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Corporate Finance & Financial Services Emerging Trends






Ms. Ranjani Srinivasan, Assistant Professor, S.K.Patel Institute of Management and Computer Studies, Gandhinagar, Gujarat, (M) 09898150128, email: [email protected]

Ms. Madhavi Kodamarty, Associate Professor, MBA Department, Aurora’s PG College, Ramanthapur, Hyderabad, (M) 7893201980, email: [email protected]

Ms. P. Rekha, Associate Professor, MBA Department Aurora’s PG College, Ramanthapur, Hyderabad, (M) 9963690368, email : [email protected]

ABSTRACT Microfinance- An answer to banking the unbankable, where millions of unreached Indians by the mainstream banks were able to obtain small loans, with the hope that they could finally be the part of formal financial system. But this $7 billion dollar sector seems to have lost its way, especially in Andhra Pradesh, once considered as The Mecca of Microfinance. A major crisis broke out in March 2006 for microfinance institutions (MFIs) operating in the state of Andhra Pradesh (AP) when the district authorities closed down about 50 branches of two major MFIs and by October 2010, the Government of Andhra Pradesh issued the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 effectively shutting down all private sector microfinance operations in the state. This paper attempts to study the impact of Government intervention and its policies on the microfinance sector in general and Andhra Pradesh in particular and possible measures to re-establish microfinance as a tool of financial inclusion in the state of Andhra Pradesh. KEY WORDS Andhra Pradesh, Financial Inclusion, Government Intervention, Microfinance. INTRODUCTION Growth with equity has been the main aim of the Government of India. The Eleventh and the Twelfth five year plans have exclusively emphasized the need for achieving growth with equity and have laid down measures to be undertaken for achieving the target. The other way of describing the same is in terms of inclusion and therefore stated as inclusive growth. One of the main components of Inclusive growth is Financial Inclusion. Financial Inclusion is delivery of banking services at an affordable cost to the vast section of disadvantaged and low income group. It also means extending the banking habit among the less privileged in urban and rural India and weaning them away from unorganized money - 289 -

markets and moneylenders. The coin of economy has two sides to it : Inclusion and Exclusion. An extending emphasis to Inclusion automatically highlights the state of excess exclusion. Financial exclusion is experienced by both developing and developed economies alike. The World Bank estimates that 2.7 billion people, over half the population of the developing world, live on less than US$2 a day. In India, almost half the country is unbanked. Only 55 per cent of the population has deposit accounts and 9 per cent have credit accounts with banks. India has the highest number of households (145 million) excluded from Banking. There was only one bank branch per 14,000 people. There are 6 lakh villages in India, rural branches of SCBs including RRBs number is 33,495 only. As many as 139 districts suffer from massive financial exclusion in India, with the adult population per branch in these districts being above 20,000 and only 3 percent with borrowings from banks. Only a little less than 20% of the population has any kind of life insurance and 9.6% of the population has non life insurance coverage. Only 18 per cent of population has debit cards and less than 2 per cent had credit cards (RBI 2011). Till recent years Microfinance has been looked as the only solution for banking the unbankable. Microfinance in India can trace its origin back to the early 1970’s when the Self Employed Women’s Asssociation (SEWA) of the state of Gujarat formed urban cooperative bank, called the Shri Mahila SEWA Sahakari Bank, with the objective of providing banking services to poor women employed in the unorganized sector in Ahmedabad city, Gujarat. The Microfinance sector went on to evolve in the 1980’s around the concept of SHGs, informal bodies that would provide their clients with much needed savings and credit services. From humble beginnings, the sector has grown significantly over the years to become a multi billion dollar industry, with bodies such as Small Industries Development Bank of India (SIDBI) and the National Bank for agriculture and Rural Development (NABARD) devoting significant financial resources to microfinance. In India, microfinance products are disbursed through two broad mechanisms: (a) Microfinance Institutions, which may be operating in the form of NGOs, or Non Bank Finance Companies (NBFCs); and (b) Self Help Group (SHG)-bank linkage. Over the decades, despite significant growth of institutional microfinance, estimates show that depth and breadth of outreach in the country has been considerably low, with just a fraction of the potential clients being served. But this $7 billion dollar sector seems to have lost its way, especially in Andhra Pradesh, once considered as The Mecca of Microfinance. The state of Andhra Pradesh had the country’s largest number of micro-credit groups – 9, 75, 362 SHGs with 11 million members that amounted to almost 90% of the state’s rural women. Today microfinance has reached a phenomenal scale. AP alone had a client outreach of 6.25 million borrowers, which was the largest client base in the entire country (SaDhan Quick Report 2010). - 290 -

OBJECTIVES 1. 2. 3. To study the policy measures of Government of AP with respect to the microfinance sector. To study the impact of Government Intervention on the Microfinance sector in general and AP in Particular. To explore the suggestive measures to reestablish microfinance as a tool for financial inclusion in the state of AP.

RESEARCH METHODOLOGY The methodology uses secondary data for the statistics relating to financial inclusion and financial exclusion by mainstream financial institutions in India from RBI and NABARD Survey Repot 2011. The inclusive growth statistics and the statistics related to Microfinance in Andhra Pradesh has been extracted from State of the Sector Report, 2011. The article has been organized in the following manner. Review of Literature establishes the theoretical context for this study by way of discussion on the research results conducted by various authors highlighting the Microfinance Crisis and its impact of the sector in Andhra Pradesh. The section on The Case of Andhra Pradesh introduces the context of the study with the description of the details of the crisis under the segments of background, The crises and the Role of Government, Reasons, Impact and Re-establishing Microfinance. The last section titled Conclusions uses data and analysis derived from the previous section to conclude the role of Government intervention in re-establishing Microfinance as a tool for Financial Inclusion REVIEW OF LITERATURE H S Shylendra(2006) diagnoses the crisis situation in AP state and finds few major allegations like exorbitant interest rates, unethical ways of recovering loans , combining multiple products savings, insurance and loan to ensure prompt recovery and problems with multiple financing. The crisis can be seen as a typical conflict between between state and civil society organizations vying to capture the popular space, by using a common intervention. The AP government while promoting the SHG as as financial intermediaries for the poor has also seen them as potential instruments for their own political gain. Meanwhile, AP has been plagued by continuous farmer suicides. The research concludes stating that MFIs have to be helped in over coming their structural problems and from the influence of neoliberal agenda. Maracas Taylor (2012) arguing for the use of Micro Credit states that it is able to achieve two feats simultaneously. First it tackles poverty by unleashing the entrepreneurial abilities of rural poor. Second it breaks down the patriarchal barriers by empowering women. - 291 -

