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Sonam Chandwani

China cannot be sued for Coronavirus

China Cannot Be Sued for Coronavirus

By Others No Comments

China Cannot Be Sued for Coronavirus

The willful, negligent and unmindful attitude of the Chinese authorities has led to the catastrophe of COVID-19. While some consider the inaction and lackadaisical behavior of China coupled with suppression of information as “treason against humanity”, the possibility of maintaining a successful lawsuit against our neighbor has to be explored rigorously.

There have been a couple of instant suits filed against China, seeking compensation for the political opacity and lack of response by the Chinese authorities, which have caused humongous damage to human life and economies across the globe.

There have been charges alleging creation and release, accidental or otherwise, of the Novel Coronavirus and of unleashing biological warfare. In all probability, positive outcomes of such legal challenges are highly skeptical.

Undeniably, the Chinese authorities have deliberately chosen denial, have behaved irresponsibly throughout the saga, and deserve the condemnation of the entire world. The regime of transferring patently false information all this while has made things unnecessarily worse as we stand today.

Legal liability, however, is a disparate phenomenon. Here we need to realize, that the Government of China is protected by the ambient sovereign immunity, and misconduct, even if proved, will not be able to cater to sufficient grounds for a waiver of that indemnity.

Sovereign immunity is not just a judicial favor for foreign regimes. International treaties of shared understanding and reciprocity not allowing people to sue the country primarily guide it. The difficulty at this stage arises as the act of China, despite being in the nature of criminal negligence, fails to fall in the bracket of exception laid down by the international law to the immunity enjoyed by the States.

Rather, there is a specific bar upon the exercise or performance or the failure to exercise discretionary powers regardless of whether the discretion is being abused. Possibly, the reckless behavior of the Chinese Government is baked into the very idea of sovereign immunity.

The next leg of the argument revolves around the proposition that China did very little to stop the spread of the virus. Unfortunately, the thrust of the argument on legal principles is tremendously weak. Sovereign immunity does not work on benevolence but on reciprocity.

China has been rejecting all such allegations and is certain to junk every summons it receives, ultimately making the entire exercise a futile thing. The World Health Organisation’s (WHO’s) International Health Regulations, 2005 is being referred to in order to assert that China violated its international obligations.

Articles six and seven of the WHO regulations make timely notification and information-sharing obligatory in the country where an outbreak takes place. Consequently, China has been denying all such allegations, which in turn nullifies the violation as the legal liability could only be fixed if the country consents to it.

There is a very minor and primarily technical gateway to drag China to the International Court of Justice (ICJ) over the Coronavirus pandemic provided in the WHO’s Constitution. This provision does not require the consent of the defendant’s country.

A member country will have to establish or create a doubt that China deliberately withheld information from the WHO and the international community at large. Article 63 of the WHO’s Constitution provides the legal basis for this route.

Tort law generally rests on the proposition that people will take reasonable care if they know there is an inherent danger that could cause harm to others. Under sovereign immunity, the costs of misbehavior of the Government tend to lie where they fall.

The concept of international terror and henceforth laws to tackle it was conceptualized a few years back. However, the absence of robust legislation possibly will not entail any punishment for another country’s recklessness and the motive is apposite to be political.

Nevertheless, for the massive economic fallout, China cannot be allowed to go scot-free. Perhaps, world leaders have to work in mutiny to diplomatically pressurize China for causing the pandemic and the present situation. On the contrary, China has called the allegations xenophobic, which invalidates all possible actions undertaken as of now.

Further, the most difficult part of the regime is to prove the deliberate intention of China in causing all the trouble the world is in at present.

In a nutshell, China has a strong position to rescind all legal allegations brought against it by world players, including India. It is a very bleak proposition to contemplate that China will eventually compensate for the major fallout and global recession caused by its laxity and disregard for the state of affairs.

However, the legal remedy of filing lawsuits seems to be futile and superfluous without much possibility of any fruitful upshot and conclusion. Nevertheless, how good the sequel stands will be eventually proven, as and when the lawsuits already instituted, are heard by the judiciary, while the wise option would be to avoid any bulging aspiration to be accrued from the judicial reaction to the legal battle.


Tags: catastrophe of COVID, China cannot be sued for Coronavirus, catastrophe of COVID 19, treason against humanity

Builder Defers

Builder Defers New Project Indefinitely: What are The Legal Remedies?

By Real Estate No Comments

Builder Defers New Project Indefinitely: The Legal Remedies

Moving to a new house is a pleasant feeling but the number of sacrifices and efforts you can make to become a homeowner can be destroyed if the construction business is in danger. With so much turmoil and delay due to the coronavirus, all industries, including the real estate sector, have been hit hard.

2019 was not a gradual year and everyone was counting on 2020 to recover and improve from last year’s lows. However, the real estate sector is in a deep impasse in the face of the global economic crisis and the spread of COVID-19.

The Indian real estate sector has not been rescued either. The lockdown for such a long time will affect the prices of steel and other materials used in the construction industry in India. Difficulties in the supply of raw materials will reduce construction activities for ongoing real estate projects in the coming months, even if all restrictions are lifted.

Despite the increased cost of construction and uncertainty regarding the return of labor to the major cities in their hometown after foreclosure, real estate prices should see corrections, due to buyers’ sentiment and some owners panicking in the resale market. The launch of new projects is expected to be postponed until October and is unlikely to do enough to raise average sales prices in different cities.

