Credit and Currency Derivatives in India

September 20, 2015

Does India Need Credit and Currency Derivatives?

Here we are republishing an article from A First Taste of Law which has now shut down, from old times sake.

India seems to be moving fast towards the introduction of innovative financial products. Readers may recall the detailed discussion on one such product in the form of credit default swaps in the post on The Big Short, where you can read how the use of the instrument played a crucial role in bringing about the crisis. Now the RBI has sought to introduce credit-default swaps (CDSes) and has invited public comments to its draft report on the same. Some of the key features of the RBI proposal on CDSes can be read on the Indian Corporate Law Blog here. Notably, it points out that CDSes will only be permitted to hedge underlying exposure and naked CDSes, which were widely in vogue prior to the financial crisis in the USA, will not be permitted in India. This should check the use of the instrument for speculative purposes.
Regular visitors may also recall our prior post on the Clash of the Titans series, which outlined the framework for trading currency derivatives in India, where we had pointed out that trading in currency futures in four pairs had been permitted, albeit trading in currency options had not then been legalised. RBI and SEBI were working in cooperation to introduce currency options. If you want to know the basics of derivatives and currency derivatives, in general, you can read this paper co-authored by Ramanuj over here.
The SEBI has now introduced trading in currency options on the US dollar – Indian rupee currency pair. The options permitted are of the European style, which implies that the option (whether it is to buy or sell the currency) can be exercised only on the date of expiry, and not at any other time till the date of expiry (this is permitted in case of American options). The minimum size of a single options contract is slated to be USD 1000, a significant sum for a retail investor.
Settlement options
Options contracts may be settled in two ways – physical settlement and a cash settlement. Physical settlement implies delivery of the actual unit of the stock or currency on which the options have been bought or sold. So, if I have a call option to buy a stock at USD 40, which is trading at a given time at USD 50, I can exercise my option on the date of expiry, pay USD 40 and receive the stock. This is a case of physical settlement. Alternately, I could be paid the difference of USD 10 directly, which would be a case of cash settlement. Currency options as per the SEBI Circular are to be cash settled. Details of the SEBI circular may be found here.

Who needs currency derivatives?

International Currency Market is seeing unprecedented volatility. Euro is not reliable anymore in the face of eurozone debt crisis. Recent flight to safety has led to higher prices of USD, but even the United States is going through a very bad economic phase, facing a double-dip recession and has accumulated more debt than it can pay off in decades without substantially damaging price of USD. On the other hand, emerging market currencies are strengthening but are not reliable yet. This is leading to an entrenched sense of insecurity to those having exposure to these major global currencies.
Indian companies providing services in the USA or European countries are perhaps the most vulnerable as average bill collection period has been increasing, and they inevitably run the risk of profit erosion during this waiting period due to change in value of foreign currency. This uncertainty may be very costly as until collection the service provider can not know what is the price that it is receiving in terms of domestic currency, and naturally it will find it difficult to make a price decision. Due to this uncertainty, they are likely to be forced to ask for higher margins, making services costlier than it could have been in the case of certainty of price received.
This kind of problem plagues the exporter and importers of goods to a much lesser extent, as they are in a better position to ask for immediate payment or even insist on payment of a premium for delayed payment, compensating for the risk.
The other category of persons or companies having a significant risk with respect to foreign currency will be those holding assets in foreign countries or in foreign currencies.
Interestingly, it is possible to hedge foreign currency exposure without buying any derivative product by simply taking or giving loans in a currency. For instance, if I am expected to receive USD 1000 in remuneration after a month, I can minimize the risk of currency price fluctuation by taking a USD 1000 loan right now at the current price. This will remove the uncertainties with respect to price of the currency, and the price will essentially be the current price of the currency at the time the loan is taken added up with the interest to be paid on USD 1000 in one month. However, this may be difficult to implement all the time due to the high cost of interest and unavailability of the loan in foreign currency. This is where Currency Derivatives become useful.
Indian economy is one of the few growing economies in the world at this point of time. Given that from investments in foreign currency in India to outbound investments a great many commercial activities can benefit from currency risk hedging, we can say that the time of currency derivatives is coming. The only measure that the regulators have to ensure is that the nascent market should be kept far away from speculation.

SEBI’s new regulatory initiatives

Guest Post

September 20, 2015

The Clash of the Titans Part II - Meet Another Regulator

Once upon a time, while we were still law law school, Abhyudaya and I used to write about some developments at various regulators on our blog A First Taste of Law. It was a great way for us to keep in touch and at the same time build our blogging reach. We are republishing one such article here.

It governs everything you do in the stock markets. It can ban you and any company floated by you at present or even in future from getting public money if it finds you guilty of market manipulation, unfair practices or insider trading. Be it a big-ticket IPO or a high-profile takeover, the SEBI governs it all.
The previous post outlined some of the innovative measures taken by RBI. This post shall introduce you to some of the innovative products brought in by the Securities and Exchange Board of India (SEBI), the stock markets regulator.

Interest rate futures

Interest rate futures are instruments traded on stock exchanges which fix the interest rate on an underlying security, such as a bond, upon a future date. An interest rate future can be used to hedge risk arising out of fluctuating interest rates. Recall from our previous post on Liar’s Poker that the value of a bond varies inversely in relation to interest rates. Hence, if interest rates rise, the value of the bond will fall. Entities which hold the bond would, therefore, be interested in hedging such risk of fall in the value of the bond. Interest rate futures are permitted on certain 10-year Government securities only. A more detailed idea of the product is available on this link from the Securities and Exchange Board of India (SEBI) site.

SME Listing

SEBI had announced regulations for listing shares of Small and Medium Enterprises, implying that it would now be much easier for them to raise money from the public. These regulations would lower thresholds for listing by giving them certain exemptions from the applicability of listing norms and takeover provisions that apply to their larger counterparts, making listing on a stock exchange a more feasible option for them. This is important as it shifts the focus away from the Blue-Chips, the Mid, and Small Cap companies of India Inc to the thousands of other emerging companies of India.