The state of AP experienced a dramatic expansion of microfinance operations from the 1900‘s into the 2000‘s becoming known as the ‘ Mecca of Microfinance’ in India. In the fiscal year between 2009 & 2010 the number of Microfinance loans in AP increased by 26% and the overall volume of loans by 46%. This expansion came to a shuddering halt in 2010 when the boom turned to bust.Many of the MFIs in AP acted in an entirely predatory manner; in part to meet the profit expectation of the shareholders.He concludes stating that Andhra crisis is simply a question of bad regulation and irresponsible lending. Shriya Mohan & P Praveen Siddharth in the case study presented a variety of insights on the Microfinance crisis in AP . The state of AP had the countrys largest number of micro-credit groups - 975,362 SHGs with 11 million members, that amounted to almost 90% of the state‘s rural women. AP alone had a client outreach of 6.25 million borrowers, which was the largest client base in entire country. It was predicted that by 2014, microfinance would reach 110 million borrowers and would boast of US $ 30 billion in loan portfolio with a current repayment rate being 95% which later plumpted to 10%. Microfinance‘ s system of making repayments in public caused humiliation for those unable to repay thus making it a common reason for suicide. Responding to these situations RBI setup the Malegam Committe in October 2010 to probe into the issue. In one of his recent interview, Malegam had gone on record saying “I’ m not protecting an MFI. Please be very clear. I’m protecting the borrower.” The nation was waiting to hear what he would decide. Legatum Ventures paper discusses, the very premise of the AP Microfinance Institutions (Regulation of Monetary Lending) Act, 2010(the “AP Act”) was fundamentally flawed. Apart from protecting the poor, the AP Act does just the opposite and risks creating a near term financial and human crisis amongst the rural poor in AP. Unless repealed or overruled immediately the AP Act will continue to cause irreparable damages to the wellbeing of the rural poor by destroying a large part of the private sector microfinance industry, cause large write-offs for public and the private sector banks in India and put the goal of financial inclusion in jeopardy. The Legtaum Foundation supports community based initiatives and therefore investments in the microfinance sector were an effort to combine investments and philanthropic efforts to demonstrate that “good business is good development”. MICROFINANCE CRISES – A CASE STUDY OF ANDHRA PRADESH BACKGROUND The State of Andhra Pradesh is considered as The Mecca of Microfinance. Government Mechanism and Intervention was the base reason for the growth and development as well as the present crises in the microfinance sector in AP. Although all states in the country experienced initiation and growth of the SHG movement, the mainstay - 292 -

of Indian microfinance, the state government of AP systematically nurtured and deepened the institution of SHG through the use of public resources due to a number of political motives. The AP government constituted an autonomous body, named Society for Elimination of Rural Poverty (SERP), which is implementing the Indira Kranthi Patham (IKP) project in all the 22 rural districts of AP. In AP, this network of SHGs at different levels is the largest such network among all the states in India and constitutes a critical infrastructural base for microfinance activities including those of private sector MFIs in the state. This rich infrastructure base has made the MFIs to expand their business as they do not need to invest in organising the poor and generating awareness on microcredit in Andhra Pradesh, unlike in other states. There are a number of reasons for this concentration of SHGs in rural Andhra Pradesh. First and foremost, from the mid-1990s into the early 2000s, the Andhra Pradesh state government, under the leadership of the Telugu Desam Party headed by Chandrababu Naidu, vigorously pursued neoliberal reforms, working closely with theWorld Bank and earning Andhra Pradesh the accolade of ‘the state that would reform India’ by The Economist. For the state government, the appeal of upscaling the number of SHGs was not simply driven by a neoliberal logic of poverty reduction, but also by a political logic of populism emanating from a state government anxious to retain votes in rural areas at a time of generalized welfare retrenchment and agrarian dislocation under trade liberalization. As a consequence, the process of founding SHGs accelerated dramatically under the logistical and financial backing of a new programme called Velugu. The new SHGs were viewed by the state government as a mechanism by which it could circumvent established political infrastructures such as the panchayat system of local government, to set up a direct linkage with the rural poor through whom it could dispense a broader series of patronage than simply credit (Johnson et al. 2005). In this manner, the SHGs formed during the 1990s operated as a means to gain access to populist state ventures, including cooking gas link-ups and UNICEF-sponsored women and child subsidies. Rural communities understood the purpose of SHGs as a medium of populist linkages between the ruling party and the rural sphere. Only 25 per cent of SHGs functioned as a thrift group that would become a microloan recipient, and these ended to be SHGs formed by the relatively more affluent groups within villages rather than the extreme poor (Mooij 2002; cf. Pattenden 2010). Given this uneven distribution of credit under the state-led Velugu programme, a number of NGOs saw an opportunity to expand lending beyond such constraints. By transforming themselves from NGOs into ‘non-banking financial companies’ (NBFCs), they began the process of commodifying the debt portfolio of SHGs and using it as collateral to attract investment. Using this promise of a future revenue stream from SHG repayments, NBFCs began to act as direct financial intermediaries by borrowing money from commercial banks (and, later, from private venture capital funds - 293 -

and other financial institutions) and lending to the very SHGs that they had been integral in establishing. In an increasing number of cases, to circumvent the legal requirement for SHGs to have a small downpayment in the form of thrift savings, the NGO arm of the company would provide a grant that would be immediately reinvested by the group in the NBFC to facilitate credit disbursement (Nair 2010; Sriram 2010a). This rise of NBFCs created a new class of financial intermediaries as former NGOs turned themselves en masse into microfinance institutions (MFIs). The transformation relieved the commercial banks of the risks of lending directly to SHGs – something they had been cautious in doing despite the SHG-bank linkage programme – by allowing the MFIs to take on those responsibilities. The emergence of for-profit, shareholder-driven microfinance within Andhra Pradesh created a new logic of competitive rural credit provision. For-profit MFIs needed to build up their base of borrowing SHGs in order to turn a profit for shareholders and this introduced an element of competition for clients that had previously been absent. MFI workers were rewarded for expanding the client base and ensuring high repayment rates and this led to a number of problematic practices. First, the clients of choice were not new borrowers, but existing SHGs that already had the institutional framework and disciplinary culture to ensure group liability. While some of these groups could be found in the surplus of SHGs established under the Velugu programme that were not linked to bank credit, many MFIs looked to poach SHGs from the Velugu programme or – as became clear in the crisis – simply to lend to groups or individuals that already had financing. By 2010, there were 23.55 million SHG and MFI clients within a state with a total of 16 million households, suggesting considerable overlap of lending portfolios (Srinivasan 2010, 4). THE CRISES AND THE ROLE OF GOVERNMENT A major crisis broke out in March 2006 for microfinance institutions (MFIs) operating in the state of Andhra Pradesh (AP) when the district authorities closed down about 50 branches of two major MFIs in Krishna district. There were three major allegations against the MFIs that came up during the crisis: (i) MFIs are charging exorbitant rates of interest. (ii) MFIs are resorting to unethical ways of recovering loans (iii) MFIs are aggressively poaching from government and banks to capture their borrowers. In 2010, some 30-60 microcredit borrowers in AndhraPradesh committed suicide over their loans. Individual stories had surfaced increasingly throughout early and mid 2010 about borrowers suffering under heavy debt burdens and massive pressure from agents, with pressures apparently even including child abduction as punishment for loan default and agents urging borrowers to take their lives to reap credit life insurance. Protests ensured that the AP government issuing an ordinance imposing rules of conduct and compulsory registration on MFIs. In October 2010, with no warning or consultation with stakeholders, the Government of Andhra Pradesh issued the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, - 294 -

