability of two operative policies namely The Right to Education Act, 2009 and the New Education Policy, 2020. Certain provisions such as the age of starting schooling will need to be deliberated upon, in order to resolve any conundrum between the statute and the recently introduced policy in the longer run.

Against this backdrop, it is pertinent to note that past attempts at parliamentary legislations under the erstwhile regulatory set up have not been successful. The failure can be attributed to the role of regulators and the intended legislative changes being out of alignment, as in the case of Foreign Educational Institutions (Regulation of Entry and Operations) Bill, 2010, which lapsed; and the proposed Higher Education Commission of India (Repeal of University Grants Commission Act) Act, 2018 which remained did not reach the Parliament. 

The contours of NEP is expected to revise the regulatory avatar of the Higher Education Commission of India (“HECI”) being set up with a wide role in Indian higher education. The HECI is likely to have four verticals under its umbrella, including:

a) National Higher Education Regulatory Council, intended to be a single point regulator for the higher education sector;

b) National Accreditation Council, which will deal with accreditation of institutions;

c) Higher Education Grants Council, which will be tasked with carrying out funding and financing of higher education; and

d) General Education Council, the final vertical, is expected to have a more academic based-role, as it will frame expected learning outcomes for higher education programmes.

Foreign universities coming into the country will also fall under the purview of this framework. While the Universities Grants Commission and the All India Council for Technical Education have played a major role in this direction until now, questions pertaining to the role of the UGC and AICTE remain unanswered under the new policy. 

It is evident that NEP 2020 provides a fresh canvas to paint on and opens up avenues for home-schooling and foreign universities alike, in India. For the new policy to succeed a combination of a staunch intent to move out of comfortable doldrums and facilitate increased involvement of foreign universities and increased literacy levels is a must.

While this objective is expected to see significant regulatory overhaul for its successful implementation, it would lay a successful path ahead for institutions as well as the student community and place India on the map of an educational haven.

Tags: indian education policy, indian education policy 2020, education policy, education sector, new education policy 2020, new education policy, National Education Policy, national education policy 2020, education policy 2020

Analyzing Individual Borrowers’ Creditworthiness

Financial institutions are focused on risk, now more than ever before. Circumstances such as the present pandemic have compelled the country and its business to pivot or risk being perished in this country-wide overhaul. The virus-induced lockdown has raised “Liquidity” and Non-Performing Assets (“NPA”) issues popularizing the buzzwords in financial circles and beyond.

Anticipating a domino effect on loan defaults amongst small to medium-sized businesses, the Finance Ministry in conjoined efforts with Regulators and the Reserve Bank of India (RBI), introduced numerous measures for the maintenance of equilibrium between the market forces of demand and supply during the pandemic.

With the widespread prevalence of COVID-19 pandemic, they are increasingly recognizing that the rebuilding phase offers a unique opportunity to encourage action on the agenda of survival until the COVID-19 dust settles.

The acute phase of COVID-19 has drawn central banks’ attention towards from a crisis that was earlier restricted to some states and regions, to a global economic crisis riddled with challenges. The nature of the crisis has revealed basic vulnerabilities around the world, most importantly those surrounding individual borrowers. 

The Finance Ministry directed Banks to roll out a loan resolution framework with the Loan Moratorium period ending on August 31st and the festive season round the corner. In doing that the Supreme Court directed that while Banks are free to restructure loans, they cannot penalize individual borrowers availing moratorium benefit.

The apex court held that charging interest on deferred EMI payments under the moratorium scheme during the COVID-19 pandemic would amount to paying interest on interest which is against “the basic canons of finance” and unfair to those who repaid loans as per schedule.

RBI’s move to restructure personal loans accord this benefit to consumer credit, education loans, loans for creation or housing loans pursuant to a central bank notification. Specifically, the relief may include “rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years”; however the exact contours of the resolution plan have not been clearly laid out and remain undecided.

The primary objective of this move at helping borrowers as on the pretext of mass unemployment, pay cuts and lay-offs in light of the world’s strictest lockdown, thereby paralyzing economic activity. So a 2-year moratorium that RBI has now permitted under such restructuring proves to be a blessing in disguise for people experiencing cash crunch during the pandemic.

Clearly, it will boost households facing a cash crunch — especially those who lost their jobs or small businesses who are on the verge of a shutdown. RBI has moved consistently and quickly since the start of the pandemic to calm markets, to provide liquidity and, now, these steps should go some distance in giving relief to the distressed liquidity-starved household.

