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 of Sharia law, the judiciary recently had the opportunity to test the validity of Islamic...
RBI Sub-Committee on Microfinance
With several legal and regulatory issues affecting the microfinance sector lately, more so in the state of Andhra Pradesh, the Reserve Bank of India (RBI) had appointed a sub-committee under the chairmanship of Mr. Y.H. Malegam to “study issues and concerns in the microfinance sector in so far as they related to the entities regulated by the [RBI]”. The keenly awaited report, which was expected...
Participatory Notes Fall in Popularity
After initially cracking down in 2007 on indirect investment routes such as those using participatory notes (P-notes), SEBI a year later reversed its decision and allowed foreign investors to participate in the Indian markets through P-notes. SEBI’s decision to allow P-notes was the subject-matter of critique on this Blog as it raises questions regarding transparency. As observed in that post:...
DEMAT Account for Religious Deities
An interesting issue recently fell for the consideration of the Bombay High Court- whether DEMAT accounts could be held in the name of deities. The Court answered this question in the negative, relying on largely practical and partially moralistic reasons in coming to its conclusions. The decision was pronounced by a Division Bench of the Bombay High Court in Ganpati Panchayatan Sansthan Trust v...
The Impact of Tightening Financial Regulation
The last week has witnessed tighter financial regulations emerging out of the U.S. and European markets. While some of the reforms are expected to result in migration of investments into more liberal markets in Asia (including India), others represent introduction of stringent measures that are already in place in India. Possible Regulatory Arbitrage First, the European Union finance ministers...
U.S. Financial Reforms: The “Volcker Rule”
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...
SEBI Order on Participatory Notes
Just when it appeared that the din surrounding offshore derivative instruments (ODIs) and participatory notes (PNs) had subsided, the significance of regulating these instruments has resurfaced in an order passed by SEBI yesterday in the case of Barclays Bank PLC, a foreign institutional investor (FII) registered with SEBI. By this order, Barclays has been prohibited from issuing, subscribing or...
Legal Risks and Financial Sector; Capital Controls
Recent developments in the financial sector have witnessed a sea-change in the nature of legal risks faced by banks and financial institutions. Regulators, banks and financial institutions, as well as their legal advisors (both in-house and external) are required to constantly keep pace with the change. In that context, a recent speech by Shyamala Gopinath, Deputy Governor of the Reserve Bank of...
The Resurgence of Securitization and CDS
The concepts of securitization and credit default swaps (CDS) have acquired a negative connotation over the last couple of years since they were said to have triggered the global financial crisis during the second half of 2007. More, importantly, the assets involved were sub-prime loans that underwent a process of disintermediation due to which risk perceptions on the underlying assets were...
Financial Crisis, Economics and Regulation
There is a recent assortment of interesting columns regarding the financial crisis, the role that regulation (or the lack thereof) has played in the exacerbation of the crisis, and the various economic instruments utilized by policy makers to rein in the crisis. The following is a list of these readings: 1. Beyond the crisis by Subir Gokarn in the Business Standard.2. Financial Regulation –...
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