In order to protect the interests of innocent homebuyers, the Real Estate Regulation and Development Act (RERA) in 2016 introduced new laws that will lead to severe criminal penalties. These laws will make compliance with RERA standards a necessity for all manufacturers.

It is easier for the governing body to eliminate the dishonest builders who inhabit the housing sector. Several provisions described in the law will help build a more transparent system for transactions in the real estate sector.

While in some cases, there are genuine reasons such as delay in getting government approvals, in others, the builders may have simply absconded or just don’t respond to buyers’ pleas to complete projects. The Supreme Court and consumer courts have repeatedly ruled that homebuyers cannot wait indefinitely, but it has not been clarified when compensation can be claimed in the event of a delay.

To relieve hundreds of thousands of wounded buyers who had to wait to own their apartments for years, the Consumer Committee at the summit set a one-year period for delayed projects after which investors could ask manufacturers to recover them.

The committee ordered the builder to pay 6% compensation annually to the total deposit for the late period, even after the handover. In the event that the apartment is not delivered within the period specified by the committee, the National Rehabilitation and Reconstruction Committee (NCDRC) has indicated that the builder will have to pay the full amount at 10% interest.

Delays in completion would result in a 10% fine based on the interest the company would have to pay buyers instead of the old penalty, which was 5 rupees per square foot. Given that many construction companies charge buyers 12% or even 36% interest rates for late payments, this decision seems more than fair. In addition, at least 70% of the money earned from investors or used for the project must be kept.

The Real Estate Regulatory Agency has also called for the creation of a specialized real estate court that can get justice faster. These courts of appeal will have the power to decide cases within 60 days, which will help buyers to get justice on time. In light of this, the National Commission ordered the developer of consumer disputes.

They were ordered to pay the interest lost by the buyers who had sued. The two main points that emerge from the decision are that real estate developers cannot blame the buyer and lose the reservation amount due to an error on their part in case the buyer is forced to stop paying the installments.

The main consumer committee also ruled that even if the developer was entitled to waive the reservation amount, he could not take more than 10% of the real money.

COVID-19 is unlikely to give rise to a force majeure defense valid in all contracts and under all circumstances, as different contracts and applicable laws stipulate different requirements for different situations. Companies are therefore well advised to proactively manage the related legal risk and to carefully assess which party must ultimately bear the financial losses caused by COVID-19.

The center issued an opinion to regulatory authorities in all states and territories of the Union, making it possible to treat the COVID-19 pandemic as a “force majeure” or a force majeure case. It made it possible to extend the deadline for the implementation of the project for a period of six months.

All registered projects whose completion date or revised completion date or expanded completion date according to registration on or after March 25, 2020, or the date of registration and completion of registration date 6 months before due to the COVID-19 epidemic, the Commission decided.

After examining all aspects and also the opinion issued by the Center, it declared that the authority using the powers conferred on it under section 37 of the law had issued instructions concerning the extension of the registration of real estate projects for six months.

The revised timetables will form part of the new registration that the state regulators have issued, under the Real Estate Regulatory Act, to builders. Many state governments, including that of Uttar Pradesh, which has a huge number of projects piling up in Noida, have already given such a waiver to real estate companies.

New contracts concluded during this period of uncertainty will likely be interpreted differently, if only because the parties were aware of the virus when they signed the dotted line. It can be said that neither party should be able to invoke the development of the situation as an excuse to postpone the performance of their obligations.

Therefore, it would seem prudent for these contracts to formulate common assumptions regarding the expected consequences of the infection, including, for example, defining a baseline against which the injured party has the right to invoke the protection force provided for in the contract.


Tags: global economic crisis, indian real estate sector, legal remedies, Builder Defers, construction activities, global financial crisis, remedy in law, indian real estate


Hoteliers to Open Doors, But with Heightened Caution

By Others No Comments

Hoteliers to Open Doors, But with Heightened Caution

With the Novel Coronavirus (COVID-19) removing the plug from a growing economy with a nationwide lockdown, disrupted supply chains, and mass unemployment, the government’s decision to reopen the country in a phased manner is a breath of fresh air.

As part of Maharashtra’s Mission Begin Again Phase 5, the hospitality industry can reopen from Wednesday 8 July, but rules remain stringent for hotels in the MMR region, including Mumbai, Pune, and Nashik.

The hospitality industry is in metamorphosis as they gear up for the post-COVID era. At the outset, hotels outside containment zones will be allowed to operate at 33% capacity subject to adherence to social distancing and hygiene guidelines.

The rationale behind this is not only to avoid overcrowding but also to convert the remaining 67% capacity into a quarantine facility, as and when required by the government. Reduced operational capacity and increasing costs of running a hotel or restaurant will compel the industry to look for unconventional avenues to keep business afloat during a depressionary phase.

Moreover, several other guidelines ensuring hygiene and social distancing such as mandatory thermal screening, protective glass at reception tables, sanitizers for all hotel staff and guests, contactless digital payments, etc. will change the entire guest servicing experience.

This goes without saying that only asymptomatic guests will be allowed entry into hotels. As an additional measure, hotels are required to keep each room empty for a minimum of 24 hours post guest check-out and sanitize the room.

Many of the facilities, like bars, buffets, spas, and swimming pools, will have to stay shut for now and even though restaurants can open, they will only serve hotel guests for now. The State-mandated guidelines will propel the hospitality industry to provide a safe, contact-less experience from the pick up at the airport to the check-in, entire stay, and until check-out.