However, each household should be wary of using this facility. At the outset, a loan moratorium was aimed at helping those in distress and not meant to be used as an opportunity for the pre-existing defaulters of loan payments. At the other end of the spectrum, the moratorium extension is likely to provide a negative credit outlook for financial intermediaries in the shadow financing industry like Housing Finance Companies and Non-Banking Financial Companies.

Invariably, the deferment of EMIs will have an adverse impact on the cash flows of these financial institutions and test their resilience during depressionary forces emanating from the COVID-19 pandemic.

Despite the slew of measures announced by the RBI and government to alleviate liquidity woes of financial institutions, these measures may have less impact in the short to medium term, but the operative word being “defer” of loan installments, and not a complete waiver or discount thereof should be of prime importance in the personal finance industry and be availed only if absolutely required.

A growing number of central banks and banking supervisors are starting to work together to progress a global approach and agenda. In doing so, the central banks need to develop a clear strategy on the way forward. Monetary policy needs to be forward-looking.

Given the slowdown in the economy and that the transmission of rate cuts takes time, there is a need for further monetary policy easing. This will also be helpful as uncertainty remains over COVID-19 having a deflationary or inflationary impact on the Indian economy in the medium run.

While the temptation to adopt aggressive measures may be high, crossing the traditional boundaries between fiscal and monetary policies, but are feasible for central banks in advanced economies with high credibility stemming from a long track record of stability-oriented policies. Thus this strong medicine should only be taken with extreme care.

Tags: creditworthiness, credit worthy, individual borrowers, credit worthiness of a customer, credit worthiness of borrower, credit worthiness of a company

Equity in India in Times of Pandemic

The pandemic has led to private equity in India to step into the current crisis riding a decade-long growth wave in transaction volumes and valuations. The value of some investments and investor confidence has been fairly dampened since the outbreak of the virus which continues to persist yet now. 

The global financial crisis of 2008-09 for instance can be looked up, to provide a few insights into how PE funds might navigate the fallout from the pandemic. If we take history as a guide, many PE funds have been previously seen to cruise through the crisis staying on the sidelines, a little too long, which could lead to missing out on crucial investment opportunities. 

Although there could be a sharp fall in deal-making in the short-term, PE funds are expected to learn from the past as high returns often emerge in times like these and can offset the losses during the downturn. The returns over the next couple of years will depend on how fund managers react over the next 12 months.

However, PE firms have massive amounts of unused funds that is readily available at their disposal coupled with money that has been raised but not yet invested. The subsequent expectation is that a large part of this money shall be expected to be earmarked for emerging markets, India being no exception. Private debt funds and special situation funds are more visible in the market and can help provide liquidity to businesses that are experiencing cash crunches, the much required prerogative currently.

While several investors are holding back until the ramifications of the pandemic become clearer, a few distinct themes are emerging that could shape private deal activity as the new normal evolves which includes:

• Deferment of deals: Deals are being deferred as investors are speculating the damage of the COVID-19 caused pandemic. While the deal network is highly robust, deal flow is expected to be slow specifically in the next couple of quarters. The driving factor here to determine the consequences would be the availability of the dry powder with the equity funds.
• Protecting existing portfolio: The primary goal of funds in the short term will likely be to look after portfolio companies. This would eventually take precedence over the search for new investment opportunities as some portfolio companies may need additional financing amid liquidity concerns owning to the government enforced long shutdown in the wake of the spreading virus.
• Difficulty in managing the valuation conflict between buyer and seller: Financial markets have been significantly disrupted across the globe. The pandemic has triggered a rout in the stock markets and market volatility has increased. Although PE investments are generally less volatile than public investments, there might be valuation challenges as sellers may be reluctant to part with assets given the precipitous fall in valuations. This could delay deal activity in certain cases.
• Availability of leverage for buyout deals: Of late, higher amount of leverage has been used in buy out deals. The availability of debt financing from banks could be a challenge and may cause a slowdown in buyout deals. Given the significant amount of available funds, of which a large part is for buyouts alone, deal-making could see an uptick, especially in distressed asset situations.
• Private debt funds and special situation funds expected to be more active: There is expected to be liquidity pressure on businesses owing to COVID-19 related disruption in demand. PE funds are expected to capitalise on this opportunity through innovative solutions such as debt restructuring and bridge financing.
• Increase in private investment in public equity (PIPE) transactions: As valuations in public markets decline, PIPE transactions are expected to pick up as PE funds take positions in quality assets at significantly cheaper valuations.
• Sector expertise will become more critical than ever: PE funds are expected to focus on sectoral themes with pharmaceuticals, technology, digital and healthcare expected to drive interest whereas the revival of sectors such as financial services, real estate and non-essential consumer goods and services may take some time. It will remain difficult to form an investment thesis for sectors such as aviation, travel, tourism and hospitality.
• Expected change in scope of due diligence: the current crisis highlights the importance of factoring in multiple scenarios and modelling unpredictable disruption in due diligence. Hence, the scope of due diligence will change significantly over the near term.

