Saturday, May 06, 2006



RBI worried about quality of credit

A warning for banks in India from Reserve Bank of India (RBI). Kindly improve asset quality, rather than the quantum of credit. RBI has also called for a slowdown in lending to sensitive sectors such as real estate and capital markets.

In its Annual Policy Statement for 2006-07 RBI has kept its key interest rates - reverse repo, repo and cash reserve ratio - unchanged The RBI has also projected a lower credit growth of 20 per cent for the current year against 30 per cent in the last two years. The central bank has increased the risk weight on bank exposures to commercial real estate and capital market to 150 per cent from 125 per cent.

Banks’ exposure to venture capital funds will also form part of its capital market exposure. Thus, banks now have to set apart more capital in their books as cover to maintain their existing level of lending to these sectors. The RBI had increased the risk weightage for these sectors from 100 to 125 per cent in July 2005.

Loans to commercial real estate rose by 84 per cent last year. The central bank also increased the banks’ provisioning for standard advances from 0.4 per cent to 1 per cent for personal loans, capital market exposures, residential housing of more than Rs 20 lakh and commercial real estate loans. This move may force banks to re-price their home loan rates for high-end loans, said a bank official.

The policy projects an aggregate deposit growth at around Rs 3,30,000 crore in 2006-07.
In a move to help banks raise more deposits, the RBI has increased the ceiling in interest rates for NRE deposits for one to three years maturity to 100 basis points above Libor or Swap rates.
The central bank’s annual policy indicates a possible rise in interest rates, in the event of an upturn in inflation due to pass-through of international oil prices.

The policy has projected a lower growth of non-food credit at 20 per cent in 2006-07, a ‘calibrated deceleration’ from over 30 per cent in the last two years.

The economy’s performance in 2005-06 was better than expected and inflation has been curtailed to 5-5.5 per cent, he said, adding that it was "good times" for the external sector, money market and forex markets.

For 2006-07, the GDP growth has been targeted at 7.5-8 per cent, but it is critically dependent on agriculture. Interest rates are headed northward in the long term. This was largely the reaction of bankers across the country.

The RBI left key short-term rates and the bank rate unchanged, but hiked the provisioning requirement on standard personal loans and residential housing loans over Rs 20 lakh and exposures to commercial real estate and the capital market (including venture capital funds) from 0.4 per cent to one per cent.

Regulatory policies were quite strict and would have a considerable adverse impact on the capital adequacy ratio and the bottom line of banks.

Provisional norms have been modified and additional capital charge has been prescribed for certain riskier asset classes so as to enable channelling the growth in the desired direction.
Increasing the provisioning requirement and the risk weightage would lead to costlier loans to these segments thus dampening the growth in these overheated segments to an extent. The increased provisioning requirement will also have an impact on the profitability of banks.


by Devyani Kacker

While studying the Hindu Succession Act, 1956 (‘Hindu Succession Act’) a familiar question that often arose in the class and mind you not just from the girls but also from the boys was why are daughters not being given their rightful place in the joint family set up? Why don’t we also have the right to be coparceners? Why should marriage disinherit us if not the sons? After more than 50 years, the Hindu Succession Act has rectified some of these inconsistencies.