Implementation of these guidelines is easier for chain and luxury hotels with deep pockets, however high maintenance costs coupled with fewer customers will make implementation burdensome for Bed & Breakfast, Guest Houses, and unbranded budget hotels which constitute 95% of the hotel industry.

In light of this, the low-priced sector in the country can ride on India’s large domestic tourism to kick start the industry. However, the prolonged impact of the COVID-19 crisis, even after the lockdown has been relaxed, is likely to have a long-term impact on the sector.

Moreso, inbound traffic is bound to be slow due to travel restrictions and recessionary conditions limiting disposable income. In the organized sector, there are about 53,000 hotels and 5 lakh restaurants at present, and as per industry estimates, nearly one-third could shut shop permanently with losses for the hospitality sector reaching Rs. 90,000 crores.

Corporate travel will perhaps revive the chain of hotels through the lockdown has shown that corporate travel can be limited with the emergence of the work-from-home concept. As per FHRAI, hotels are seeing about 15-20 percent occupancy at present.

For restaurants, a limited number of working hours coupled with restrictions on the sale of alcohol makes business unviable, thereby hurling several small restaurants, bars, and hotels towards an empty treasury.

One way to drive sales upward is – continuous and effective marketing strategies that communicate with loyal guests through digital and social media during and post the lockdown. In doing so, hotels and restaurants can showcase their contributions and safety measures in wake of the pandemic for their customers.

Secondly, it is imperative for hotels and restaurants to maintain adequate liquidity for working capital. This can be achieved through a combination of renegotiation and extension of payment cycles with vendors, adopting RBI’s 3-month moratorium period for existing interest and principal payments to banks, and enforcing rigid cost-control measures while supporting the salaries of its staff members.

As a result, more cost will be allocated to technology, where one can facilitate minimum human interaction while making the stay safe, hygienic, and comfortable. It goes without saying that a resumption of economic activity is essential, but the vigil on the virus must remain.

The industry is starved for relaxation from the government, but more importantly for customers to feel at ease to visit hotels and restaurants once again. In a nutshell, zero-maintenance buildings, contactless interactions, and technology-based sanitization will emerge as the “new normal” for hotels and restaurants at large.


Tags: hospitality industry, hoteliers, mass unemployment, pua mass, hospitality sector, mass pua unemployment

debt collections financial planning

Financial Planning During Covid-19 Pandemic: Surviving on a Pay Cut

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Financial Planning During Covid-19 Pandemic

While most employers announce a retrenchment, the aftermath is not a very easy phenomenon to go with. Since the inception of the Covid-19 pandemic, employees across industries have been staring at significant pay cuts if not a layoff. Undeniably, things are uncontrollable on all fronts, while adjusting to the new normal is what we have control over right now. The rising specter of salary losses has inadvertently led to rethinking financial planning goals.

A pay cut comes with an overhaul of the living and spending norms that individuals followed for years together. Smart strategies could assist us tide over the catastrophe without much hassle.

Considering the rosy part of the picture, the ones who were fortunate enough to retain their definitely find solace unlike millions of other people who have lost employment. What becomes important is to take the pay cut personally and devise a feasible chain of actions that could help one heal from the situation faster.

Firstly, one needs to be aware of a probable pay cut and gauge the likely phenomena. The earlier you anticipate the better as you can start planning earlier. Risk has been the driving factor affecting income. Millions of livelihoods have been wiped out by the pandemic.

Millions who are left with no employment have faced the primary brunt of the lockdown. Many employers who funded the first month of pay thereafter turned reluctant to extend the benevolence. With the economic activities coming to a jerking halt, there is no work and no pay; with families surviving upon the skimpy amount of savings, they had. Many have lent a hand on loans and pledge to endure through these mellow times.

Many significant monthly income earners, many have been sitting without payment or have settled with a significant pay cut in the hope to hold on to their jobs. Many have been left unsure about how the ‘work from home’ situation would extend overtime and whack upon their monthly wages.

Those who ran businesses have no income. Stocks remain unsold, bills are unpaid, and there is no revenue with no buyers. From big to small, all businesses have come to an unbelievable pause.

In this new world, thus across segments income has evaporated largely. Keeping the job and hunkering down is the best possible we are looking at. This customarily means that demand for credit will increase sooner or later. There is a high probability of loans being unsecured, or against assets accumulated, but as the liquidity reserves dry up, loans will move up.

Banks and NBFCs have enough liquidity to be reasonably expected to provide short-time finance. However, without economic activity for long, they cannot go too far either. This is why the lack of government spending, and the lack of bold reforms that place money in the hands of the people, sting.

Spending has changed dramatically as well. Changing risks to income has automatically led to individuals cutting back on many expenses. Incurring no expense on eating out, entertainment, travel, or clothes, is the new normal.

Beyond essential commodities and utility bills, there has been not a single penny spent. For households surviving on businesses, the spending habits have been left to bleed. The ability of these businesses to employ people, pay salaries and expand activity is curtailed, creating a negative spiral of loss.

Saving and investing in the background of such events have led to the burial of splendor. Individuals are barely managing to maintain a surplus in the banks, while ones with enough wealth are investigating newer strategies of investment to receive better output from the falling market.