2010 effectively shutting down all private sector microfinance operations in the state. The AP Act does not however apply to AP’s government-backed microfinance business which directly competes with private sector MFIs. This was a major blow to the entire microfinance industry as Andhra Pradesh, widely regarded as the birthplace of private sector microfinance, accounts for over 40% of all loans by MFIs across India. REASONS The well development network and organised poor group promoted by the government of AP led to an oversupply of microfinance, more specifically of microcredit, to AP households and eventually resulted in the events and crisis that was witnessed subsequently. Thus, many poor households in AP took advantage of the easy availability of credit and borrowed far beyond their repayment capabilities from various microfinance sources. The MFIs, for their part, offered multiple loans to the same borrower household without following due diligence, as it served their business interests. Worse still, some MFIs collaborated with consumer goods companies to supply consumer goods such as televisions as part of their credit programmes. By November 2010, SHGs were reaching over 17 million clients in the state and MFIs were reaching more than 6 million. Many clients had loans from several different sources, putting the average microfinance debt per household in Andhra Pradesh over $1,700, compared to less than $150 per household in the other states of India (State of the Sector Report 2010).One study found that 83 percent of microfinance clients in the state had loans from more than one source, and many had four or more loans at the same time (IFMR Research Report 2010). THE IMPACT The intervention by government by establishing the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending Act 2011) brought fresh lending to a virtual halt and triggering a wave of defaults totalling more than 6500 crore. The loan recovery rates have plummeted to 10 percent. The sector saw a 38% decline in gross loan disbursements to Rs 20,000 crore in 2011-12, while the total number of loan account fell by 22% to 26 million. The impact of the AP Act has the potential to affect 450 million people. Since then, MFI disbursements in AP alone have diminished from Rs 5000 crore to a mere Rs8.5 crore, creating a severe shortage of much needed finance to the poor. (Legatum Ventures, 2011). Around 5 million poor woment in 18 states across India will lose access to finance. RE-ESTABLISHING MICROFINANCE Given such evident market failures for microfinance in India, the need for regulation is clear. The state has a major role and responsibility to play in terms of providing and managing the infrastructural support to make financial services available to a large majority of people, including the poor. The responsibility therefore lies with the state to intervene and - 295 -

correct the current microfinance delivery situation which excludes a majority of the poor in India. Such intervention may include providing a more enabling legislative and regulatory framework, or involving suitably located and relevant state institutions in the delivery of microfinance as ‘the presence of a publicly owned banking structure can enhance the breadth of microfinance outreach’ (Lapenu, 2002: 309). The market driven business model will have to be replaced with a legitimate, more sustainable model with social objectives. A proper mechanism addressing the needs in terms of appropriate product design and delivery, prevention of over indebtedness, transparency in credit allocation and collection, responsible pricing, privacy of client data, fair and respectful treatment of clients and mechanisms for complaint resolution seems to be the need of the hour. CONCLUSION India has the highest number of households (145 million) excluded from Banking and suffers massive financial exclusion. In this scenario, since the 1980s Microfinance has been looked as the only solution for banking the unbankable. The microfinance sector which revolves around the concept of SHGs has from humble beginnings, grown significantly into a multibillion dollar industry with government bodies like SIDBI and NABARD devoting significant financial resources to microfinance. Over the decades though the depth and breadth of outreach of microfinance in the country has been considerably low, the story has been different in Andhra Pradesh which was declared till recently as ‘The Mecca of Microfinance”. The state of AP alone had a client outreach of 6.25 million which was the largest in the entire country. The state saw a huge growth in the formation of SHGs and microfinance lending due to support from the government through the ‘Velugu’programme. The loopholes in the credit distribution of the Velugu progamme initiated the private players to intervene and lend credit to those not served by the programme, and thus become direct competitors to the government. The competition spurred the MFIs to over lend to the borrowers thus leading to defaults and later borrower suicides caused by recovery pressures put by MFIs. This crisis led to government intervention once again in the form of “The Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending Act 2011)” which brought microfinance lending to a virtual halt and also triggering further defaults. It can be concluded from the Andhra Pradesh case that given government intervention is necessary to ensure access to credit for the poor. But the intervention may include providing a more enabling legislative and regulatory framework, or involving suitably located and relevant state institutions in the delivery of microfinance as ‘the presence of a publicly owned banking structure can enhance the breadth of microfinance. The regulations need to ensure that MFIs follow regulations strictly while lending, to avoid over supply of credit and resultant defaults and suicides. - 296 -

REFERENCES 1. Anurag Priyadarshee (2011), “The Andhra Pradesh microfinance crisis in India: manifestation, causal analysis, and regulatory response”, BWPI Working Paper 157, Brooks World Poverty Institute. Gokhale K (2009), “As Microfinance Grows in India, So Do Its Rivals”, The Wall Street Journal. Johnson D and Meka S (2010), Access to Finance in Andhra Pradesh (Tamil Nadu, India: IFMR,Research,2010), CMF_Access_to_Finance_in_Andhra_Pradesh_2010.pdf. Mahapatra R and Dutta A P, “Profit from the poor”, Down to Earth, November 30, 2010; Accessed on January 21, 2012. Mahajan V (2012), “ Rebuilding A Stronger Microfinance Sector In India”, India Knowledge @ Wharton, http://knowledge.whar article.cfm?articleid=4696, accessed on January 12, 2012 Maes J P and Reed LR (2012), “State of the Microcredit Summit Campaign Report 2012”, pp 5- 12. Mohan S & Siddharth PP (2011), “ When Poor Became Bankable: Microfinance Crisis in Andhra Pradesh” Lee Kuan Yew School of Public Policy publication, University of Singapore. Legatum Ventures (2011), “ Microfinance in India: A Crisis at the Bottom Of The Pyramid”, N. Srinivasan, Microfinance India: State of the Sector Report 2010 (New Delhi: Access Development Services, Sage Publications, 2010), uploaded_files/publication/1311572030.pdf. Ramesh S Arunachala, “Malegam Committee report – Summary of Key Recommendations”, Accessed on January 21, 2012. Shylendra H S (2006),”Microfinance Institutions in Andhra Pradesh Crisis and Diagnosis”, Economic and Political Weekly. Sane R and Thomas S (2012), “What should regulation do in the field of microfinance?”, as accessed on 15th January 2012. Taylor M (2011), “Freedom from Poverty is Not for Free’: Rural Development and the Microfinance Crisis in Andhra Pradesh, India”, Journal of Agrarian Change, Vol. 11 No. 4, October 2011, pp. 484–504. Taylor M (2012), “The Microfinance Crisis in Andhra Pradesh, India : A Window on Rural Distress?”, Food First Backgrounder, Vol 18, No. 3. - 297 -

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AounkarAnand, BBA-LL.B (Hons.), MATS Law School, Raipur, C.G., Email [email protected], Phone: +91 97 13 648221.