The Hindu Succession Act is a rather complex statute that governs the legal principles with respect to devolution of property on the heirs of a deceased Hindu. The main reason for this complexity lies in the distinction it draws based on the source of the property viz. devolution of ‘personal’ property versus devolution ‘Mitakshara Joint Hindu Undivided Family’ property.
Thus the Hindu Succession Act with respect to the Mitakshara School recognizes a difference between ancestral property and self acquired property.
The origin for this distinction lies in the concept of ‘coparcenary’ found in the Mitakshara School. Under the Mitakshara concept, a Hindu joint family consists of a common ancestor and all his lineal male descendants, together with their wives or widows and unmarried daughters.
Coparcenary is a narrow body of persons within this Hindu joint family and consists of father, son, son’s son and son’s son’s son i.e. the father and his three male lineal descendents. Thus, the Mitakshara concept of coparcenary is based on the notion of a son’s birth right in the joint family property. Every coparcener has the right to be in joint possession and enjoyment of joint family property, coparcenary rights do not exist in self-acquired property.
A coparcener also has the right to ask for partition, in order to get his interest in the joint Hindu Undivided Family property ascertained and separated. However, the person’s separate interest as determined by the partition becomes communal property again on the birth of his son who acquires an equal interest in the property. Women, whether daughters, mothers or widows, cannot be part of the coparcenary.
In light of the exclusion faced by the female sex, in the 1950s, the Hindu Succession Act was amended and it was clarified under Section 6 that if a male Hindu died having at the time of his death an interest in a Mitakshara coparcenary property his interest in the property would devolve by survivorship upon the surviving members of the coparcenary, provided that if he had any surviving female relative specified in Class I of the Schedule or a male relative specified in that class who claims through such female relative, the interest of the deceased in the Mitakshara coparcenary property would devolve by testamentary or intestate succession and not by survivorship. It may be noted that under this schedule sons, daughters, mothers and widows are all recognized as Class I heirs.
Simply put, the Act through this provision provides for a ‘notional partition’, to demarcate or calculate the share/interest of the deceased coparcener in the joint family property at the time of his death. Once the share is demarcated it will devolve upon his heirs in accordance with the Hindu Succession Act i.e. it would be distributed equally among Class I heirs. Herein both the male and the female heirs inherit an equal share.
To this extent the Hindu Succession Act provides for the equal distribution of self-acquired property and the equal distribution of the property deemed to be partitioned. It was a projected as a progressive move but the son’s birthright were kept intact. Since the partition was only notional or deemed the son had both, a birthright in ancestral property and a right to inherit equally in self-acquired property. In effect the share of the son was much greater.
For e.g. A, B and C are coparceners of a joint Hindu family. B also has a daughter D. If B dies, there would be a notional partition and B’s share would be ascertained to 1/3rd (A, B and C have an equal share).
Now this 1/3rd share would be divided equally between C and D. Therefore D only gets half of the 1/3rd share while C the son has his own notional 1/3rd share, virtue of being a coparcener + half of the 1/3rd by succession. It is this inequality that the 2005 amendment is redressing.
The journey to reform has not been easy. The initial bill, tabled in the Rajya Sabha in December 2004, based on the Law Commission’s 174th Report, had many shortcomings. In particular, it ignored agricultural land and the claims of married daughters. During the intervening eight months, concerted efforts for a more comprehensive amendment were made by individuals and groups committed to women’s rights, land rights and livelihoods through newspaper articles, memoranda, depositions before the parliamentary standing committee on law and justice.
Before this, five states amended the Hindu Succession Act. First Kerala abolished joint family property altogether, making the inheritance of all property, including land, equal for sons and daughters. Tamil Nadu, Karnataka, Andhra Pradesh, and Maharashtra followed, but they retained the Mitakshara coparcenary system, making only unmarried daughters coparceners. They left out married daughters and agricultural land. The current amendment, passed as a Central Government Act, will also benefit women in these four states.
Agricultural land: By deleting the gender discriminatory Section 4 (2) from the Hindu Succession Act, the legislators have brought all agricultural land on par with other property and thereby made Hindu women’s inheritance rights in land legally equal to that of men across states, overriding state-level discriminatory laws. This would benefit millions of women who were dependent on agriculture for survival.
This amendment was much opposed and had not found any place in the originally proposed bill, one of the primary reasons given in support of the opposition was to prevent fragmentation of agricultural land holdings. According to this school of thought daughters eventually get married, their rightful place is with their husbands. How ever this is an absurd argument in this day and age and cannot justify disinheriting women from a rightful share. Fragmentation can occur even with sons solely inheriting property, with job searches forcing them to urban settlements, migration is as much a modern truth for men as it is for women.
On a positive side, by giving gender equality in agricultural land the amendment can reduce not just a woman's but her whole family's risk of poverty, increase her livelihood options, enhance prospects of child survival, education and health, reduce domestic violence, and empower women to take charge.
Mitakshara coparcenary property: The second major achievement lies in including all daughters, especially married daughters, as coparceners in joint family property.
Vide the amendment, Section 6 of the Hindu Succession Act now states that a daughter of a coparcener shall by birth become a coparcener in her own right in the same manner as the son, have the same birth rights in the coparcenary property as she would have had as if she had been a son and be subject to the same liabilities in respect of the said coparcenary property as that of a son.
This amendment is of great importance for women economically. It enhances a women’s security, by giving her birthrights in the property. Now daughters will get a share equal to that of the sons at the time of the notional partition and an equal share of the father’s separate share. Also, women can become a ‘Karta’ of the property. A ‘Karta’ is the head or the manager of the joint Hindu family property, usually occupied by the senior most coparcener.
Symbolically, all this signals that daughters and sons are equally important members of the parental family.
Others: The Hindu Succession Act prior to the 2005 amendment vide Section 23 did not give the female heirs a right to seek partition of the dwelling house, furthermore, only unmarried , separated, deserted or widowed daughters were entitled to a right of residence in the dwelling-house.
The 2005 Amendment Act has omitting Section 23 and now all daughters – whether married or unmarried have the same rights as the sons to reside in or seek partition of the family dwelling house . It has thus undermined the notion that after marriage the daughter belongs only to her husband's family. Now, if her marriage breaks down, she can return to her birth home by right. This will greatly enhance a woman’s self-confidence and social worth by giving her greater bargaining power, not only for herself but also for her children, in both parental and marital families. It will in particular help women facing domestic abuse and violence in their matrimonial homes.
The 2005 Act also deletes Section 24 of the Hindu Succession Act, which barred certain widows from inheriting the deceased's property if they had remarried. This discriminatory law stands omitted giving all windows belonging to any class the right to inherit, now remarriage will not preclude her from claiming her share.
Although the Amendment Act is progressive in nature, there are certain anomalies that still exist. This arises out of the fact that the position of the mother vis-à-vis the coparcenary remains unchanged. She, not being a member of the coparcenary, will not get a share at the time of the notional partition. In fact, the actual share of the mother will go down, as the separate share of the father will be less, the reason being, the property will now be equally divided between father, sons and daughters in the notional partition.
This stems from retaining the ‘Mitakshara’ system, which has its origin in the concept of ‘birth right’. Such concepts in today’s day and age are archaic and feudalistic in nature and it would be much better to do away with them altogether rather than to bring about piece meal reforms.
Notwithstanding the latest amendments, under Section 30 of the Hindu Succession Act, the right of a Hindu to will his/her property is unrestricted. Given the bias and preference for sons and dated notions of lineage, discrimination against daughters in inheritance through wills is bound to stay. In most cases, the terms of the will would favour the son. It has been suggested that limitations be placed on the right to create a will, to prevent men from misusing this power to disinherit women. Perhaps the share of property that can be willed by a person could be restricted, as a step towards greater gender equality.
Although the amendment has its drawbacks but it is a step in the right direction, at least on paper there is equality between sons and daughters. A bias which was becoming increasingly difficult to digest even though properties now a days are largely self acquired and not joint family holdings. To accompany this progressive, law effective implementation is required. Legal awareness is a must to ensure that women actually gain.
Women and the grass root workers will have to be made aware of the law and its scope for it have a proper impact. Theses steps would be critical for ensuring that the promise inherent in this landmark legislation does not remain merely a paper tiger.