The signs of market behavior indicate a prolonged recovery for all of us. It is time until we triumph over the pandemic. Until the time arrives, it is wise to restrict our spending only on essentials to avoid further strain on individual finance.

Between the mindless excesses of unbridled consumption, growth, and expansion and the rigid frugality of minimalistic existence, lies a means that we may not be able to choose or pursue. The next 12 months are about that exploration that might define the new character and culture of the household.

To endure through the next few months individuals have been preparing for a contingent fund by minimizing regular expenses. There has been this growing trend to clinch enough cash to survive until this crisis passes. Temporarily there have been reductions in contributions in retirement plans as one focuses on redirecting resources to the emergency fund.

Individuals have been inclined to the repayment of loans and have been regular with EMI payments, despite the available moratorium to avoid any extra burden in the future, unless the same has been impossible to be done due to lack of enough resources. Individuals have minded toward long-term savings to build upon enough corpus to hedge the risk of market fluctuation and compounding returns.


Tags: pay cut, layoff, financial planning, financial plan in business plan, financial budget, lay off 2021

unlock 2.0

Unlock 2.0: Maharashtra Allows Opening Of Hotels

By Others No Comments

Unlock 2.0

The fresh guidelines issued by the state government allow hospitality entities like hotels and lodges to provide accommodation services, and outside containment zones to reopen unless being used as a quarantine center. The permission for reopening is highly conditional and ought to be done adhering to social distancing norms vigorously.

Notably, public utility services like gymnasiums, gaming, and others are bound to remain closed unless further orders. The decision could have a reverberating impact keeping in mind the huge number of cases being reported every day while certain places like Aurangabad have extended restrictions in the wake of the rising cases. Amidst an extended lockdown due to the spurt in cases and deaths, such a decision could well backfire.

Hoteliers have to be highly cautious in taking care of all preventive measures to ensure the safety of their customers. Nevertheless, despite the risks involved, the industry can breathe relief by resuming operations to gauge the path of recovery.

The Mixed Setup: Requisitioning and Reopening
Maharashtra leading the way, and many of the states can be anticipated to allow hotels to resume business with restrictions in place in the phased unlock period. However, despite such possibilities, the industry has been jittery by now, as iconic hotels have been ordered to be converted to quarantine centers.

The list includes epochal Parador like the Taj Mahal Hotel which triggered difficulties as the premises are in an inhabitable condition given the renovation that started months ago. However, what becomes important here is to understand that hotels are not designed for accommodating patients and neither is the staff prepared to render appropriate services.

Moreover, now that hotels are being allowed to reopen with limited occupancy, such requisitioning could be disastrous for hoteliers in business. The added burden of sanitizing premises vigorously has been budging trouble for all hoteliers who now hope to foresee normalization soon.

Hoteliers presume hardship ahead
In order to avoid transmission risks, accommodation facilities in states permitting operations to resume speculate troubled times ahead. The first hurdle that pops in is working with limited staff. The pandemic has led to the added responsibility of sanitizing the premises at regular intervals along with ensuring safety protocols, which is an extra job to undertake, and in such a scenario having limited staff, and facilities could lead to genuine concerns.

Even iconic hotels have pronounced the obvious choice to do away with lavish buffets and have decided to limit restaurant facilities to curb the infections which would have direct implications on the revenue generated. The additional gist hampering functions include making provisions of PPE kits and sensitization of touchpoints frequently.

The workforce of hotels has expressed concerns over the lingering risk of being infected as hotels begin taking in guests. The occupancy can be lower presently, however, with a lack of means of transportation, the risk involved in the everyday freight of staff members cannot be overlooked.

The bulging idea of workstations shifting from staycations
Doing a COVID somersault, hotel chains are pivoting on the idea of converting hotels into workstations with a work-from-a retreat along with a bunch of other offerings. Accommodation chains are opening up drivable-distance properties for executives looking for a safe and salubrious place to work out of the home.

The pivoted places have been designed to accommodate long-stay making it Covid safe with adequate Wi-Fi and connectivity facilities. The chains anticipate long-stay workstations to become the trend with the changing outlook of industry performance across segments driven by the pandemic.

Corporate persons have been celebrating such a stay to accommodate staff to continue efficient working during the lockdown, a step above the current work from the home trend.

Restaurants shift online to meet customer cravings
Indian restaurateurs are up for a treat post the lockdown as people crave dine-outs. Foodies across the country have been ardently waiting to reign on the supreme delicacies post the lockdown. Online food delivery has been one of the very few segments emerging as winners through the pandemic.

The likely changes in lifestyle would include a paradigm shift in eating habits. The eating-out culture has been fairly exacerbated by the looming safety ad hygiene concerns and online delivery has come to the rescue.

Restaurants that have partnered with delivery partners have been significantly increasing while the industry put in concerted efforts to attract customers and keep businesses afloat. Definitely, the pandemic shall mark the end of the emerging social dining trends replaced by social distancing protocols.  

Covid-19 Impact: Hotels may be permanently shut
The leisure and tourism industry has come to a jerking halt with the spread of the virus having a cataclysmic effect on the sector. The persistently mounting stress on the industry shall possibly force several hotels to shut their businesses permanently. Despite the unlock phase, restaurants and hotels have seen dismal responses from customers, it is unviable for many stakeholders to sustain with low footfalls and increased spending.

The restrictions have been eased but the night curfew still continues at various places hitting the dinner segments the worst. Hotels are having to face the brunt as travel restrictions remain in place with limited flights and trains operating.