Anurag Parihar, BBA- LL.B (Hons.), MATS Law School, Raipur, C.G.

ABSTRACT With Indian corporate houses showing sustained growth over the last decade, many have shown an interest in growing globally by choosing to acquire or merge with other companies outside India. One such example would be the acquisition of Britain’s Corus by Tata an Indian conglomerate by way of a leveraged buy-out. The Tata’s also acquired Jaguar and Land Rover in a significant cross border transaction. Whereas both transactions involved the acquisition of assets in a foreign jurisdiction, both transactions were also governed by Indian domestic law.Whether a merger or an acquisition is that of an Indian entity or it is an Indian entity acquiring a foreign entity, such a transaction would be governed by Indian domestic law. Both the inbound and outbound mergers and acquisitions have increased dramatically. In the topics, it would deal on various different laws governing the mergers and acquisitions. KEY WORDS Acquisitions, Amalgamation, Britain’s Corus , Indian Corporate Houses, Merger. INTRODUCTION The Indian economy has been growing with a rapid pace and has been emerging at the top, be it Information Technology, R&D, pharmaceutical, infrastructure, energy, consumer retail,telecom, financial services, media, and hospitality etc. It is second fastest growing economy in the world with GDP touching 9.3 % last year. This growth momentum was supported by the double digit growth of the services sector at 10.6% and industry at 9.7% in the first quarter of 2006-07. Investors, big companies, industrial houses view Indian market in a growing and proliferating phase, whereby returns on capital and the shareholder returns are high. Both the inbound and outbound mergers and acquisitions have increased dramatically. With Indian corporate houses showing sustained growth over the last decade, many have shown an interest in growing globally by choosing to acquire or merge with other companies outside India. One such example would be the acquisition of Britain’s Corus by Tata an Indian conglomerate by way of a leveraged buy-out. The Tata’s also acquired - 298 -

Jaguar and Land Rover in a significant cross border transaction. Whereas both transactions involved the acquisition of assets in a foreign jurisdiction, both transactions were also governed by Indian domestic law. Whether a merger or an acquisition is that of an Indian entity or it is an Indian entity acquiring a foreign entity, such a transaction would be governed by Indian domestic law. In the topics below, it would deal on various different laws governing the mergers and acquisitions MERGERS AND AMALGAMATIONS The term ‘merger’ is not defined under the Companies Act, 1956,the income Tax Act, 1961 or any other Indian law. Simply put, a merger is a combination of two or more distinct entities into one; the desired effect being not just the accumulation of assets and liabilities of the distinct entities, but to achieve several other benefits such as, economies of scale, acquisition of cutting edge technologies, obtaining access into sectors / markets with established players etc.2 Generally, in a merger, the merging entities would cease to be in existence and would merge into a single surviving entity. Very often, the two expressions “merger” and “amalgamation” are used synonymously. But there is, in fact, a difference.3 Merger generally refers to a circumstance in which the assets and liabilities of the merging company are vested in the merged company. The merging entity loses its identity and its shareholders become shareholders of the merged company. On the other hand, an amalgamation is an arrangement, whereby the assets and liabilities of two or more companies become vested in another company. The amalgamating companies all lose their identity and emerge as the amalgamated company; though in certain transaction structures the amalgamated company may or may not be one of the original companies. The shareholders of the amalgamating companies become shareholders of the amalgamated company. MOTIVES BEHIND MERGER4 (i) (ii) Economies of Scale: This generally refers to a method in which the average cost per unit is decreased through increased production. Increased revenue /Increased Market Share: This motive assumes that the company will be absorbing the major competitor and thus increase it’s to set prices.

2 3 1,Accessed on 17 September IST 16:30,Accessed on 17 September IST 15:30, Accessed on 13 September IST 23:00

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(iii) Cross selling: For example, a bank buying a stock broker could then sell its banking products to the stock brokers’ customers, while the broker can sign up the bank customers for brokerage account. (iv) Corporate Synergy: Better use of complimentary resources. It may take the form of revenue enhancement and cost saving. (v) Taxes: A profitable can buy a loss maker to use the target’s tax right off i.e. wherein a sick company is bought by giant.

(vi) Geographical or other diversification: This is designed to smooth the earning results of a company, which over the long term smoothens the stock price of the company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders. TYPES OF MERGER HORIZONTAL MERGERS Also referred to as a ‘horizontal integration’, this kind of merger takes place between entities engaged in competing businesses which are at the same stage of the industrial process. A horizontal merger takes a company a step closer towards monopoly by eliminating a competitor and establishing a stronger presence in the market. The other benefits of this form of merger are the advantages of economies of scale and economies of scope. VERTICAL MERGERS Vertical mergers refer to the combination of two entities at different stages of the industrial or production process. For example, the merger of a company engaged in the construction business with a company engaged in production of brick or steel would lead to vertical integration. Companies stand to gain on account of lower transaction costs and synchronization of demand and supply. Moreover, vertical integration helps a company move towards greater independence and self-sufficiency. The downside of a vertical merger involves large investments in technology in order to compete effectively. COGENERIC MERGERS These are mergers between entities engaged in the same general industry and somewhat interrelated, but having no common customer-supplier relationship. A company uses this type of merger in order to use the resulting ability to use the same sales and distribution channels to reach the customers of both businesses. CONGLOMERATE MERGERS A conglomerate merger is a merger between two entities in unrelated industries. The principal reason for a conglomerate merger is utilization of financial resources, enlargement - 300 -

of debt capacity, and increase in the value of outstanding shares by increased leverage and earnings per share, and by lowering the average cost of capital. A merger with a diverse business also helps the company to foray into varied businesses without having to incur large start-up costs normally associated with a new business. MERGERS AND AMALGAMATIONS: KEY CORPORATE AND SECURITIES LAWS CONSIDERATIONS i. COMPANIES ACT, 1956