Further, it is likely for a lot of SMEs to have shareholders from cities and states which are geographically nearer to the base of the company concerned, as those regions are also more likely to be their target markets during their growth stage. This would also encourage people who may have otherwise not participated in the stock market or transacted to a very limited extent to engage in the stock market. In the long run, it would ensure the creation of the right incentives to encourage efficiency in the management of companies, right down to the smallest of them. We must remember that this is a big step towards the inclusion of the bottom half of the pyramid and has the same potential in boosting financial transactions as the mobile revolution has had for rural telephony.

French Auctions

Further, in its new regulations (Issue of Capital and Disclosure Regulations, 2009), SEBI has introduced a new auctioning system when a company which is already listed tries to issue more shares to the public (known as a follow-on public offer or an FPO) – called a French Auction. The method has been tried in the FPOs of some public sector undertakings – National Thermal Power Corporation (NTPC), Rural Electrification Corporation (REC) and National Mineral Development Corporation (NMDC), though it did not turn out to be as successful as expected. But then, on cannot be successful all the time. It was still a worthwhile move forward.

SEBI vs. IRDA

SEBI and IRDA were engaged in a tussle with the regulation of ULIPs (Unit Linked Insurance Plans), which are essentially insurance schemes with components reserved for the purpose of investing. First, SEBI issued an order requiring registration of new ULIPs with it, but IRDA then clarified to insurance providers that they may ignore the SEBI. The matter lies with the Supreme Court at present. In the meanwhile, an ordinance was passed giving exclusive jurisdiction over ULIPs to IRDA, amending the SEBI Act, the Securities Contracts Regulation Act (SCRA) and the IRDA Act. However, an amendment to the ordinance is awaited when the Parliament is in session.

The two regulators are also cooperating with each other to bring out norms for the listing of insurance companies. Presently, the draft prepared by the IRDA has been sent to SEBI for final approval.

This was a short coverage of some innovations brought in by SEBI in the financial markets. The next post shall chart the moves of the Department of Telecom and the Competition Commission of India.

How to make a real business out of a good business plan

Abhyudaya

September 19, 2015

Starting your business is like a pilot flying a plane for the first time – the only difference is that pilots have experienced multiple flight simulation rounds before their first real flight. They have made countless mistakes and learnt from them, without having to face any costs for the mistakes (such as plane crashes, passenger and crew injuries, etc.) These are the benefits of training in a mock environment.

Unfortunately, entrepreneurs haven’t had the benefit of mock training. When they start the business, it may just be their own (and co-founders’) careers at stake, but as the business expands, what is at stake is much larger, and the risk keeps growing with every stage. Small mistakes can have magnified adverse consequences later on for the business.

Yes, some are very ambitious, and have made use of any opportunity they got in their environment to sharpen their business skills. For example, there are some who perform extremely well in B-Plan competitions. Some even advise friends in writing winning B-Plans. All this is done for the love and thrill of starting up and to ensure that you have enough preparedness to handle real-life situations when you take the plunge and start out on your own.

Now, imagine that it’s your turn to churn up a real business from your business plan. The thought of starting a real business comes to every B-plan writers mind and some even execute the same very successfully. What kind of mock training is important? Would you prefer having more exposure to real-life situations and practical scenarios? Participation or victory in B-plan competitions and hackathons is a great start, but do these events get you what you need?

The decision-making challenge

Let’s say you are a B-plan competition champion. Recall what skills that you have acquired as a B-Plan competition participant or winner. One major skill you had to develop and exercise was the ability to clearly think and put down your business idea in detail on paper, so that you can start executing it. This is definitely going to help you in a big way while planning your business.

However, executing the plan in the real world will require much more than just this. You will need others to help you in building the business – nobody today builds a business or a product all alone from scratch. You will need to develop the ability to try out things, measure outcomes, learn from failure, iterate or adapt and repeat the process, till you succeed. There will be humongous hurdles you will face on the way, starting from persuading and convincing people, getting licences, handling partners, collaborators employees, vendors and government agencies and so on, which will stand in the way of your dream, even if you have fantastic technical or coding skills.

The ability to convert a business idea or business plan into successful businesses is what distinguishes successful entrepreneurs from those who don’t start, or who give up immediately in the face of their initial failures. In the process of trying different things and transforming your business plan into a workable business, you will need to take ‘decisions’. It is necessary to protect one’s interest (even if there is limited information), so that an unlikely turn of events in future does not put us at a disadvantage. Time, ability and resources are all scarce and lack of knowledge (largely about areas which do not relate to your domain expertise) will keep pulling you back at all stages. As an entrepreneur, you ought to know or be able to manage things that you don’t know, without your business suffering the cost of your ignorance.

Let’s work on the knowledge barrier

In this article I will mention four crucial roadblocks that must be tackled by any early-stage entrepreneur and the skillsets necessary in tackling these obstacles. While it may not be necessary for you to know all the answers, being aware of these will help you in the following ways:

Take important decisions about business strategy on your own, much faster
Find someone (for example, a CA or a lawyer) to implement your strategy
Work with a professional more effectively due to your knowledge and understanding of the problems.

Most entrepreneurs in India will be lost and frustrated with the system, and a large number will give up. However, if you can master the legal and regulatory aspect of doing business in India, you will have an unique and solid advantage. Any competitive advantage is great for survival, and this can give you a significant competitive advantage as a business owner.

Roadblock 1: Selection of a business structure and initial operational issues

As an entrepreneur, it is extremely important that your business is structured in a way that you have the ability to take out profits, it is tax efficient and attractive and legally possible for investors and bankers to provide funds. For example, Google, Microsoft and other international technology giants have created sophisticated layered structures to save tax. They transfer technology rights to a tax haven really early on to save taxes.

Some real estate and software consultancy companies in India are structured as Limited Liability Partnerships to minimize tax implications. E-commerce companies operate through multiple entities. Ventures with scalable technology ideas are almost always started as private limited companies. Some ventures adopt a combination of a for-profit entity and a non-profit trust, which enables them to access vast amounts of donations from international charities.