The states wherein the reopening of hotels has been allowed are witnessing diminished occupancy with the tourism sector remaining at a standstill. The impact of the pandemic followed by the enforced lockdown shall be prolonged, ultimately causing death for a major part of the industry unable to cope with the changing trends and the shortfall in business.


Tags: Unlock 2.0, unlock 2, opening of hotels, hospitality entities

Covid Health Insurance Cover

Covid Health Insurance Cover: To Buy or Not to Buy

By Others No Comments

Covid Health Insurance Cover

As India continues fairly in the race of increasing Covid-19 cases, globally, the IRDAI directive to mandatorily offer a standard health insurance policy for all policyholders, is much required. Provision for covering all hospitalization expenses along with consumables like PPE, gloves, masks, and other similar utilities, shall provide immense relief to consumers expending on treatment currently.

The actual benefit of such covers can be eventually discovered as the situation subsides, cause as of now the world is still engrossed around the disease and the associated panic.

Inadvertently, extending the existing policy coverage to rope in such adverse situations was quintessential. Given that the disease-specific coverage is limited to Covid-19, the price point shall be admittedly lower than any comprehensive health policy. As a note of caution, the specific cover in no way should be taken as a substitute for regular health covers.

Hereafter, consumers have an option to choose from the three primary available options. There have been previous announcements of extending coverage of ordinary policy to include Covid-19 expenses and that stands valid to date. So, the specific coverage announced could be an added supplement along with the normal policy or it could be purchased only for Covid-19 depending on affordability options, as the case may be.

The driving idea recently has been to facilitate consumers in all possible means to battle against the stymie virus. As the country resumes in a staggered fashion, there has been increasing movement of people throughout. Considering the number of reported cases every day, there is no hint of the curve flattening anytime soon.

It appears that the virus is here to stay much beyond our anticipation. In the interest of the consumers, paying a single premium yielding a fixed benefit is an extremely benefitting proposition.

On the contrary, the challenge lies in the insurers to devise profitable pricing for the product. The general trend is that premiums are computed based on age bands, however, for the current data set, there is no established age-wise trend as of now. The entire phenomenon is absolutely dependent on the contraction of the infection or the recovery rates.

Notably, the base cover will be offered on an indemnity basis while the optional cover ought to be made available on a benefits basis. Being a standard product, insurers are having the open option of fixing the prices based on their underwriting understanding, consequently, there are varied premiums across insurers. The indemnity policy has definitely ticked the right box aiding in providing a dedicated financial cover.

The much-needed measures include including the specific requirements put forth by Covid-19 which is a miss in normal policy covers. The gleaming part of the story is that pre-existing co-morbid conditions have been considered under the purview of the new product.

The consumers have to wait till a condensed policy is circulated with clear directions regarding the underwriting process, whether or not it shall cater to the vulnerable populace, and how soon will there be access to the product online. The relative prices of such products are further looked up compared with the regular short-term covers available.

In a nutshell, the policy is definitely a go-to choice for someone not having a health insurance cover and is desperately looking for one to acquire the necessary protection owing to the ongoing crisis. In the absence of a regular policy, the short-term product can yield many benefits.

Nevertheless, the wise choice would be to go for a regular policy as it would cater to treatment for covid as well as other ailments.

There is not much of a significant addition to the existing framework. On closer scrutiny of the provisions, it can be well said to be restrictive with a cap on the policy coverage. For a first-time buyer, it is rather advisable to have a broad perspective while choosing the policy cover, not merely focussing on Covid-19.

Apart from the affordability issue, the new plan might be avoided in all probabilities. A disease-specific health cover might not yield much in the long run. The intelligent option here would be to opt for a comprehensive policy to receive adequate coverage for all possible illnesses.


Tags: Covid Insurance Cover, hospitalisation expenses, Covid Health Insurance Cover, irdai directive

loan transfers

RBI On Revamping Loan Transfers

By Banking No Comments

RBI On Revamping Loan Transfers

The watchdog and facilitator of monetary exchange recently proposed a new set of rules for the purpose of governing sales of stressed assets, which would entail greater flexibility to the lenders in the pricing of loans and in taking decisions as to whom they should sell to.

RBI has released two draft frameworks to facilitate its move of revamping the loan transfers. One of the drafts is for the securitization of standard assets and another one is for the sale of loan exposures.

The draft guidelines categorically mention that any lender seeking to sell stressed assets will be supposed to do so under a board-approved policy. Lenders can consider all the assets classified as “doubtful assets” for the purposes of sale hereafter.

The central bank has given primacy to suit the requirements of the lender as well as accommodate that of the borrower. One of the salient features lays down that the buyer of the stressed asset need not be a financial entity.

The onus has been put on the seller to conduct thorough due diligence of the buyer to ensure that they are not barred under the Insolvency & Bankruptcy Code which prevents certain persons who are painted tainted under the law from becoming contenders to revive a company undergoing CIRP.

Alongside, the proposal includes that the sale process should be conducted through a public call for bids and the potential buyers must be given sufficient time in order to conduct due diligence of the assets, with a floor of a minimum of 2 weeks.

Loan exposure envisages the aggregate of the unpaid principal amount of all the loans made by the Banks. The second draft addresses the issues under similar heads and is supposed to operate as an umbrella of the first framework in order to govern all the loan transfers. In order to understand the new proposition of RBI, we need to understand the various aspects of the concerned framework.