Sections 390 to 394 (the “Merger Provisions”) of the Companies Act govern a merger of two or more companies (the provisions of Sections 390-394 are set out in Annexure 1 for reference) under Indian law. The Merger Provisions are in fact worded so widely, that they would provide for and regulate all kinds of corporate restructuring that a company may possibly undertake; such as mergers, amalgamations, demergers, spin-off /hive off, and every other compromise, settlement, agreement or arrangement between a company and its members and/or its creditors. PROCEDURE UNDER THE MERGER PROVISIONS Since a merger essentially involves an arrangementbetween the merging companies and their respective shareholders, each of the companies proposing to merge with the other must make an application to the Company Court having jurisdiction over such company for calling meetings of its respective shareholders and/or creditors. The Court may then order a meeting of the creditors/shareholders of the company. If the majority in number representing 3/4th in value of the creditors/shareholders present and voting at such meeting agree to the merger, then the merger, if sanctioned by the Court, is binding on all creditors/shareholders of the company. The Court will not approve a merger or any other corporate restructuring, unless it is satisfied that all material facts have been disclosed by the company. The order of the Court approving a merger does not take effect until a certified copy of the same is filed by the company with the Registrar of Companies. The Merger Provisions constitute a comprehensive code in themselves, and under these provisions Courts have full power to sanction any alterations in the corporate structure of a company that may be necessary to affect the corporate restructuring that is proposed. For example, in ordinary circumstances a company must seek the approval of the Court for effecting a reduction of its share capital. However, if a reduction of share capital forms part of the corporate restructuring proposed by the company under the Merger Provisions, then the Court has the power to approve and sanction such reduction in share capital and separate proceedings for reduction of share capital would not be necessary. - 301 -

ii) 1.


The listing agreement entered into by a company for the purpose of listing its shares with a stock exchange requires the following in the case of a Court approved merger:    The scheme of merger/amalgamation/reconstruction must be filed with the stock exchange at least one month prior to filing with the Court. The scheme cannot violate or override the provisions of any securities law/ stock exchange requirements. The pre and post merger shareholding must be disclosed to the shareholders.

III) THE COMPETITION ACT, 2002 The Government of India enacted the Competition Act, 2002 (‘Competition Act’) to replace the existing MRTP. The Competition Act takes a new look at competition altogether and contains specific provisions on anti-competition agreements, abuse of dominance, mergers, amalgamations and takeovers and competition advocacy. The Competition Commission of India (‘CCI’) has been established to control anti-competitive agreements, abuse of dominant position by an enterprise and for regulating certain combinations. ANTI COMPETITIVE AGREEMENTS The Competition Act essentially contemplates two kinds of anti competitive agreements – horizontal agreements or agreements between entities engaged in similar trade of goods or provisions of services, and vertical agreements or agreements between entities in different stages / levels of the chain of production, in respect of production, supply, distribution, storage, sale or price of goods or services. Anti competitive agreements that cause or are likely to cause an appreciable adverse effect on competition within India are void under the provisions of the Competition Act. A horizontal agreement that (i) determines purchase / sale prices, or (ii) Limits or controls production supply, markets, technical development, investment or provision of services, or (iii) Shares the market or source of production or provision of services, by allocation of geographical areas/type of goods or services or number of customers in the market, or (iv) Results in bid rigging / collusive bidding, are presumed to have an appreciable adverse effect on competition. On the other hand, vertical agreements, such as tie-in arrangements, exclusive supply or distribution agreements, etc., are anti competitive only if they cause or are likely to cause an appreciable adverse effect on competition in India. - 302 -

ABUSE OF DOMINANT POSITION An entity is considered to be in a dominant position if it is able to operate independently of competitive forces in India, or is able to affect its competitors or consumers or the relevant market in India in its favour. The Competition Act prohibits an entity from abusing its dominant position. Abuse of dominance would include imposing unfair or discriminatory conditions or prices in purchase/sale of goods or services and predatory pricing, limiting or restricting production / provision of goods/services, technical or scientific development, indulging in practices resulting in denial of market access etc. REGULATION OF COMBINATIONS Certain combinations defined under the Competition Act are considered to affect competition in India and are regulated by the CCI, such as:  An acquisition where the transferor and transferee jointly have, or a merger or amalgamation where the resulting entity has, (i) assets valued at more than Rs. 10 billion or turnover of more than Rs. 30 billion, inIndia; or (ii) assets valued at more than USD 500 million in India and abroad, of which assets worth at leastRs 5 billion are in India, or, turnover more than USD 1500 million of which turnover in India should be atleast Rs 15 billion. An acquisition where the group to which the acquired entity would belong, jointly has, or a merger or amalgamation where the group to which the resulting entity belongs, has (i) assets valued at more that Rs. 40 billion or turnover of more than Rs 120 billion, in India; or (ii) assets valued at more than USD 2 billion in the aggregate in India and abroad, of which assets worth at least Rs 5 billion should be in India, or turnover of more than USD 6 billion, including at least Rs 15 billion in India.

MANDATORY REPORTING Where previously reporting of a combination was optional, proposed amendments to the Competition Act make it mandatory for persons undertaking combinations, to give prior notice to the CCI. The information is to be provided to the CCI in the prescribed format within 30 days of the approval of the combination or the execution of any agreement or other document for acquisition. The combination will become effective only after the expiry of 210 days from the date on which notice is given to the CCI, or after the CCI has passed an order approving the combination or rejecting the same. The lengthy waiting period may impact time lines in the closing of mergers and acquisitions, and the cost involved in waiting out the period of 210 days. However, the wording of the proposed clause seems to suggest that if the CCI delays an order longer than the prescribed 210 days, the combination would be deemed to have - 303 -

been approved by the CCI, therefore removing the uncertainty of waiting for the completion of a potentially elongated regulatory process, as well as forcing the regulators to act in an expeditious manner. In case of a failure to notify the CCI, or contravention of its orders, the Competition Act inter alia provides for certain penalties, civil liability and criminal liability, depending on the nature of the failure/contravention. IV) FOREIGN EXCHANGE MANAGEMENT ACT, 1999

The foreign exchange laws relating to issuance and allotment of shares to foreign entities are contained in The Foreign Exchange Management (Transfer or Issue of Security by a person residing out of India) Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May, 2000. These regulations provide general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India or recording in its books any transfer of security from or to such person. RBI has issued detailed guidelines on foreign investment in India vide “Foreign Direct Investment Scheme” contained in Schedule 1 of said regulation. V) THE INDIAN INCOME TAX ACT, 1961

Merger has not been defined under the ITA but has been covered under the term ‘amalgamation’ as defined in section 2(IB) of the Act. To encourage restructuring, merger and demerger has been given a special treatment in the Income-tax Act since the beginning. The Finance Act, 1999 clarified many issues relating to Business Reorganizations thereby facilitating and making business restructuring tax neutral. As per Finance Minister this has been done to accelerate internal liberalization. Certain provisions applicable to mergers/ demergers are as under: Definition of Amalgamation/Merger — Section 2(IB). Amalgamation means merger of either one or more companies with another company or merger of two or more companies to form one company in such a manner that: (1) (2) All the properties and liabilities of the transferor company/companies become theproperties and liabilities of the transferee Company. Shareholders holding not less than 75% of the value of shares in the transferor company (other than shares which are held by, or by a nominee for, the transferee company or its subsidiaries) become shareholders of the transferee company.