How should you structure your business? Answering this question in context of a specific business requires an understanding of how different business forms are owned, controlled and governed, corporate governance mechanisms, commercial intent of investors, etc. Once you decide the business structure, you need to think about structuring co-founder relationships and the various licences you need to commence business.

Preliminary action points

Your initial question at this stage is whether your business be structured as a partnership, LLP, company or a non-profit venture, which can be answered by breaking down your goals for the business, such as:

Which business structure ensures maximum operational flexibility?
Which is the most tax efficient business structure?

Which is the most conducive for receiving foreign investments or foreign loans?

Which business entity should you create if you want to receive grants and foreign donations?
How many co-founders will you take? How much equity should be given to co-founders? What happens if the co-founders leave?
Which licences do you need to commence your business?

You may need to effectively manage a lawyer and accountant in getting the above outcomes. Prior knowledge and understanding of these issues will definitely be helpful in this.

Skillsets required to successfully overcome this roadblock – Business structuring skills, business incorporation, compliance, understanding of corporate governance mechanisms, obtaining licences and registrations.

Roadblock 2: Team building and consultant relationships

Startups cannot afford to pay the same as Fortune 500 companies, and usually can’t even pay market rates, but if they want the best talent, what can they offer employees? Stock options is the magic word – even Google’s chefs became millionaires when the company undertook an IPO. How should you incentivize your employees?

Next, how should a business protect its commercial interest vis-à-vis employees and consultants? There are ample stories where companies have sued employees and consultants who have left to work with competitors or to start their own businesses. For example, Apple prevented any former employees from working with any of its vendors for the simple reason that it did not want other companies to have similar design. Amazon was sued by Walmart when it discovered that Amazon had been poaching its employees away. (Incidentally, Flipkart was also started by ex-employees of Amazon, but there was no legal battle because there are restrictions on how comprehensive non-compete clauses can be.)

Let’s explore related questions.

How will you remunerate and incentivize employees and administer ESOP plans?
What restrictions will you impose to protect business secrets and intellectual property?
How will you prevent employees from taking away your clients or starting competing businesses?
On what terms will you hire consultants, freelancers and other vendors?

Action points

You will have to address these issues through employment agreements, confidentiality agreements, board-resolutions, stock option plans and consultancy agreements.

Skillsets required to successfully overcome this roadblock – Strategic planning, negotiation, understanding contracts, factoring commercial incentives into the legal documentation.

Roadblock 3: Revenue Model and Marketing

How will your business idea generate revenues? This may probably be answered in your business plan. You will have to ensure certain systems and documentation is in place so that your desired revenue model is established. For example, consider your core product is a content website. You will have to decide on the following:

If you generate revenues from ads, what terms will be applicable to advertisers?
If you allow third-parties to sell products to your community, what terms will be applicable to third-party products sold to your community?
If you decide to co-brand products, how should you be represented in context of the product?
If you are selling a software product, what will be the terms of the license?
If you collect online payments and other personal information of users, how will you ensure it is secure?
Will you collaborate with other entities for launching, marketing or branding your products? How will you capture the terms of this collaboration? What will you do if someone breaches contracts?
How will you structure distribution and marketing arrangements?

Action points

Once you decide the answers to the above questions, you will have to address them appropriately in appropriateuser agreements, service level agreements, payment gateway agreements, terms of service and privacy policies, marketing agreements, affiliate arrangements, joint venture, collaboration and co-branding arrangements. Revenue sharing and commission-related issues will also have to be carefully addressed.

Skills required to successfully overcome this roadblock – Understanding of commercial intent, contract negotiation and operational working of a contract, dispute resolution and payment recovery strategies, regulatory framework for data security.

Roadblock 4: Intellectual Property Strategy

Intellectual property can be a heavy component of a business, especially technology businesses and can help in creating significant competitive advantage. While most entrepreneurs are aware that they must protect their intellectual property, mistakes are made in identifying the right intellectual property in the business, in selecting elements that make their intellectual property unique and different from others and in creation of monetization strategies.

For example, did you know that Ericsson does not manufacture mobile phones, yet it makes significant revenues through licensing its cellular technology? Or that Disney made more money from merchandizing (i.e. creating toys and other articles) characters of its most successful movies, than from box office sales of the movies themselves?

Questions that you need to decide at this stage are:

What aspects of your product will you seek to protect and how? (Think product name, interface, source code, layout, copyright, trademark and patents.)
Do you want to protect your intellectual property in international markets? (You will need to create an international level IP strategy depending on the markets you choose.)
You will be sharing product manuals, list of features and presentations with any ad agencies and marketing companies. How will you protect these from getting copied by competitors (both online and offline)?
Can you explore licensing and similar mechanisms can you explore to monetize intellectual property?

Action points

You will need to think through these issues carefully and create an intellectual property strategy, decide on which registrations to obtain and which authorities and countries to file necessary applications in (you can later instruct a lawyer or consultant to help you with the applications, but the responsibility for decision-making lies on you). You will also have to conceptualize necessary license agreements and IP assignment clauses.

Can you outsource these tasks?

As entrepreneurs, we want to identify and deploy the right talent for a particular job, and outsourcing something we can’t or don’t want to do seems like an attractive idea at first.

Do you think you can identify a lawyer to help you out with these issues? Most entrepreneurs end up outsourcing these issues right at the outset to a lawyer, accountant or a company secretary, and are soon disappointed when things do not work out as planned. While lawyers or other professionals may be able to guide you on specific points, the broader strategy has to be decided and pushed forward by you. In fact, several businesses fail because of inability of entrepreneurs to take decisions on these issues.

To answer the question point blank – yes, you can outsource this work, provided you know how the work is done and you can manage the person you have outsourced to. The reason serial entrepreneurs are more likely to succeed is because they have had prior experience of at least some of these issues, where most first-time entrepreneurs are stuck.

How can you equip yourself to tackle these roadblocks?