The Draft Sale Framework can be broadly divided into three parts-
 (i) General conditions applicable to all loan transfers;
(ii) Provisions dealing with the sale and purchase of standard assets; and
(iii) Provisions dealing with the sale and transfer of stressed assets [including the purchase by ARCs (asset reconstruction companies)].

The core principles of transfer appear like the previous guidelines on direct assignment. However, the modification introduced here is that the scope of transfer has now been expanded to include various kinds of economic transfers of loan assets, including participation arrangements and transactions in which the loan exposure remains on the books of the transferor even after the said transactions.

Under this framework, three types of transfers have been recognized- (i) Assignment (ii) Novation, and (iii) Loan participation which includes both the risk participation and the funded participation.

Whilst loans can be transferred through any of the abovementioned transfer methods like the revolver loans, borrowing with bullet payments of principal and interest can only be transferred through novation and loan participation, whereas the stressed assets can only be transferred through assignment and novation.

Transfer by way of novation is exempted from the applicability of the guidelines, except for a condition that approval of all parties, including the borrower, is required for opting for novation.

The RBI probably intends that these transfers result in immediate legal separation of the transferor from the assets, which have been transferred and are beyond the reach of the transferor as well as its creditors. It also suggested that such kinds of transfers must be of remote nature with regard to bankruptcy norms and a legal opinion must be obtained for considering this.

The transfer of a single loan asset or a part of a single asset to a financial entity through the method of novation or loan participation has been made permissible as well. However, only the financial entities carrying on business in India will be eligible to participate in the endeavor. Loans acquired from other entities can also be assigned with the methods of assignment working in such cases.

However, in line with the position during the 2012 guidelines, transferors are not permitted to offer any credit enhancement or liquidity facility for loan transfers. Diligence requirements continue to be strict and the purchasing lender is required to apply the same standard of care while assessing the asset, as if it were originating the asset directly and cannot outsource its due diligence.

This framework definitely stands as a significant move by the RBI as it is expected to streamline the loan transfer system of India. It reinforces RBI’s focus on addressing the health of the banks and the bad debts of the country while being constantly committed to a balanced approach to the sale of the assets.

The ultimate outcome of the proposal would finally determine whether it is a positive move by our regulator in developing a robust market for the secondary transfers.


Tags: loan transfers, stressed assets, pricing of loans, stressed assets rbi

gdp growth statistics

GDP Growth Statistics: Never Mind GDP, Corona Eats Your Income

By Others No Comments

GDP Growth Statistics

GDP Growth Statistics: Among the many changes, Covid-19 has brought to our lives is attention to statistics on a daily basis.  A number of infected cases, tests, hospitalization, deaths, and recoveries.  People from all walks of life have shown interest in these statistical figures.

Every now and then, some international institution produces GDP growth statistics as well.  These get attention too, but not even remotely close to Covid-19.

On an analysis of the current trend, residents of prosperous states such as Delhi, Chandigarh, Maharashtra, Gujarat, and Telangana are expected to lose over 15 percent of their annual incomes in the current year, which is thrice as high as the average decline of per capita income of the country.

However, in relatively less well-off states such as Madhya Pradesh, Uttar Pradesh, Bihar, Odisha, etc., the decline in per capita income is expected to be less than 8 percent. It is to be noted that after a major economic crisis, per capita income takes longer to swing back to the old levels than the GDP.

The reason is simple.  People care about the risks to their daily lives when living under pandemic conditions. The fear of contracting the virus keeps many awake at night, even causing serious mental stress.

This is not because GDP growth is unimportant.  The ecosystem around the individuals and their families matters more than the changes in an accounting construct such as the GDP, particularly so when public health is facing risks of the kind not experienced in over a century.

The economic destruction Covid-19 is causing does not take the form of ashes.  It takes the form of jobs and income losses for millions from different segments and industries. It is reflected by the empty saloons, shops, footpath trades, tea stalls, restaurants, public transport, and sports stadiums, among others.  It is manifested in closed factories and unsold farm outputs.

Supply and demand are both down abruptly, causing unexpectedly far-reaching repercussions. The cost of living and the cost of doing business have both spiked.  The interconnectedness between the speed of lifting the mobility restrictions and the rate of community spread of the virus, as evident from the experience of countries attempting to reopen in phases, has deepened radical uncertainties related to the outlook on global economic recovery.

A consensus is emerging globally that the recession will be deeper and the recovery will be slower. The stumbling reopening of the entire world has made it clear that the speed of recovery will depend on the spread of the virus.

Medium-term macroeconomic and fiscal frameworks are never written in stone.  Revisions have to begin with the recognition that the quest for GDP growth in a pandemic is like searching for a needle, in a haystack in darkness, that isn’t there.  Business as usual in public expenditure planning cannot connect the economy with the health and social outcomes that will determine the quality of our belligerent coexistence with the virus.

There are a lot of things outside the counting of GDP we just do not have a handle on currently.  Whether economies can continue to grow forever was an unresolved debate before Covid-19. The virus has paused this debate by shifting attention to the challenge of making the economy thrive whether or not it grows.  

This challenge can be unbundled into fortifying resistance to the virus and ensuring that no one falls short of the essentials of life.  These formidable challenges can only be managed through collective action that starts long before they become full-blown crises.