In light of these circumstances, PE funds will need to respond swiftly and strategically to the new business normal and drive transformation for companies.

The pandemic has brought about an extraordinary combination of quality assets going cheap and investors being cash-rich. The funds that can find the right investment opportunities in this difficult time will not only emerge stronger but also generate significant returns in the coming years.

Tags: equity funds, public equity, buyout deals, private equity funds in india, growth equity funds, equity in india

A Fresh Start for Companies

The onset of the pandemic changed the calculus of the world opening up audacious possibilities like never before. Undeniably the extent of the damage caused to the world is enormous. Despite so, the big question now is “What Next?” Covid-19 while caused unimaginable disruptions worldwide, yet then it has offered unrivaled opportunities to plummet.

In such given circumstances, companies are bailing for fortuity under the Companies Fresh Start Scheme announced by the Ministry of Corporate Affairs. 

The legislative framework clearly mandates the companies to file requisite documents including annual returns and financial statement with the RoC. Failure to adhere to the guidelines as well as failing to file requisite documents calls in several penal action as well.

However, the statistics of the past clearly reveal that a number of companies have been inoculant in complying with the filing requirement. This calls for unnecessary consequences for the directors facing penal sanction as well as the administration involved in the process. Additionally, the NCLT is burdened with compounding cases.

In an attempt to start a fresh and let companies evolve as compliant entities the CFSS has been introduced to mitigate the unnecessary implications called in. Such amnesty scheme was not introduced for the first time recently. There has been a decade of considerations to fix this scheme for building up a robust mechanism mitigating the lacunae herein.

In light of the unprecedented circumstances put forth by the pandemic, the MCA has resolved to reduce the burden of compliance lingering over the doomed companies. It provides the much required breather for the defaulting companies to enable them start fresh post the pandemic. 

Admittedly, the CFSS is veritable nature. It elucidates in detail the companies eligible to avail the benefits primarily amongst other things. Herein the scope of defaulting companies have been widened. There is no explicit mention of companies undergoing CIRP and the logical inference would be to realise that such companies could also avail the benefits provided under the scheme.

Notably, the companies defaulting on filings have been allowed to file its pending documents with the registry without the payment of any additional fees.

The defaulting company has been granted immunity from any consequential proceedings, which comes in as a big sigh of relief for much of the distressed companies in the light of the current precarious ongoing. There has been a precise mention of condoning delays in compliance of statutory post completion of the filing process. There has been also provision made for appeal on grounds of violation of the Companies Act by the adjudicating authorities. 

It further contemplates of situations where an appeal could not be preferred against an order of penalty imposed by the adjudicating authority given the circumstances prevailing in the country since early March. The limitation period for all such instances has been further extended by a period of 120 days. There has been detailed exclusions provided for all such companies dealing the turbulence of the pandemic and for the said purpose specific conditions have been put out. 

CFSS is a beneficial scheme, specifically in the current pandemic scenario, providing an opportunity to non-compliant companies, to have a fresh start in terms of their statutory compliances. It also provides respite to inactive companies, who will have an option to either become a dormant company, or get their names struck off from the registers.

Additionally, since there are no additional fees to avail the benefit of CFSS, all defaulting and inactive companies, should definitely consider opting for CFSS and becoming compliant with statutory filings. However, if they fail to do so and continue to be in default, the concerned RoCs having jurisdiction over the companies may take action in terms of the Act.

Besides being beneficial to companies, it will provide significant relief to overburdened NCLTs and NCLATs by reducing the number of pending compounding cases and other cases for non-compliance. This will help in achieving the long-time objective of de-clogging these tribunals and other courts so that cases of a more serious nature could be pursued expeditiously and with enhanced rigor.

Tags: fresh start companies, the post covid era, post covid era, fresh start for companies, new Start for Companies, post covid era in india