Here are some of the ways available:

Reading books – This is the classic option. You could buy different kinds of books, but assimilating all the information will take years, especially on a subject such as this. A lot of experiences and insights are not from India, so finding an Indian parallel is difficult. Also, there is a limit to how much one can keep reading and assimilate. Would you want to spend your time reading books or doing business?
Attending legal sessions in networking events – These are definitely a positive development in the right direction. Do you recall attending a legal session at a networking or startup event? How was the experience? Most people who have attended multiple events describe their experience in like this – they became aware of many issues the first time they attended a legal session, but then the learning never really took off to the next level. They still don’t feel very comfortable at tackling these issues at a practical level on their own, or to even manage resources to do these tasks. The reason is that experts at these events try to give you a taste of some of the crucial issues. Due to time and other constraints, structured learning does not take place – in-depth discussions and customized takeaways are not available.
Having advisors and mentors – You should definitely have advisors and mentors. We all want to make decisions only after receiving the best advice from those who have experienced similar However, that does not eliminate your need to develop personal skills and strategic abilities. Advisors and mentors have limited time, unfortunately and if you took help from them blindly, you will never know if what they are doing is exactly what you need for your business.
These days, universities have started developing dedicated courses focussed on different aspects of entrepreneurship. Typically, these focus on various skills such as design, marketing, financial planning, etc. For legal and strategic skills, you can see this course from a national law university. It requires a time investment of 3-4 hours a week for a year and brings these insights systematically from industry experts.

Is there any other legal hurdle you are facing in your business? Let me know if you would like me to cover something specific. I’ll be happy to hear from you at [email protected].

(Abhyudaya Agarwal is a founder of iPleaders, a legal education startup which helps universities and industry bodies build online courses.)

How to Handle Tutorial Essays

Guest Post

September 19, 2015

How to Handle Tutorial Essays: A Quick Primer

A lot of my juniors have been asking me how is it that a good tutorial is written. Well, it’s very simple, as long as you are ready to put in a few hours. You may find it boring, but do it, for this is going to get you some great skills that you can use for the rest of your life, apart from the marks that you get at the end of semester. Someone who has been writing tutorials for a while now, and puts a lot of effort every time, namely Srishti Aishwarya shares her recipe for writing good tutorial essays.

As law students and future lawyers, we are supposed to possess good research and writing skills and to inculcate that skill, the system of writing projects exists in the National Law schools. Under this system, students are supposed to delve into and write a project with a word limit ranging from 3000-5000 words on the assigned topic in every subject. However, it is generally seen that students, instead of researching and writing their projects, adopt short-cut techniques of copy- pasting, academically known as plagiarism.

To counter this problem, in NUJS, the system of tutorials was brought into the picture as an alternative to train students to write and research better. Since the word limit ranges from 800-1500 words, the emphasis is not on quantity and plagiarism does not pay off as well.

Mine was the first batch in NUJS on which the tutorial system was applied. Initially, it was all Greek and Latin to us. All we knew was that we had to write an essay every week after doing thorough research on the topic and submit it. Since our seniors were not acquainted with the system either, we were left with no assistance. With just a conceptual idea of how tutorials are supposed to be, we started writing tutorials every week, forging and improving slowly by learning through our own mistakes.

There are some basic rules that should be taken into account while writing tutorials.

Basic guidelines for writing tutorials:

The first thing to have off pat while writing a tutorial is to understand the topic and the question. Writing without due comprehension is likely to cause blunders. As the system in NUJS stands, a topic is given every week on which the tutorial has to be submitted on the subsequent week.
On being provided with the topic, your first day should be consumed in analysing the question by breaking it into parts and trying to understand what it wishes to convey. If the topic seems indiscernible, the respective subject’s faculty should be consulted in order to have the question expounded. One thing to be kept in the psyche is that you have to focus on the point the professor wants you to emphasise on.

After making sure that you clearly understand the question, your next course of action should be to start searching for the books mentioned in your reading list for the topic. Extra research may be done if you are not satisfied with the suggested reading material. Generally, the reading material is vast, this, however, does not mean that you need to swot every detail. You need to skim through the material and search for what is relevant. While reading and understanding, take down the important points. This should be followed by the mental process of figuring out an appropriate structure for the essay.

The process of understanding the question and going through the reading material will consume three to four days. Once your notes are ready and you have a structure in mind, start drafting your essay. Remember to compile all the relevant points and importantly, make sure that your essay deals with the question posed adequately.
Drafting is followed by editing repeatedly, ensuring that you have addressed each and every aspect of the question. When you are done with editing, you are done with your essay!

Precautions to be taken while writing tutorials:

Writing an essay can be a cake walk if you deal with it in a proper fashion. Many people look at the question, a day or two before the submission date and begin writing the night before the submission day. This hurry-scurry not only ends up producing essays that shows explicit signs of haste (such things can be concealed in a project of 5000 words, but not in a tutorial essay) but also essays that fail to answer the question posed adequately. Either the essay ends up stressing excessively on a certain point or tries to cover everything and anything related to the topic. This will lead to disastrous results.

Another point to be taken into account is the word limit. You need to restrict yourself to the word limit, however hard it may be. The trick in such situations is to strictly focus on the question asked and restraint yourself from writing everything related to the topic. Crossing the word limit may fetch you negative marks.
You need to write your essay in a regimented pattern. You just can’t come up with an essay of 1500 words by whirling a magic wand or by burning the midnight oil the night before the submission day. Do your essay step by step, making sure that you deal with the question adequately. Such step-by-step process will also endow you with the time to revise your final copy of the essay. It will also give you the contentment of having given your best along with ensuring decent result up to much an extent.

Way to deal with tutorial discussion

The tutorial as a process does not witness an end just after you finish off your essay. Tutorial discussion on the topic is followed by submission of the an essay. Tutors who are students of 4th or 5th year moderate the discussion. Students are supposed to discuss their respective essays and present their viewpoint in the tutorial discussion. Since, tutorial discussion carry 5 marks, there are many people who tend to speak just for the sake of speaking. It causes a negative impact. The substance in what you say matter more than how much you say about the topic. You should raise relevant points that help in the discussion instead of speaking up just for the sake of it. This will surely have a good effect on your tutorial marks. Also, collaborate, don’t compete. Usually, that will ensure good performance for everyone.
Thus, just spend some time on your tutorial and think it through and you can ace it!

