Tag: Banking
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Guarantees and Performance Bonds
[Posted by Shantanu Naravane] Payment obligations under commercial contracts are often secured by means of guarantees issued by banks, which guarantee the performance of the payment obligation by the buyer. For instance, if A and B enter into a contract whereby A agrees to sell B a ship for the price of $50 million, B’s…
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The LIBOR Crisis and Corporate Governance
[Posted by Umakanth Varottil] Whenever a corporate crisis erupts (a phenomenon all so common these days), questions quickly emerge regarding the role of governance (or failure thereof) at the companies involved. On a similar note, questions are being raised regarding the failure of board oversight, risk management systems and internal controls at banks such as…
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JP Morgan’s Trading Losses: Regulation and Governance
[Posted by Umakanth Varottil] There has been a great deal of debate surrounding JP Morgan’s hedging losses announced last week. There is some mystery surrounding the nature of the transactions involved, without full clarity yet on the amount of losses. Andrew Ross Sorkin has a brief explanation of the episode in the New York Times:…
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Regulating the Pay of Bankers in the Private Sector
[Posted by Umakanth Varottil] Last week, the Reserve Bank of India (RBI) issued compensation guidelines for implementation by private sector and foreign banks that become operational from the financial year 2012-2013. This approach is consistent with the trend that corporate governance norms in the banking sector tend to be more controlled than in other industry…
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Bank Investments in Non-Financial Services Companies
[Posted by Umakanth Varottil] The Reserve Bank of India (RBI) has tightened the control over investment by banks in other companies that do not operate in the financial services sector. The rationale has been set forth in a new set of guidelines issued yesterday: Banks’ investments in companies which are not subsidiaries are governed by…
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RBI’s Draft Guidelines for Private Sector Banks
[Posted by Umakanth Varottil] Following the Finance Minister’s announcement in his budget speech for 2010-11 and a discussion paper published by the Reserve Bank of India (RBI) in August 2010, the RBI has now released draft guidelines for licensing new banks in the private sector. The draft guidelines lay down the conditions on which corporate…
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Islamic Finance and the Indian Constitution
[Posted by Umakanth Varottil] The concepts of Islamic banking and Islamic finance are yet to gain significant ground in India and attain the popularity they have witnessed in other countries. While there has been a debate about the need for a separate legal framework in India to promote the form of finance recognized under principles…
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Corporate Structure for Foreign Banks in India
[Posted by Umakanth Varottil] Historically, the RBI appears to have had a preference for allowing foreign banks to operate in India as branches rather than separately incorporated subsidiaries. Consequently, most (if not all) foreign banks have been established as branches for the purposes of banking law as well as company law. Apart from the fact…
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Legality of Sale of NPAs Between Banks
[Posted by Umakanth Varottil] Last week, the Supreme Court issued its ruling on whether non-performing assets/loans (NPAs) can be transferred between banks without the concurrence of the borrowers. The case involved a transfer of NPAs (relating to the borrower, APS Star Industries Ltd.) from ICICI Bank to Kotak Mahindra Bank. The borrower was in liquidation.…
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Entry of New Private Sector Banks
[Posted by Umakanth Varottil] The Reserve Bank of India (RBI) has released a discussion paper on “Entry of New Banks in the Private Sector”, which paves the way for granting new banking licences. The discussion paper compares India’s position with international experience and then suggests possible approaches (listing both pros and cons) for the way…