We do not need GDP numbers to know the effect of the lockdown: the majority of our states, and practically all of our trading partners, stopped us from eating at restaurants (and then maybe going to the gym to work it off), having elective surgery for a bum knee, sending our kids to school, or having our teeth cleaned.

Effectively, the lockdown became a ban on living everyday life. Moreover, for scores of millions of Indians today no work means no income. If handled right, policies to contain the spread of the virus will actually deliver huge economic benefits. Many in the rest of the world, with some exceptions, are starting to get this.


Tags: gdp growth, gdp statistics, gross domestic product, gdp growth statistics, real gdp, gdp growth rate, gdp 2021

future of cash

Future of Cash: Impact of Covid-19 on Payments

By Others No Comments

Future of Cash: Covid-19 Impact on Payments

The intersection of global emergency and revolutionary changes in the ways of international payments and transactions has demanded a new path to maintain financial liquidity in the markets. Since the inception of the pandemic in December, businesses across the country have been facing volatile financial markets and growing concerns about the uncertainty of future cash flows and revenues.

The entire world of small and middle-sized companies is in a constant struggle for survival due to the frozen demands and the contingent government-declared lockdowns. 

COVID -19 has resulted in a reduction in cash being used as a medium of exchange. The reason attributed is the inability to have a physical reach to execute such payments during the lockdown. The potential threat of money bills being a carrier of the virus made it further a discouraging choice.

These have forced individuals to switch to digital payments as urgency to acquire the essential goods. The cash processing agencies, such as banks, are operating in reduced hours or for important transactions only. Cashless payments could become a permanent fixture in the economic exchange ecosystem hereafter.

However, a robust digital payment system has yet not been achieved in the country owing to several structural challenges that hindered the boost in cashless transactions. Technological advancement, current emergency, and a need for cashless transactions have eradicated such boulders to a certain extent.

Electronic payments faced a number of barriers and obstacles in bricks and mortar shops, along with challenges like cybercrime, fraud, and privacy concerns seem. The widespread move to contactless, cashless payment systems raises concerns about the impact on low-income consumers, often mobile members, and members of minority groups who do not have access to credit or debit cards. 

For now, the move away from cash remains clear and can not be ruled out completely. While a society that is not fully cashed may not be the outlook for the time being, the following factors are likely to affect market participants because the Covid-19 pandemic will likely have long-term effects on consumer behavior.

The concerted effort from various stakeholders potentially facilitates the reduction of cash transactions in the system. The important considerations in this regard are-

  • A complex Digital Payment Setup

A variety of options available with different technological frameworks and regulations make it difficult to operate for an average citizen. Further, the lack of uniform technological advancement has kept consumers from adopting digital payment methods wholeheartedly.

With the rising rural population getting connected to high-speed internet and smartphones, digital startups have focused on developing secured consumer-friendly methods in order to build trust and drive adoption. Aadhar-based welfare delivery and a relentless drive towards formalization of transactions have been the cornerstones of the current government’s policies.

The introduction of the Unified Payment Interface (UPI) and the Bharat Interface for Money (BHIM) app is accelerating the move towards a cashless economy. This has given an impetus to the emerging digital transactions sector in India. Further, the government has come to the aid of distressed citizens by announcing easier means of transaction, going cashless. The requirement of a minimum balance requirement fee remains no more along with reduced digital charges for transactions.

  • The Intermediary interference and charges

The costs associated with online payment through RTGS and NEFT systems have also created a hindrance. These methods are not only expensive but also time-consuming at a time when there are a number of technologies available that offer real-time fund transfer.

Startups are now focusing on technologies providing quicker digital payment solutions to the consumers who will have a better opportunity to get ahead, POS terminals, Biometric Authentication Integration, and QR Codes are used by onboard merchants. One of the main challenges in digital payments is the interchange fee.

The Finance Ministry has announced relaxations such as removal of debit card ATM charges to help increase the number of transactions. 

  • Maintenance of Data Security

Data storage is one of the most critical and essential aspects of cashless payment methods. The high risks associated with cybersecurity have kept consumers threatened by adopting digital payment. Digital payments Banks and E-Wallet companies have set up safe, secure, and compliant data centers on their premises.

For enhanced security measures, banks and wallets are now using Aadhar Based payment systems making use of Biometrics, OTP (One Time Password), and EMV (Chip+Pin) technology for card acceptance. Collaboratively these have always helped in maintaining data security for companies as well as customers.

  • Adherence to Regulatory Compliances

For digital payments especially through wallets, there are guidelines issued by RBI in India. These guidelines get revised on a timely basis which makes way for a more transparent ecosystem in the payments space. Companies offering wallets are required to convert existing wallets that are without KYC to full KYC. KYC complaints can utilize the extended monthly limit. In the future, these limits need further relaxation to support the needs of the individuals. 

  • Response time 

There is another important challenge that these payment methods face response time to execute a transaction. The complex authentication method and attached chances of payment failure and fraud have disheartened the users in many instances. Irrespective of the reasons behind it, every failed transaction causes irritation to a customer.

Repeated failures may even result in customers feeling frustrated about the bank’s service quality and capabilities. These responses are identified immediately for corrective measures to be undertaken. The modern UPI system making the authentication in-built into the smartphone has removed the time taken to execute a transaction.

  • Cryptocurrency – The new era of digital transaction 

A cryptocurrency is a digital “asset” that uses peer-to-peer networking making it decentralized and broadly accessible. The asset is a digital “token” with no backing or intrinsic value. The method used is new blockchain technology. Blockchain data is stored in groups or blocks of information.