How to get an Education Loan in India

Guest Post

September 19, 2015

This article has been written by Milinda Sengupta.

Many of us are used to the idea that our parents are going to pay for our education. However, this may be difficult in many cases if you are opting for super expensive professional studies. A model has emerged now under which students go to expensive colleges that lead to good recruitment, making it easy to pay for the educational loan when the student is finally employed.

Education has been commoditized and studying from the top-notch B-school or law school adds to the professional skills in your portfolio and gets you a placement for a good desk job. But often such placement-guaranteed education comes at a great price. The only option when you don’t have the moolah then is to take an education loan, with the hope that you shall be in a position to pay it back from your earnings after graduation.

Understanding Education Loan

An education loan is a form of credit advanced to scholars and students; it is designed to help students pay for college tuition, books, laptops, hostel fees and other living expenses. It differs from other types of loans in that the interest rate is often substantially lower than most other loans and the repayment schedule is deferred while the student is still in school. It is priority sector lending for bank and also often relatively profitable – so most banks offer educational loans in large numbers.

An educational loan looks like a noble endeavour, but banks cannot afford to grant you the loan without assessing risks involved. Since you aren’t going to start repaying the loan for at least 3 years (5-6 years in case of law students) from the issuance date, the bank is investing in something that isn’t going to start repayment for quite some-time in the future. So, they will be cautious and extra careful when someone asks them for an education loan.

And still, getting an education loan should be a piece of cake compared to the effort you shall put into getting through a good college, B-school or law school. It can be a blessing for those who want to study and achieve their goals but do not have the money to pay.

Where does it come from?

Good question indeed.

Not everyone can offer a credit which you are going to return after n number of years. Here in India almost all the Public Sector banks offer Education Loan.

Some of the nationalised banks such as SBI group have special programmes, some of them are:

Lower interest rates for girls, SC, ST, disabled.
Lower interest rates for toppers, etc.

Taking education loans from government bans like SBI, Corporation Bank or UCO Bank is advisable because private banks impose stricter and more difficult conditions for educational loans.

Requirements:

Some banks have restrictions like:

The student or the guarantor should have a valid bank account for at least 6 months,

or the residence must be within 2 km from the bank branch, and so on.

The documents required may change from bank to bank, time to time. Usually the following will be asked for:

Mark sheets of your last qualifying exam
Proof of admission into the college
Schedule of expenses for the course
Photographs (Usually passport size)
Bank Account Statement of the Borrower for the last six months (If Applicable)
Income tax Assessment statement of the guardian (Parents or Guardians)
Statement of Assets & Liabilities of the co-borrower (Parents or Guardians)
Proof of Income of the Guardian
Identity Proof like Driving License, Passport or Voters ID for both the student and the Guardian
Address Proof like Ration Card or Electricity Bill etc

The list above is not exhaustive but it covers most of the documents that may be required to get an education loan. So, it is your responsibility to perform the entire requisite due diligence to ensure that you know what the bank will ask for when you go to them for the loan.

Important Do’s and Don’ts for Education Loans

An education loan is a long term financial commitment, certain things are important and you need to remember them. They are:

Do thorough research while applying for an education loan.
See if your requirements match with the requirements of the bank.
Read all documents carefully, never assume anything.
Try to understand all the terms and conditions properly.
Don’t involve any middle agents or brokers. It is better to deal with the bank directly.
Preferably opt for a bank that is near your home where you or your parents have a bank account for a few years and have a good reputation.
Make sure you submit all the relevant documents.
Do not forge any documents in an attempt to fast-track your case.
Do not attempt to bribe anyone.
Make sure you follow-up with bank officials regularly.

Courses eligible for loan

There are many courses that are eligible for an education loan. Here are some of them:

Courses in India

Graduation courses like BA, B.Com, B.Sc etc
Post Graduation courses like M.Sc, M.Com, PhD etc.
Professional Courses like Engineering, Medicine, Law, Veterinary, Management etc
Courses like ICWA, CA, CFA etc

Courses Abroad

Post Graduation Courses like MCA, MBA, MS etc
Graduation courses offered by reputed universities

Please note that, this is not an exhaustive list. It is just an indicative list that shows you the kind of courses which are eligible to get an education loan.

Repayment

Repaying a student loan is different. In most cases, payment can be deferred on the principal and the interest until the student is out of school. It can b postponed to 1 year after graduation as well, though not very advisable as the interest piles up. The best course of action is to keep paying down the interest throughout the loan period so that interest is not compounded – but this is a question of means. Also note that there is a income tax deduction available for interest paid on educational loans.

Repayment typically begins anywhere from six to twelve months after you leave school, regardless of whether or not you complete your degree program. In some cases, repayment begins if course load drops to half time or less, so it is important to check the exact terms and conditions of any student loan.

The student may have multiple options for extending the repayment period, although an extension of the loan term will likely reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan. Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income sensitive repayment plans and hardship deferments. Extensions and consolidation will also add to the principle, many times the unpaid interest and penalties becomes capitalized.

Try to ensure that there would not be any prepayment charges on your loan. This means if you pay down the loan ahead of schedule, thereby saving on interest payment, you will not be penalized with a prepayment fee (most private banks charge prepayment fee) – this is a great way to reduce interest costs.

Cost of Loan

Cost of Loan is the extra amount of money you pay in repayment that is actually the rate of interest and the processing fee if any.

In India it’s good that the rate of interest offered is almost constant across all banks with a 0.5 to 1% difference at max. Interest rate of 13% with no processing fee is obviously cheaper than a 12% rate of interest loan with a 2% processing fee so look out for these nasty fine prints. a 1% interest rate can mean difference of tens of thousands of rupees or more over a 5-10 years that you may take to pay the loan back – so be very careful.

Features of some banks.

