QUESTION : What are various challenges faced by Housing Finance Companies in India and how India can ensure better business environment in India?







 NBFCs and their Challenges




In today’s pro-business climate, the proposal of giving licenses to the corporate houses would evoke jubilation. It should have been hailed as another ‘big bang’ reform that would help undo the dominance of the public sector in banking. Instead, many analysts doubt the proposal will fly.




The idea is not novel:


  • The idea of allowing corporate houses into banking is by no means novel.


  • In February 2013, the RBI had issued guidelines that permitted corporate and industrial houses to apply for a banking licence. Some houses applied, although a few withdrew their applications subsequently.


  • No corporate was ultimately given a bank licence. Only two entities qualified for a licence, IDFC and Bandhan Financial Services.


  • The IWG report quotes RBI – Not giving a licences to any corporate houses is the most appropriate stance due to the public concern about governance.


  • In 2014, the RBI restored the long-standing prohibition on the entry of corporate houses into banking.


  • The Committee on Financial Sector Reforms (2008) was against the entry of corporate houses into banking. It had the following reservations:


o It is premature to allow industrial houses to own banks.


o This prohibition on the ‘banking and commerce’ combine still exists in the United States.


o India needs to wait till the private governance and regulatory capacity improve.


o The RBI’s position on the subject has remained unchanged since 2014.


The worry is the risks:


  • The IWG report weighs the pros and cons of letting in corporate houses.


  • Corporate houses will bring capital and expertise to banking. Moreover, not many jurisdictions worldwide bar corporate houses from banking.


  • The main concerns are:


o Interconnected lending


o Concentration of economic power and


o Exposure of the safety net provided to banks (through

 guarantee of deposits) to commercial sectors of the economy.


  • Corporate houses can easily turn banks into a source of funds for their own businesses. They can ensure that funds are directed to their cronies.


  • They can use banks to provide finance to customers and suppliers of their businesses.


  • It can mean an increase in concentration of economic power.
  • Not least, banks owned by corporate houses will be exposed to the risks of the non-bank entities of the group.


  • If the non-bank entities get into trouble, sentiment about the bank owned by the corporate house is bound to be impacted. Depositors may have to be rescued through the use of the public safety net.


Regulator credibility at stake:


  • Pitting the regulator against powerful corporate houses could end up damaging the regulator. The regulator would be under enormous pressure to compromise on regulation. Its credibility would be dented in the process. This would indeed be a tragedy given the stature the RBI enjoys today.


  • There are corporate houses that are already present in banking-related activities through ownership of Non-Banking Financial Companies (NBFCs).


  • Under the present policy, NBFCs with a successful track record of 10 years are allowed to convert themselves into banks. The IWG believes that NBFCs owned by corporate houses should be eligible for such conversion.


It points to privatisation:


  • Corporate houses are unlikely to be enthused merely by the idea of growing a bank on their own.


  • The real attraction will be the possibility of acquiring public sector banks, whose valuations have been battered in recent years.


  • Public sector banks need capital that the government is unable to provide. The entry of corporate houses, if it happens at all, is thus likely to be a prelude to privatisation.


  • Given what we know of governance in the Indian corporate world, any sale of public sector banks to corporate houses would raise serious concerns about financial stability.




  • Corporate houses are adept at routing funds through a maze of entities in India and abroad. Tracing interconnected lending will be a challenge.


  • Monitoring of transactions of corporate houses will require the cooperation of various law enforcement agencies. Corporate houses can use their political clout to thwart such cooperation.


  • The RBI can only react to interconnected lending ex-post, that is, after substantial exposure to the entities of the corporate house has happened. It is unlikely to be able to prevent such exposure.


  • Suppose the RBI does latch on to interconnected lending. Then, any action that the RBI may take in response could cause a flight of deposits from the bank concerned and precipitate its failure.




  • The RBI must be equipped with a legal framework before corporate houses are allowed to enter banking. It will deal with interconnected lending and a mechanism to effectively supervise conglomerates venturing into banking.


  • India’s banking sector needs reform but corporate houses owning banks hardly qualifies as one. The entry of corporate houses into banking is the road to perdition.


  • There is a world of difference between a corporate house owning an NBFC and one owning a bank. Bank ownership provides access to a public safety net whereas NBFC ownership does not. The reach and clout that bank ownership provides are vastly superior to that of an NBFC.


  • The objections that apply to a corporate house with no presence in bank-like activities are equally applicable to corporate houses that own NBFCs.


