The Financial Capital of India hosted the inaugural Banking & Finance Legal Summit 2013 at Hotel Courtyard By Marriott. Conceptualised and organized by Lex Witness – India’s 1st Magazine on Legal & Corporate Affairs as a part of its initiative to provide knowledge sharing platforms for the legal community, the Summit had participation from over 80+ senior legal representative from leading banking and financial service provider.
In his welcome note PBA Srinivasan, Editor in Chief, Lex Witness thanked all participants and speakers for their support. He highlighted the growing importance of their functioning, recounting his early days when he started his practice as a Banking Lawyer specializing in BRT.
The first presentation, by Subhasish Roy, Deputy General Manager, Risk Dept., IDBI Bank Ltd to shared his insights over BASEL III Implications.
According to Mr. Roy Basel II is a sought after and important risk management framework before the financial crisis of 2008-2009. After the crisis, Basel II which was considered a more risk sensitive approach as compared to its earlier version Basel I, was found wanting. Thus, Basel III was designed to address the weakness of the past crisis and to make the banking sector much stronger and efficient enough to face any crisis. Major thrust area of Basel III is improvement of quantity and quality of capital base of the banks with stronger supervision, risk management and disclosure standards. Though the broad objective of Basel III is to achieve best risk management practices to save the bank from failure, however it has some cost. Considering the huge amounts of capital requirements for recapitalization of PSBs, governments’ borrowing programme is expected to increase which in turn will increase fiscal deficit, inflation and may affect the country’s GDP. The lower GDP may also affect the credit off take and thereby banks’ profitability also. Further the higher requirements of equity capital are expected to reduce banks’ ROE which will affect banks profitability also. There is a concern that on account of imposition of Liquidity Coverage Ratio, there could be some crowding out of credit to the private sector. However, banks need to carry out cost benefit analysis in order to decide on the cost of bank’s failure in not deploying liquid assets vis-à-vis cost of crowding out of credit to private sector.
The panel on SARFAESI Act Comprising of active and well known professionals in this field. Anandvasagan, Head-Legal, DHFL, Anurag Shukla, Head-Retail Legal, ARCIL, Zeeshan Khan Officer-Legal, Union Bank of India participated as panellists with Rohit Tiku, AGM, ICICI Bank as moderator for the panel.
Starting the discussion, at the onset, Rohit Tiku briefed the audience on the origin of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, popularly known as SARFAESI Act. He described the Act being in its adolescent age, as it is only 11 years old and behaves like an 11 years old kid. While saying so, he was referring to several grey areas existing in the implementation of the Act. He also mentioned of how the Act has changed the scenario of recovery for the industry as a whole from the time when Banks or financial institutions had to wait for years to get a judgement on the legal suits filed for recovery before courts.
Zeeshan Khan explained the various steps involved in invoking the provisions of this Act for enforcement of security interest by the Banks and financial institutions. He also discussed about the practice of taking symbolic possession which is not being followed by all the institutions.
Anurag Shukla and Mr. Anandvasagan discussed at length on the execution aspects of the Act and the glaring Regional differences in this regard. Mr. Shukla highlighted that though there is no provision under the Act to mandatorily take measures u/s 13(4) and publication thereof before applying for an order S.14, still the DMs/ CMMs is southern States are insisting on it. The panel was unanimous in highlighting the need of prescribing a time limit for passing an order u/s 14 and execution thereof. It was noticed that these two activities sometimes take 2-3 years, which ultimately frustrates the very purpose of the Act. The practice of appointment of Advocate commissioners and official payment for Police force was also discussed as it involves payments which are nowhere contemplated under the Act. Mr. Shukla also highlighted that at some locations in India, such as Jaipur, the Police force is provided without payment of any official fee, as it is part of statutory duty imposed upon the DM to hand over possession of the secured asset to the secured creditor.
Mr. Shukla also explained the process of transferring the NPAs to Asset Reconstruction Companies (ARCs) under the provisions of SARFAESI Act. He stressed that it was one of the major objectives of enactment of SARFAESI Act and by making judicious use of this provision; Banks can effectively bring down the burden of NPAs on their balance sheet which ultimately affects their liquidity.
Mr. Vasagan spoke on the issue of the properties which are found occupied by the Tenants or other third parties and in this context the role of the Debt Recovery Tribunals were also touched upon.
The panel was of the view that the Act could be more effective once the Central Electronic Registry (CERSAI) is made effective and in use. Mr. Shukla explained the role of CERSAI and the measures so far taken by it. There were questions from the audience on the application of the Act in case where the borrower account is not classified as NPA which was addressed by Rohit Tiku and the other speakers.
Led by Arpinder Singh, Partner & National Director – Fraud Investigation & Dispute Services, Ernst & Young India accompanied by other panel members; Abhijit Sanzgiri, Head – Internal Audit, Aditya Birla Financial Services Group, Amber Gupta, Head Legal and Compliance, Aditya Birla Money and B. Gopalakrishnan, President & Head (Law), Axis Bank Ltd.
The panel included a great index of interactivity through relevant questions from the panelists and fetching maximum for the attendees. Abhijit shared his insight on Fraud by discussing about the RBI master Circular on frauds. He said that, whenever Fraud happens, you have to first set the things right and then find out the modus operandi. Understanding the gaps and learning the lessons out of it in necessary to prevent fraud arise in future again. Mr. Gopalakrishnan explained the current anti money laundering and Benami transactions scenario with lot of recent examples and concluded saying that we have to be vigilant and sixth sense has to be developed. Ethics are important as all the laws cannot save us. There should be no case of sympathy, who is doing an internal fraud. When asked about the Cyber Fraud, Amber explained the two types of Fraud involved i.e. Computer Assisted Frauds and Computer Oriented Frauds and also shares some day to day examples of dealing with them. Later in the session, the floor was set open for the audience questions, which were well taken up by the panel members.