SBI loans start from 11%

Corporation Bank gives 1% off for disabled ladies.

Axis doesn’t have any prepayment charges.

Federal bank has different rates for loyal customers and fly-in customers.

Bank employees always have an edge over bank customers in some cases rates are lower as much as 1.5% below normal.
Repayment period

Repayment period depends upon the duration of the educational course, some might be 2 years and some might even be 6years, it basically depends upon the agreement between you and the bank.

In some cases Repayment starts right from the time when the course ends, some may give a moratorium of 6 months or 1 year after graduating from the school.

You’ll have to clarify all these queries before signing up for the loan to avoid getting a shock later.

Tax benefits

Repayment of any type of scholar loan is eligible for tax rebate under Section 80E of the Indian Income Tax Laws covering the entire sum of money combined with interest and fines if any.

And to avail this you’ll have to get the interest paid statement from the respective bank and present it while filing income tax returns.

Start applying for Loan

Here is a collection of some important Banks and websites and their customer care numbers.

Call them, go to their site, suggest them your need, this could be the first step after reading this post.

SBI Scholar Loan: view website 1800-345-3455
Axis Study Power Loan: view website1800 233 5577
HDFC Education: Visit your nearest branch.
Corporation Bank Corp Vidya: view website +91-824-2426-416 to 420
com 1800-209-3636

Since you’re buying a product from them, they should be more than happy to serve you, agents who normally do the paperwork get very much elated when they see applicants for any loan approaching them, they can’t resist the thought of a bonus and or a promotion too.

And it’s a fact that you’re giving them a good business.

Six types of infuriating discrimination by restaurants, pubs and hotels in India

Ramanuj

September 19, 2015

The constitution of India promises that the citizens will not be discriminated against based on their gender, place of birth, race, caste, religion etc. The government of India has entered into many international treaties agreeing to protect citizens and foreigners alike from such discriminations. However, entry to public places such as restaurants and hotels is not a protected right except for those belong to harijan castes or other scheduled classes of people.

The hospitality industry in India has absolutely horrific discriminatory practices that makes life difficult for the common person. Indian restaurants, bars and hotels routinely disbar citizens as well as foreigners, and discriminate on ground of sex, place of birth, race and religion – and sometimes even age and disability. Let’s take a look at some real cases where the hospitality industry is brazenly discriminating with regard to access to public places like restaurants and hotels.

Discrimination against people from African countries and other foreigners

Racism is not the problem of only white people – Indians can be very racist. If you want proof, just ask the Africans living in Khirki village in Delhi or the Nigerians in Goa. What is astonishing is that a large number of Indian eateries, bars, pubs, restaurants, hotels, and even landlords discriminate against Africans living in India. Many establishments like restaurants and bars which are generally open to the public, do not allow Africans or people with Negroid features to enter their premises. This is a clear instance of racial discrimination, which is not banned by any specific laws in India.

In other words, Indian hospitality establishments like bars, restaurants and hotels can refuse to serve and discriminate on basis of race and nationality with absolute impunity under the current legal regime.

This is not only violation of universally recognized human rights of these foreigners, but also a derogation from many international obligations undertaken by the Indian government under International Laws.

Discrimination against people wearing traditional clothes

As highlighted by a recent incident of a cricket club refusing entry to sitting judge of the Madras High Court, it is very common for clubs, restaurants and bars to refuse entry on basis of attire of a guest. If the attire is indecent or inadequate, one may justify refusal of admission. However, in most cases, these rules are meant to perpetuate colonial practices that put European attire in a hierarchy over Indian traditional clothes. This is more prominent in case of footwear. Many establishments do not allow guests to enter if they are not wearing closed shoes – as was in this case, where an elderly woman was not allowed to enter a hotel in Mumbai on the ground that she was wearing a chappal and not closed shoes. Women in India rarely wear closed shoes with Saree, the most common attire. Not allowing an aged person to enter the premises on the ground of wearing a chappal rather than a shoe is not only outrageous, but also discrimination based on one’s culture and cultural ancestry. This is a travesty of civil rights earned by the citizens of India through hundreds of years of freedom struggle.

Discrimination against people from certain states

The constitution of India guarantees equal status to all citizens irrespective of their place of birth. However, treatment of people from certain states, such as Bihar or North Eastern states, in certain establishments is prima facie discriminatory. Starting from keeping them waiting for longer periods to refusing entry, use of regional slur and even eviction after admission is quite common.

What is infuriating is that apart from the laws meant to protect scheduled castes and scheduled tribes from casteism related offences, there are no laws to protect victims of such discriminations. Victims who do not belong to scheduled caste or scheduled tribe can register cases for abusing or assault if they face these things, but they have no redressal against refusal to entry and discrimination based on place of birth.

Discrimination against people with disability

People with disability often need special arrangement, which is cumbersome for some hospitality establishments. Starting from the difficulty of assistance for going through a metal detector in a wheelchair to creating ramps for wheelchair access, or special provisions for visually challenged guests – a stunning majority of Indian establishments ignore these civic duties. Although the government has made it mandatory for all classified hotels and most restaurants to be wheelchair accessible, most establishments either do not do so, and even those who have technically complied do not cooperate with guests with disability – simply because arrangements cost more while they cannot charge a differential fee. There is little disabled guests can do where they face such discrimination as most of these establishments are technically compliant to disability laws and rules made thereunder, and documenting and challenging such practices will be very difficult for them.

As a result, many establishments continue to discriminate against gest with disability with complete immunity.

Discrimination against women guests

Have you ever been refused entry to a bar because you are a woman? While in upmarket bars and pubs this is very unlikely (in fact, women are incentivized to visit in greater numbers with free drinks etc), in smaller towns and low cost bars and taverns this is a routine practice. There are many hotels which may refuse a single woman trying to find accommodation. Any establishment has the legal right in India to refuse any woman (or a man for that matter) from entering without any explanation.