QUESTION : Throw a light on the state of Scheduled Tribes of J&K and list the major concerns  regarding their forest rights. 






Scheduled Tribes in J&K and Forest Rights Act (FRA), 2006




Lack of political reservation has been a major reason for marginalisation for tribals in J&K.




  • Tribal politics in the erstwhile State of Jammu and Kashmir was focused on the twin issues of political reservation and enactment/extension of the Forest Rights Act (FRA) of 2006.


  • Tribals were provided reservations in jobs, but no political reservation was given.


  • The J&K government has now decided to implement the FRA.

STs in J&K :


  • According to the 2011 Census, Scheduled Tribes form 11.9% of Jammu and Kashmir’s population.


  • Prominent tribes like Gujjars and Bakerwal mostly depend on forest land for their livelihoods and shelter and most of them don’t own any land or shelters.




  • Inadequate legislative representation: Lack of political reservation meant that tribal issues were never adequately represented in the Legislative Assembly.


  • Evictions of tribals : The eviction and demolition drives against nomads have increased and no rehabilitation plans are in place. The FRA would have provided Adivasis in J&K access and ownership rights, forest-based livelihood rights, and minor forest produce rights.


  • Delay in extension of FRA: The extension of the FRA to J&K after the abrogation of special statuses pending, though many other Central laws were extended to the Union Territory.


  • Hassles in proving land ownership: The J&K government has nullified the State Land (Vesting of Ownership to the Occupants) Act, 2001, also known as the Roshni Act.


o This Act was controversial due to the questionable transfer of ownership of state land to many influential people.


o But it also provided ownership rights to many poor, landless Adivasis as well.


o Now the land will be retrieved from them. Therefore the Adivasis will fail to prove their claims of ownership under the FRA.


o The FRA, will not benefit such poor, landless Adivasis in this situation.


  • No cut-off date: In the rest of India, the FRA provided and recognised the forest rights of forest dwellers who had occupied forest land before December 13, 2005.




  • It was enacted to protect the marginalised socio-economic class of citizens and balance the right to environment with their right to life and livelihood.


  • The Act basically does two things:


o Grants legal recognition to the rights of traditional forest dwelling communities, partially correcting the injustice caused by the forest laws.


o Makes a beginning towards giving communities and the public a voice in forest and wildlife conservation.


  • Eligibility: First, everyone has to satisfy three conditions:


 Primarily residing in forests or forest lands;


 Depends on forests and forest land for a livelihood.


 One belongs to a Forest Dwelling Scheduled Tribes


Rights granted: The law recognises three types of rights:


  • Land Rights: No one gets rights to any land that they have not been cultivating prior to December 13, 2005 and that they are not cultivating right now.


  1. a) The land cannot be sold or transferred to anyone except by inheritance.


  • Use Rights: The law secondly provides for rights to use and/or collect the following:


  1. a) Minor forests produce things like tendu patta, herbs, medicinal plants etc “that have been traditionally collected. This does not include timber.


  1. b) Grazing grounds and water bodies


  1. c) Traditional areas of use by nomadic or pastoralist

 communities i.e. communities that move with their herds, as opposed to practicing settled agriculture.


  • Right to Protect and Conserve: For the first time, this law also gives the community the right to protect and manage the forest.


  • Procedure for granting rights: There is a transparent three step procedure for deciding on who gets rights.


  1. a) First, the gram sabha (full village assembly, NOT the gram panchayat) makes a recommendation – i.e who has been cultivating land for how long, which minor forest produce is collected, etc.


  1. b) The gram sabha’s recommendation goes through two stages of screening committees at the taluka and district levels.


  1. c) The district level committee makes the final decision (see section 6(6)). The Committees have six members – three government officers and three elected persons.




  • It sought to regularise unauthorised land.


  • Anybody who had grabbed this land in the past, could now come to the government, make an application and pay a certain fee.


  • The J&K government then said they would collect fees to the tune of roughly Rs 25,000 crore, which would then be used to upgrade the region’s electricity generation, thus bringing “roshni” into the lives of the Kashmiris.


  • However, in 2014, a report by the Comptroller and Auditor General of India (CAG) found irregularities in the transfer of the encroached land to occupants from 2007 to 2013.


  • Later on, the J&K governor repealed the Roshni Act.




Without a cut-off date, with land being retrieved after declaring the Roshni Act null and void, and with forceful evictions taking place, many tribal families are unlikely to benefit from the implementation of the FRA.

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