The second half of the day started with the panel discussion on Litigation Management with Raju Dodti, Senior Director & Head – Legal, IDFC Ltd as the panel moderator along with the co panel members, Girish Gokhale, Rajesh Talwatkar, Head – Litigation, L&T Finance, Ajay Thomas, Registrar, LCIA India, Sameer Karekatte, Head – Legal & Compliance, Reliance Life Insurance Company Ltd.
Raju beautifully explained the theme of the panel by quoting the example of Amitabh Bachan from the movie Sooryansham exampling how matters are solved in a village and the how litigation matters are solved in Indian judicial System Mr. Gokhale quoted that Litigation Management is an art and from the existing system only we can develop better results, so that it is beneficial to us, our organizations and the overall society. Ajay in his short presentation shared the benefits of institutional arbitration as mechanism for dispute resolution. Mr. Talwatkar talked about the execution of petition and shared that industry is all about lending the money and recovering back that money. He cited few sections of CRPC to explain the management procedure.
Sameer shared some Key Mantra’s for NPA Recovery saying that in case of frauds, you need to find out the pressure points in each of your customers. Some of them are really a hard nut to crack, but we have to hold the soft corner and it works out.
The panel was a healthy mix of senior in house Legal Counsels plus practicing Lawyers. Panel comprised of panel members as B. Gopalakrishnan, President & Head (Law), Axis Bank Ltd., Girish Gokhale, Uday Shankar Dutt, Advisor – Fraud Investigation & Dispute Services, Ernst & Young India, PBA Srinivasan, Editor in Chief, Lex Witness, Manish Desai, Managing Partner, Vidhii Partners, K Selvaraj, Director Legal, IDFC and a Session Chair as Nilanjan Sinha, General Counsel GE Capital India.
With the permission of the panel members, Nilanjan decided to break format of the discussion, making it interactive, and getting the benefit of views and experiences of both the panelists and the participants.
The discussion started by debating whether Law Firms and Legal Advisors should be equated to any other service provider. Given the fact that the profession of law is a noble profession. While the In House members felt that they are predominantly service providers as they are put through a similar process for empanelment while selecting a law firm; it was also felt that it is perhaps unfair to bunch them up with any other service provider – because, in certain situations, subjectivity and competence of law firms is more important than the infrastructure or cost. This discussion nicely shifted to the next topic – selection of law firms.
The panel debated the criteria and qualification required for selection. Whether, breakaway Law Firms should be considered over large Law Firms in the event such breakaway Law Firms have requisite competence. The conclusion which emerged from this discussion was that, Clients necessarily want Law Firms to have the competence to handle matters of every nature. For example, capital market Law Firms should have the competence to handle litigation that should emerge out of it. However it was felt that for complex matters specialization of the Law Firm is the key determinant for selection. Manish Desai observed that one of the difficulties today is that young lawyers barely out of law school, straight away want to handle specialized work like Project Finance and Capital Market, thereby having no exposure to fundamental aspects of law and familiarity to Courts. Mr. Selvaraj observed that he prefers large Law Firms for large matters, since he finds it safer. A young member of the audience representing Union Bank, mentioned that while he selects a Law Firm, he likes to use his personal network of Law School alumni to find out whether the Law Firm has true strength, so that he does not get enamoured by fancy brochures and websites of Law Firms. In fact Mr. Gokhale cautioned that in today’s world it is very easy to have fancy publicity material and one should have the confidence to look beyond. This panel discussion could have been extended but being sensitive to the weather conditions it was decided to drop a few topics that were earlier considered, like ‘Determination of fee structure’ and ‘Hourly rates versus fixed fee’.
The panel thereafter debated on whether Clients understand the priorities and the functioning of Law Firms and vice versa. For example, for some companies, transparency, compliance, open reporting, may be more important than others. The group felt that while these are important considerations to keep a sustained relationship, but not effort is made by either party to understand each other. Service providers like management consultants, ad agencies, spend time understanding client needs before offering solutions. Law firms follow a similar pattern. While representatives of Law Firms, including Manish Desai of Vidhii Partners and the representative of Kochhar and Company, UU Argus, J Sagar Associates, believe that Law Firms do spend time to understand clients and do not offer cookie cutter solutions.
Next up was a discussion on best practices for value added services. And it was felt that currently this was a one way street. Whereby law firms provide training, and share knowledge with their Clients. But Clients seldom take the effort to train their lawyers about specialized aspects of their business. The group agreed that such two way traffic would improve Law Firm-Client relationships and enable Law Firms to provide much better quality of advice.
The final topic was a rather tricky one – how does one assess success of a legal opinions and advice. Should such assessment be made once these are tested in Court? Or, should Law Firms be judged differently? The general consensus was that there is no clear yardstick. Mr. Dutt mentioned that one way to judge firms may be through a three way test. Knowledge; Presentation; Turnaround Time – delivered consistently.
As is evident from these discussions, raising and brainstorming such issues in a congenial and friendly atmosphere would certainly add to benefitting both the service provider and the Clients. The panel moderator, Nilanjan Sinha, General Counsel GE Capital India, thanked the organisers for arranging this discussion and the panellists for their deep and relevant insights.
The exciting day came to an end with announcing the Lucky Draw Winner of Lex Witness one year subscription as Mukesh Chand, GM Law, SIDBI
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