Discrimination against senior citizens

I came across a very shocking discriminatory practice as my father was sharing his recent travel experiences with me. He has crossed 60 a few years back. It turns out that many hotels refuse to accept guests who look very old and are travelling alone, as they are afraid that there maybe medical emergencies! While this may not apply to big 5 star hotels, this is certainly the case with a lot of budget hotels.

Bonus: Discrimination against rape survivors

Ginger restaurant in Kolkata recently refused entry to a woman who was gangraped in the city about a year earlier. The woman had chosen to not hide behind anonymity and disclosed her identity willingly although laws in India provide her the option to stay anonymous. The manager of the hotel pointed her out in front of other guests as the Park Street Rape Victim and refused to let her enter when she had come to dine along with her fiancé.

While publicly calling out someone as a rape victim is still illegal under the provision of victim anonymity, refusing her entry is not a violation of any laws or rules in India.

Essentially, any establishment in India can refuse to serve a rape survivor, and thereby perpetuate her victimization and suffering, without any legal repercussion. While there are not many reported instances of this kind of discrimination, it is also unlikely that such a victim will raise her voice against such discrimination and attract more publicity – which is only likely to make her situation worse.

It is unlikely that these instances of discriminations will stop anytime. These are long standing practices, mostly introduced by the Imperial British once upon a time, which we have taken up on ourselves to continue although in the land of the British they have stopped these practices decades earlier. What do you think can be done to change the prevailing situation? Share your views and suggestions in the comments.

Are there certain types of discrimination by the hospitality industry that I missed out on? Tell me more in your comment. Share real stories so that the hospitality industry wakes up the realities of what they are doing.

How to obtain trade license in Kolkata

Guest Post

September 18, 2015

How can you get a trade licnese in Kolkata? Everyone starting a business in the city has to ask this question. This article is written by Dhruv Dikshit, a student of LC-II, Delhi University.

Continue

Akshay Chhugani, Founder, The Indian Backpacker and Head – Traveller Communities at ixigo.com how he benefited from the NUJS business law diploma course

Guest Post

September 18, 2015

Akshay Chhugani was the CEO of “The Indian Backpacker” (www.indianbackpacker.com) which was recently acquired by www.ixigo.com. He is currently working as the Head – Traveller Communities at ixigo.com . He has also worked with Yuvraj Singh Foundation, an NGO, which works on spreading awareness about cancer. Akshay has done BTech in Computing and Business Applications, MBA in Marketing and HR and was a Fellow at Startup Leadership Program. Akshay was a student of the January 2014 batch of the Diploma in Entrepreneurship Administration and Business Laws offered by NUJS, Kolkata. Akshay talks about his startup journey and his interaction with the course. Over to Akshay.

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Startup journeys are always fun and exciting due to the unknown challenges you face from day to day. Getting successfully acquired surely is one of the most accomplishing things for any startup and the experience surely has been great, both in terms of growth, learning and mental satisfaction. For me, the current plan for building the next biggest travel company with ixigo.com is what I am excited about the most.

I came to know about NUJS Business Law Diploma Course from a friend while I was part of the Startup Leadership Program in 2014, at that time I was running my own travel start-up. Knowing about business laws is one of the most important things for any startup. Being a bootstrapped startup, I couldn’t afford to hire proper legal services for day to day contracts, investor pitching, etc. and thus wanted to learn it all myself to save costs.

The experience was great especially, because the materials could be accessed online and I could study whenever I wanted to. The most valuable skills according to me which I learnt from the course were understanding term sheets and creating/studying contracts. Getting your company acquired is a long drawn process and involves a lot of agreements /MOU’s /Contracts, etc. and it is very important to know and understand if your deal is worth it or not. The course surely helped me make a much more informed decision and negotiate on the terms that suited me.

I think young entrepreneurs can benefit a lot from this course, and would recommend them to take this course. As mentioned above understanding of the laws, investor decks and terms sheets are of very high importance for an entrepreneur and the course can help them get clarity regarding it. This course will surely help the entrepreneurs in better understanding things from a legal perspective rather than just a layman.

Moments of victory

Ramanuj

September 17, 2015

There are things we can accomplish within our comfort zone. We get things done and move on – do the next thing. We know we can do those things, like the walk in the park.

However, real taste of victory is experienced when we achieve something which seemed impossible earlier. When we struggle despite of our fears, tears and sweat – and succeed, those are the real moments of victory.

These moments are not just important because we accomplish something and get some utility out of them. You can go for a walk in the park but for most of us that is not a victory.

A moment of victory transforms us. At the core, we are all scared, cynical, always ready to give up and live in a state of resignation. There is a part of us always ready to escape at the first sign of difficulty. That part of us often wins over our ambitions and goals from time to time. That is how we are dragged down to our personal hell, inch by inch – one giving up at a time.

That’s why these moments of victory, achieved outside our comfort zone, are so important. That is how we climb out, one inch at a time. When our body and mind protests, when the fear centre in our brain is going nuts, when blood is pumping like it is the end of the world, and you might as well collapse – your consciousness refuses to give up. You will succeed at any cost, nothing will stop you. Then comes the moment of victory, as you push a little bit more with all your strength and will-power. Our horizons of possibility expand and that transforms our body and mind.

You can experience it right now. More often you experience it, the better. Go for a run and keep running till you are panting, till it feels like you can go no further. Then run another kilometre. Then another. Keep pushing, till you are incredulous at your own ability. Until you are amazed by how much you managed to run. You can do it, because human beings were born to run, and that ability is innate in you.

The ability to win, the craving to taste victory is innate in us too.

I remember the first time I ran 5 kilometres. It was unbelievable. Until then, I could run 2 kilometers at a time, and thought of that as the personal best. I could not even imagine myself running more than that. Then one day, I went running with a more experienced runner. He said he runs at least 5 kilometer every time. So I went along despite the protest in my mind that I can’t possibly do it. And then it happened, the transformation. When I realised how ridiculous I was in thinking I can’t run more than 2 km, I kept testing how much more I can run. And running a half marathon became possible. Now I know I can run a marathon, it is now possible for me – even though I have never done it. Yet.