The following provisions would be applicable to merger only if the conditions laid down in section 1 (IB) relating to mergers are fulfilled: (1) Taxability in the hands of Transferee Company — Section 47(vi) & section 47 (a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the transferee company on merger is not regarded as transfer and hence gains arising from the same are not chargeable to tax in the hands of the shareholders of the transferee company.[Section 47(vii)] - 304 -

(b) In case of merger, cost of acquisition of shares of the transferee company, which were acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor company. [Section 49(2)] (vi) MANDATORY PERMISSION BY THE COURTS

Any scheme for mergers has to be sanctioned by the courts of the country. The company act provides that the high court of the respective states where the transferor and the transferee companies have their respective registered offices have the necessary jurisdiction to direct the winding up or regulate the merger of the companies registered in or outside India. The high courts can also supervise any arrangements or modifications in the arrangements after having sanctioned the scheme of mergers as per the section 392 of the Company Act. Thereafter the courts would issue the necessary sanctions for the scheme of mergers after dealing with the application for the merger if they are convinced that the impending merger is “fair and reasonable”. The courts also have a certain limit to their powers to exercise their jurisdiction which have essentially evolved from their own rulings. For example, the courts will not allow the merger to come through the intervention of the courts, if the same can be effected through some other provisions of the Companies Act; further, the courts cannot allow for the merger to proceed if there was something that the parties themselves could not agree to; also, if the merger, if allowed, would be in contravention of certain conditions laid down by the law, such a merger also cannot be permitted. The courts have no special jurisdiction with regard to the issuance of writs to entertain an appeal over a matter that is otherwise “final, conclusive and binding” as per the section 391 of the Company act. (VII) STAMP DUTY Stamp act varies from state to State. As per Bombay Stamp Act, conveyance includes an order in respect of amalgamation; by which property is transferred to or vested in any other person. As per this Act, rate of stamp duty is 10 per cent. LEGAL PROCEDURE REQUIRED FOR THE FULFILMENT OF MERGER (1) EXAMINATION OF OBJECT CLAUSES The MOA of both the companies should be examined to check the power to amalgamate is available. Further, the object clause of the merging company should permit it to carry on the business of the merged company. If such clauses do not exist, necessary approvals of the share holders, board of directors, and company law board are required. - 305 -


INTIMATION TO STOCK EXCHANGES The stock exchanges where merging and merged companies are listed should be informed about the merger proposal. From time to time, copies of all notices, resolutions, and orders should be mailed to the concerned stock exchanges.


APPROVAL OF THE DRAFT MERGER PROPOSAL BY THE RESPECTIVE BOARDS The draft merger proposal should be approved by the respective BOD’s. The board of each company should pass a resolution authorizing its directors/executives to pursue the matter further.


APPLICATION TO HIGH COURTS Once the drafts of merger proposal is approved by the respective boards, each company should make an application to the high court of the state where its registered office is situated so that it can convene the meetings of share holders and creditors for passing the merger proposal.


DISPATCH OF NOTICE TO SHARE HOLDERS AND CREDITORS In order to convene the meetings of share holders and creditors, a notice and an explanatory statement of the meeting, as approved by the high court, should be dispatched by each company to its shareholders and creditors so that they get 21 days advance intimation. The notice of the meetings should also be published in two news papers.


HOLDING OF MEETINGS OF SHARE HOLDERS AND CREDITORS A meeting of share holders should be held by each company for passing the scheme of mergers at least 75% of shareholders who vote either in person or by proxy must approve the scheme of merger. Same applies to creditors also.


PETITION TO HIGH COURT FOR CONFIRMATION AND PASSING OF HC ORDERS Once the mergers scheme is passed by the share holders and creditors, the companies involved in the merger should present a petition to the HC for confirming the scheme of merger. A notice about the same has to be published in 2 newspapers.


FILING THE ORDER WITH THE REGISTRAR Certified true copies of the high court order must be filed with the registrar of companies within the time limit specified by the court. - 306 -


TRANSFER OF ASSETS AND LIABILITIES After the final orders have been passed by both the HC’s, all the assets and liabilities of the merged company will have to be transferred to the merging company.


ISSUE OF SHARES AND DEBENTURE The merging company, after fulfilling the provisions of the law, should issue shares and debentures of the merging company. The new shares and debentures so issued will then be listed on the stock exchange.

CASE STUDY ON MERGER OF ICICI AND ICICI BANK The history of Industrial Credit & Investment Corporation of India (ICICI) shows that it was formed in 1955 by the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective of ICICI was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI became the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. Due to the changing business environment and after the adoption of liberalization, ICICI considered various corporate restructuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking. The managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both the entities, and would create the optimal legal structure for the ICICI group’s universal banking strategy. Further, the merger would enhance value for ICICI shareholders through the merged entity by low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. Consequently, ICICI Bank was promoted in 1994 by ICICI Limited, an Indian financial institution, and was its whollyowned subsidiary. In October 2001, the Board of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. Shareholders of ICICI and ICICI Bank approved the merger in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. ANALYSIS This was a merger which was taken by the ICCI to adopt to the changing environment whereby all the shareholders and given their consent and atlast when the court sanctioned the scheme of merger the merger finally took place and now ICCI is one of the most highlighted bank which had gone for a few more amalgamations in future seeing to the present condition and need of the market. - 307 -

