Last week, the U.S. unveiled a series of reforms to deal with some of the lessons learnt from the financial crisis. Following is an extract of the President’s remarks that outline the proposals: First, we should no longer allow banks to stray too far from their central mission of serving their customers. In recent years, too many financial firms have put taxpayer money at risk by operating hedge...
Supreme Court Rejects NBFC Claim on Sticky Interest – Part I
Non-banking-financial institutions (“NBFCs”) face a serious setback after the judgment of the Supreme Court this Monday (11 January 2010) in Southern Technologies Ltd. v. JCIT. This blog has discussed a long-standing controversy in Indian law on the treatment of “sticky” advances. It is useful to briefly recapitulate the contours of this controversy before considering the impact of the Supreme...
Fraud and Bank Guarantees
Often, it so happens in the commercial world that a contract between two parties requires one to provide a performance guarantee to the other. Accordingly, the party provides a bank guarantee; but the guarantee itself is expressed to be “unconditional” and “irrevocable”. The understanding of the parties is that the guarantee will be utilized and encashed if and only if a breach is committed. Some...
Swiss Accounts and Banking Secrecy: Contrasting Outcomes
After prolonged discussions, the US and Swiss authorities came to an agreement earlier this month whereby UBS would disclose details of certain US account holders who are suspected of evading US taxes. The Time Magazine outlines the terms: Under the terms of the new agreement, the IRS will submit a request to Swiss tax authorities to divulge within one year the names of clients suspected of...
Writing off Bad Debts and Tax Liability
The treatment of bad debts has been a constant source of disagreement between financial institutions and the Tax Department. Banks typically argued that some advances were so unlikely to be recovered that they may justifiably be regarded as “sticky” advances, and that interest on these advances should not be treated as income for the purposes of taxation. The Department’s response was that the...
Securitisation and Debt Recovery – A Centre-States Conflict?
The Constitution has devised an elaborate scheme of distribution of legislative powers, and the competence of a legislature to enact a law has normally been challenged by a private citizen to whom the law applies. The latest battleground looks to be the fairly recent structure of securitization, debt recovery and other FI-friendly legislation. The first major decision of the Supreme Court on this...
Liberalisation of ECB in Infrastructure Sector
RBI has allowed infrastructure companies to raise external commercial borrowings (ECB) under the automatic route up to a maximum of US$ 500 million (compared to the erstwhile limit of US$ 100 million).
The RBI notification is available here.
Corporate Governance in Banks
With the recent credit crisis weakening the financial position of several banks world-over, the question that is being repeatedly posed is whether the boards of directors of these banks could have foreseen the oncoming crisis or whether they should have taken steps to forestall a slide in their financial position. Fingers are being pointed not only at the executive management of these banks, but...
Consolidation in the Indian Financial Sector
The financial services sector in India (both in the banking and non-banking finance industry) has witnessed consolidation over the last few years through various mergers & acquisitions. This trend will perhaps continue in the future as well. A recent speech by V. Leeladhar, Deputy Governor of the Reserve Bank of India contains a good overview of the statutory and regulatory framework that...
Reverse Mortgages Explained
Today’s Business Standard carries a column by Stanley Pinto that looks at reasons why reverse mortgages have failed in India. More importantly, it contains a lucid explanation of the concept: “The reverse mortgage facility allows senior citizens to unlock the value of their most valuable asset, their home, by mortgaging it and enjoying the use of the money in their lifetime while continuing to...
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