It is the same is business, career, education – everywhere. We have not pushed out of our comfort zone, we have not tasted those moments of victory – so we don’t even imagine what is really possible. We live in a small world defined by our comfort, fear and limited ambitions.

When I was planning to create this course, I was meeting a mentor. He asked me how will I find the first 10 students for this course. As I kept quiet and kept searching for an answer, he asked me another question. How will you convince 100 people to take this up? I had no clue. I could not even imagine what I needed to do to get 100 people to pay 20,000 each for an online course. I was confused and scared. Then I took the plunge, because I was not letting my confusion and fear win. I did everything I thought would work, and then did some more. My team kept pushing. We convinced one person at a time, and committed to give them a great educational experience. And then we had the moment of victory in 2 months – we had the first 100 students signed up. We went to a café next door to celebrate – and looked at each other. Here was the moment of transformation – if we can get 100 students, we can get a thousand as well!

It is so easy to break that spell of fear and comfort and step into a new world of possibilities – you can’t even imagine how easy it is once you are on the job. It is painful, it is exhausting and scary – but it is simple and easy as well when you take action. You just have to push yourself out of your comfort zone. Then your comfort zone will expand – so then you push a little more.

It’s a time for transformation. In the moment when your whole being is trembling to make that little more progress that was impossible so far, you will change. You will stop being mediocre. You will become strong, bold, creative, incredible – and a source of inspiration for everyone else.

Tell me about some of the moments of victory you have experienced in your life. Tell me even if you have never experienced one. What is your comfort zone? How are you going to push past them?

I am looking forward to hearing from you. Your stories, your resolutions and your effort will inspire me in my own journey to be extraordinary as well.

Girls Hostel Issue @ NUJS: The Problem And Some Alternative Solutions

Guest Post

September 17, 2015

Girls Hostel Issue @ NUJS: The Problem And Some Alternative Solutions

Once upon a time, I used to highlight NUJS related issues on my blog A First Taste of Law, and in fact it was started because I wanted to write about a fee hike that made my law school journey uncertain at that time, as I had no clue how to pay the increased fee. I am glad to re-publish some of the articles from that closed down blog. It is to be noted that since the time it was published, NUJS made a lot of efforts to increase hostel rooms for girls and have in recent years have acquired some land adjacent to the campus to build more infrastructure including hostels. Secure with this knowledge, lets travel back in time. I fancy that this article may be used by some gender issues researchers to draw some very wise conclusions 😀

The author of this article is Jenisha Parikh, who is a member of the first batch in NUJS that pays in excess of 1 lakh 80 thousand in annual fee.

One would expect that facilities will improve after such a giant fee hike. Well, seems that is wrong. Now female students from her batch and the next batch are being asked to stay in triple occupancy in rooms that are made from two people. And the administration never consulted any student about this. I hope this blog will not remain the only place where she can voice her concerns about adverse living conditions that are being forced upon the first year and second year students, if they are female, at NUJS.

We left for our holidays with a glimmer of hope that as we become ‘seniors’ and get promoted to the second year, we might have a single room or that the status quo, (that is two girls in one room) shall prevail. One of my batchmates thought that it would be a good idea to arrive two days early to college so that she could settle down before the classes resumed. However, shewasinforarudeshockassheenteredtheNUJSGirl’sHostel. She was informed that a two-seater room would now accommodate three girls!Also, the rooms have not been properly allocated yet, leaving the poor girl fuming.

This piece of news has created great furore as we were kept in the dark about the new arrangement. Even after paying skyrocketing fees, it is difficult to accept that they could even think of keeping us in such abysmal conditions!

Some people might think what is the hullabaloo all about as many hostels accommodate three people in a room. Well, the problem with the arrangement is as follows:

1. This is not a case where the rooms are meant for three people. It is two seater room that is going to be stuffed with three students. Therefore, it is not that the students are simply crying for privacy. It also involves the question of great inconvenience as the room is just not for three people!

2. The number of bathrooms would have been constructed keeping in mind the strength of students per floor. However, now the strength per floor has increased but the number of bathrooms have not! Thisisanothermajorproblemwhichneedstobeaddressedandthisproblemcannotbesolvedbysimplystuffingstudentsintheroomstotheirinconvenience.

Keeping in mind these two broad issues, we can say that the main problem is the increase in the strength of girls per batch. Therefore, the simplest solution is to increase the capacity of the hostel. However, since this simple solution was not adopted in the previous year, we now need a temporary solution to this issue.

On questioning the warden of the girl’s hostel as to whether this is a temporary arrangement or a permanent one, she replied that it‘might’ be the latter. It is disappointing to see that this arrangement is simply being forced on us without even discussing further options! Definitely, this arrangement is not the ‘only option’. Discussions amongst us have already started and we have come to the following conclusion/ temporary options which they should adopt:

1. Alternate accommodation to a nearby building.

2. A floor reserved for girls in the boys hostel. We can have certain entry points sealed on that floor.

3. Space in the recreational room is being wasted which can be converted into rooms/dorms. They are planning to create a reading room in the recreational room (as if the library is nonexistent). Further, the girl’s mess can also be used as a dormitory.
5. Some students have also suggested that NUJS must reduce its intake capacity. However, I do not feel that it solves our problem. This crisis was foreseen well in advance by everyone. So pre-emptive measures should have been taken to accommodate everyone comfortably. The solution is to find a suitable accommodation, not reduce seats just because there are too many girls getting admission every year!
However, in order to ensure that this problem never arise again, we need to adopt a pragmatic solution, without compromising the living conditions of students. Thus, a permanent solution would be to construct additional floors in the girl’s hostels that would automatically increase the capacity of the hostel.

I hope thar someone is listening…

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Six types of infuriating discrimination by restaurants, pubs and hotels in India

How to obtain trade license in Kolkata

Akshay Chhugani, Founder, The Indian Backpacker and Head – Traveller Communities at ixigo.com how he benefited from the NUJS business law diploma course

Moments of victory

Girls Hostel Issue @ NUJS: The Problem And Some Alternative Solutions

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