CONCLUSION As Dale Carnegie said “Flaming enthusiasm, backed by horse sense and persistence, is the quality that most frequently makes for success.” A quote that holds good for M&A in India, and a credo to which Indian companies seem to subscribe given their successes to date in completing acquisitions. There is little to stop Indian companies that desire to be global names for playing the merger and amalgamation game globally. With a plethora of financing options, this aspiration has become a reality for many corporate houses, who can now boast of having the best in the industry under their wings. Indian companies have often surpassed their foreign counterparts in corporate restructuring both within and beyond the national frontiers. With the FDI policies becoming more liberalized, Mergers, Acquisitions and alliance talks are heating up in India and are growing with an ever increasing cadence. The basic reason behind mergers and acquisitions is that organizations merge and form a single entity to achieve economies of scale, widen their reach, acquire strategic skills, and gain competitive advantage. In simple terminology, mergers are considered as an important tool by companies for purpose of expanding their operation and increasing their profits, which in façade depends on the kind of companies being merged. Indian markets have witnessed burgeoning trend in mergers which may be due to business consolidation by large industrial houses, consolidation of business by multinationals operating in India, increasing competition against imports and acquisition activities. Therefore, it is ripe time for business houses and corporate to watch the Indian market, and grab the opportunity. Mergers and acquisitions are powerful indicators of a robust and growing economy. The legal framework for such corporate restructuring must be easy and facilitative and not restrictive and mired in bureaucratic and regulatory hurdles. The biggest obstacle in the way of completing a merger or an amalgamation remains the often long drawn out court procedure required for the sanction of a scheme of arrangement. The recommendations of the JJ Irani Report are of particular significance in this regard. The Report has recommended that legal recognition to ‘contractual merger’ (i.e., mergers without the intervention of the court) can go a long way in eliminating the obstructions to mergers in India. The report also recommended that the right to object to a scheme of merger/ acquisition should only be available to persons holding a substantial stake in the company. REFERENCES 1. 2. 3. 4. Dr. K.R. Chandratre(2010), Corporate Restructuring 2nd edition, No,- 5, Accessed on 13 September IST 23:00,Accessed on 17 September IST 15:30 We refer to the Listing Agreement of the Bombay Stock Exchange as a standard since it is India’s largest Stock Exchange Clause 24 of the listing agreement - 308 -


Ashique Mondal, LL.M. 2nd Year, NALSAR, University of Law, Hyderabad, Justice City, Shameerpet, R.R. District-500078, A.P. India. E-mail: [email protected], Phone: 9640511464.

Riti Basu, LL.M. 2nd Year, Corporate Law and Governance, NALSAR, University of Law, Hyderabad, Justice City, Shameerpet, R.R. District-500078, A.P. India.E-mail: [email protected], Phone: 9640511469.

ABSTRACT: M&A is an activity that leads to value creation and corporate valuation and estimating goodwill.The law relating to it is essential to the company. In the light of this it is multifaceted and obscure in view of the fact that more negatives may be established or envisaged. The line of questioning that is essential for collating information sometimes may come across as negative, intrusive and can often be misunderstood. Even though the process of legal due diligence may be complicated and might load the company with extra costs, it is undoubtedly worthy of going through for the interest of the company in the long term. Legal due diligence is indeed a decisive component to any significant corporate transaction. Although it can be a demanding process, once a company understands the reasons for legal due diligence and the basic manner in which it is usually conducted, the process should proceed more professionally, saving costs and enable the buyer to make a considered decision. Hence, due diligence reveals information about the target company, its business, the environment in which the target company operates and so on. The exercise of due diligence process is a composite and multi-dimensional one and involves investigation into the business, tax, financial, accounting and legal aspects. The present paper purposely focuses on legal due diligence and aims to highlight on the need for conducting legal due diligence with a more formal approach. As such, the paper endeavours to show how legal due diligence can bring out substantial legal facts and information about the pertinent company and thereby optimistically shape corporate finance decisions in a merger and acquisition (hereinafter referred to as M & A) arrangement. KEY WORDS: Corporate Restructuring, Amalgamations, Legal Due Diligency. - 309 -

INTRODUCTION The Indian economy has encountered a colossal change since 1991 after the exordium of the economic overhaul pioneered by the Government in the wake of economic liberalisation and globalisation. The Indian economy has discreetly shifted from a controlled to a market driven one. The preeminent corporate houses have ventured into a prodigious restructuring exercise to bolster their business and thereby get an upper hand in comparison to others. In this context, Justice Dr. Dhananjay Chandrachud has rightly observed, Corporate restructuring is one of the means that can be employed to meet the challenges and problems which confront business. The law should be slow to retard or impede the discretion of corporate enterprise to adapt itself to the need of changing times and to meet the demands of increasing competition. The law has evolved in the area of mergers and amalgamations have recognized the importance of those who seek to restructure business. Post liberalisation, slowly and firmly, the doors of Indian economy started opening up to the overseas investors. In the altered scenario, mergers, acquisitions and takeovers seemed to be the best possible recourse to the corporate sector to grasp their fortuity. It is in this context that assessing the potential risks of a proposed transaction by inquiring into all the pertinent aspects of the business to be ventured has become indispensable. This fact itself holds the key as to why due diligence in common parlance and legal due diligence in specific has become a necessity today. Due diligence, in general, can be understood to stand for a process of investing and evaluating a business opportunity. It presupposes an analysis to be carried out before acquiring a controlling interest in a company. Irrespective of the nature of acquisition, it is quite normal for the buyers to seek an independent due diligence report in respect of their target acquisitions.5 One of the key objectives of due diligence is to minimize, all the unknown possible liabilities or risks. In the process of due diligence, an individual or an organisation seeks sufficient information about a business entity to reach an informed judgment as to its value and legal standing for a specific purpose. Hence, due diligence reveals information about the target company, its business, the environment in which the target company operates and so on.6 The exercise of due diligence process is a composite and multi-dimensional one and involves investigation into the business, tax, financial, accounting and legal aspects.7 The present paper purposely focuses on legal due diligence and aims to



The Institute of Chartered Accountants of India, Background Material on Due Diligence, Committee on Internal Audit, The Associated Chambers of Commerce And Industry of India, National Conference on Merger & Acquisition, Takeover Regime in India – Issues & Challenges, uploadedfile/1/2/-1/Assocham%20conference.pdf, Due Diligence Process, (last visited January 10, 2013)

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highlight on the need for conducting legal due diligence with a more formal approach. As such, the paper endeavours to show how legal due diligence can bring out substantial legal facts and information about the pertinent company and thereby optimistically shape corporate finance decisions in a merger and acquisition (hereinafter referred to as M & A) arrangement. LEGAL DUE DILIGENCE: THE CONCEPT AND THE NUANCES INVOLVED The notion of ‘Due Diligence’ has apparently originated from Section 13 of the Securities Act of 1933 of the United States of America. This Section provides a guard of due diligence to those who made sensible examination into matters contained in a prospectus for the issue of securities. The dictionary meaning of ‘Due’ is sufficient & ‘Diligence’ is ‘Persistent effort or work’. Hence, it is a research into the dealings of an entity preceding its acquisition, flotation, restructuring or other analogous transaction.8 According to Black’s Law Dictionary, due diligence means, Such a measure of prudence, activity or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case. This meticulous definition has evolved from diverse foreign cases like Perry v. Cedar Falls,9 Dillman v. Nadelhoffer, 10 Hendricks v. W. U. Tel. Co., 11 Highland Ditch Co. v. Mumford12 etc. The Due Diligence Handbook, describes due diligence as, A process whereby an individual, or an organization, seeks sufficient information about a business entity to reach an informed judgment as to its value for a specific purpose. The approach to due diligence depends on the type of transaction and what is intended to be achieved.13 However, due diligence can be generally divided into financial and legal aspects and can be further categorised as commercial and reputational due diligence. The above definitions define due diligence in general and do not specifically focus on legal due diligence which is the axis of the paper. Legal due diligence is merely assessing the legal position of the concerned company and thereby reveal the otherwise untraceable and covert legal facts which could generate unwanted liabilities in the future. Legal due diligence, like financial due diligence is also fundamental to commercial morals and ethics.14 Practising
8 9 10 11 12 13 14