It is impossible to delete or modify information previously stored on the chain because blocks are replicated across multiple ledgers. For the above reasons, blockchain is highly secure. Every user has a unique public and private key. The public key acts like a username or an email address. It allows users to transfer a cryptocurrency to and from other users directly.

The private key is akin to a personal password that gives individual users access to their cryptocurrency accounts or digital wallets.

Their end of this medical crisis is beyond anticipation, the primary implication of the same would lead citizens to be habituated to the use of digital payment platforms, almost by force. The technological setup of smartphone penetration improving significantly, with almost 5.1 billion total unique mobile users and 3.7 billion unique mobile internet users, will surely help smooth the adoption of digital platforms for payments.

The opportunities that e-commerce and cashless transactions afford in terms of convenience, efficiency, and affordability will help them gain further ground in the years to come; their popularity among younger generations and strong government policy support for digital transformation is also helping boost their prospects. It need not be said that as a direct consequence of Covid-19 we could witness a cashless ecosystem in the near future.


Tags: revolutionary changes, future cash, cashless future, future of cash, evolutionary and revolutionary change, future cash digital, revolutionary change in organizations, evolutionary change in organizations

rbi liquidity

RBI’s Liquidity Move for NBFCs, HFCs is a Quick Fix for a Long-Term Problem

By Banking No Comments

RBI Liquidity for NBFCs, HFCs Fix for a Long-Term Problem

Non-banking finance companies (NBFC) constitute around 9% of the total assets of the Indian financial sector. So, insulating them from potential bankruptcy has become imperative for the Reserve Bank of India (RBI) to ensure financial stability. And last week, the RBI unveiled a scheme aimed at improving the liquidity condition of NBFCs.

The RBI announced that SBI Capital Markets Ltd, a subsidiary of the State Bank of India, will set up a special purpose vehicle (SPV) to purchase short-term paper, maturing within three months and rated as investment grade, from NBFCs and housing finance companies (HFCs). The central bank operationalized Rs 30,000 crore for this scheme.

This SPV will buy investment-grade commercial paper and non-convertible debentures of NBFCs and HFCs until September 30, 2020, and is expected to recover all dues by December 31, 2020.

The scheme aims to prevent any potential financial or systemic risks in the finance sector and ensure economic stability. However, the RBI lays out stringent requirements for beneficiaries under the scheme.

These conditions include that the NBFCs and HFCs must be registered with the RBI and that they must have been profitable in at least one of the two preceding years 2017-18 or 2018-19.

Also, the NBFCs and HFCs must fulfill the requirements related to capital to risk-weighted assets ratio, capital adequacy ratio, non-performing assets, and special mention accounts. Moreover, the NBFCs and HFCs must be rated by an investment grading agency approved by the Securities and Exchange Board of India.

Solution or slump?

The shadow financing sector was already struggling with funds in light of the IL&FS crisis when COVID-19 hit, jeopardizing the survival of the sector at large.

NBFCs and HFCs are compelled to sit on bad debts for an extended period with the provision of EMI holidays to debtors on one side and an embargo on legal remedies on the other, thereby slowing down recoveries.

In cognizance of this twin pressure, the RBI’s notification aims to improve the liquidity position of NBFCs and HFCs. 

At the outset, this scheme acts as an enabler for NBFCs and HFCs to get investment grades or a better rating for the bonds issued, thereby augmenting the flow of funds from the shadow financing sector.

Moreover, the scheme would be a one-stop arrangement between the SPV and the NBFCs without having to liquidate their current asset portfolio and merely transfer their financial risks. The advantages bring the government closer to its objective of eliminating or mitigating any potential systemic risks in the financial sector.

However, these measures lack concerted and concrete action.

First, statistics from an RBI report on NBFCs suggest that the total borrowings by the NBFCs exceed Rs 1 lakh crore, and thereby, the efficacy of an SPV, active till September 30, 2020, has been vociferously criticized and questioned.

This move is a three-month short-term liquidity shot as opposed to the industry requirement of about two-three years. The sector is in dire straits for long-term funds so that they don’t run into an asset-liability mismatch.

However, the present move may lead to a vicious cycle of extending loans. For instance, if somebody were to draw three months’ money, they will have to create another liability at the end of 90 days to be able to repay this.

Second, the high thresholds and requirements set by the RBI for NBFCs and HFCs mean many entities in dire need of financial support and liquidity will be left out of this scheme, thereby providing a lopsided cushion to the sector.

Third, the number of NBFCs and HFCs availing of this scheme will be contingent on the rate and amount they receive. This will be a determining factor of whether the scheme is a true liquidity potion or just another half-baked solution. 

What remains to be examined is whether this scheme will provide cheaper and easier funds to even those NBFCs and HFCs which are not in dire need of emergency funds as long as they meet the eligibility criteria. The answer to this dilemma shall judge the extent of success of this announcement. 

In order to mitigate the gargantuan effects of the pandemic-induced depressionary forces on the shadow financing sector, the government must introduce a dark horse to soothe its long-term woes and not a mere quick fix.


Tags: hfc housing finance, rbi liquidity, housing development finance corporation, housing development finance corp ltd, hfc nbfc, hfc and nbfc, housing finance companies, nbfc housing finance, nbfc housing finance company