The Associated Chambers of Commerce And Industry of India, supra note 3 87 Iowa, 315, 54 N. W. 225 1G0111. 121, 43 N. E. 378 120 N. C. 304, 35 S. E. 543, 78Am. St. Rep. 058 5 Colo. 330 Due Diligence Process, supra note 4 Id

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legal due diligence is not really an option but a tacit obligation of every party to the transaction. Legal due diligence before M & A transactions helps individuals to shun legal pester which might have occurred due to deficient knowledge of imperative information. Needless to say, while acquiring a company, as the buyer does thorough research of the credentials of the company, its market valuation, status of accounts receivables, position in the debt market, past performance, etc. he should also unquestionably confirm for legal issues like corporate documents of the company and its subsidiaries, material contracts and agreements, indebtedness, trade union and labour relations, title to properties and allied matters.15 LEGAL DUE DILIGENCE: AN OVER HYPE? Often it is argued that legal due diligence is carried out with same significance as is the financial due diligence and that the hue and cry for a more formal approach for legal due diligence is just an exaggeration, regrettably, it is not so. The very need to carry out a due diligence exercise stems from the legal concept of “caveat emptor” i.e. “let the buyer beware.” According to the maxim, whenever anyone purchases something from a vendor, it is his sole duty to make certain that the material has no faults. Similarly, when someone acquires a company or business or undertaking, as a buyer he should take care to scrutinise the various aspects of the company or business or undertaking he wishes to acquire. Legal due diligence has many virtues and can specifically help in the following areas:


Legal due diligence is necessary to get hold of information that is needed to be learnt about the target company and to structure the purchase.16 This enables an enhanced and better understanding of the business which ultimately helps in the M & A deal.


The information cultured in the legal due diligence process can help to settle on the amount which should be paid for the merger or acquisition.17 Legal due diligence searches for more understated pointers of value or potential liabilities in things such as organizational documents and crucial contracts, lawsuits to which the corporation is a party, insurance policies, employee benefit and labour engagements, probable environmental claims, intellectual property owned or used by the company and so on.18



17 18, Due Diligence, (last visited January 11, 2013) Benjamin W. Bates, A Guide to Legal Due Diligence: The Target Company’s Perspective, April 14, 2008, Id Id

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The information learned in the legal due diligence process is tremendously helpful in drafting and negotiating the merger or acquisition agreement and correlated supplementary agreements.19 This information is particularly helpful in assigning risks when drafting the company’s representations and warranties, company’s pre-closing promises and the postclosing indemnification rights of the buyer.20 The information gathered in the legal due diligence process is characteristically supportive in preparation of the disclosure schedules. Further, if the transaction includes securities of any sort, this information is significantly helpful in case of preparation of disclosure documents.21


In M & A transactions there are various impediments and roadblocks which crop up from time to time and may delay or even derail the entire process. In the legal due diligence process, the parties thus endeavour to identify everything that must be done before the transaction can close and therefore leads to an unbeaten closing of the matter in most of the cases. 22 As such, a legal due diligence process helps to confirm that the business is what it appears to be and also helps to recognise possible defects in the target and avoid a bad business transaction. Legal due diligence generates helpful information for valuing assets, defining representations and warranties, and/ or negotiating price concessions and also helps to verify that the transaction complies with investment or acquisition criteria.23 Given the benefits which legal due diligence brings along it cannot be said to be overhyped at all. Rather, there is a gross disregard in case of legal due diligence in comparison to financial due diligence which needs to be changed at the earliest. LEGAL DUE DILIGENCE AND PREVENTION CORPORATE FRAUDS Due diligence entails taking all the “reasonable steps” to ensure that both buyer and seller get what they anticipate from the deal. The whole idea is thus to prevent superfluous future disclosures from the deal i.e. mitigating investment risks.24 The process of legal due

19 20 21 22 23 24

Id Id Id Id The Institute of Chartered Accountants of India, supra note 2, Legal Due Diligence, (last visited January 12, 2013)

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diligence involves everything from analysis of legal and financial documents to interviewing customers, corporate officers and key developers.25 A legal due diligence time and again has been verified to be the finest possible tool to foil corporate frauds and charades in M & A deals. Legal due diligence necessitates a broad and deep data scrutiny of assets and liabilities, including various balance sheet items.26 It also means analysing indebtedness, insurance, direct and indirect taxation, governmental regulations, statutory documents, environmental matters, intellectual property etc.27 It is thus a highly effectual device to avert corporate frauds and can furthermore bring in constructive changes in company’s financial decision and essentially decide whether to go forward with the M & A deal or not.28 A COMPREHENSIVE LEGAL DUE DILIGENCE CHECK LIST A proper due diligence investigation requires comprehensive information about many poles apart aspects of an entity, including its legal and financial obligations, management and employment concerns, tangible and intangible assets, contracts, pending litigation, and business strategies. Hence, it is futile to argue to have an ample and all-inclusive legal due diligence checklist. Every legal due diligence has separate and idiosyncratic conditions and diverse needs and hence differ from each other to a great degree. However, one should always ask able questions that can illuminate legal information needed for a proper understanding of the business or transaction under consideration. Following are some of the areas which should definitely be touched in a legal due diligence exercise:        

Corporate Documents of the Company and its Subsidiaries Undertaking and declaration to be obtained Material Contracts and Agreements Financial Information Environmental Matters Intellectual Property Guarantees Exchange control

26 27


Ian Giddy, Mergers & Acquisitions: An Introduction, mergers_intro.htm Id Kaushal Shah & Associates, Legal Due Diligence - A Necessary Evil…?, 2007, http:// The Institute of Chartered Accountants of India, supra note 2

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           

Statutory documents Litigation Confirmations Title to Property and Real-Estate Insurance Governmental Regulations Indebtedness Undisclosed Liability Direct and Indirect Taxation Trade union and Labour relations Employees and Related Parties Products and Equipment29

LEGAL DUE DILIGENCE IN INDIA: A MANDATORY REQUIREMENT OF SEBI As a concept, due diligence was not much familiar to India until recent past. It is comparatively of a recent origin in India and got introduced as a process by foreign investors/ their legal and financial advisors only after the economic liberalisation reforms of 1991. In terms of conducting due diligence, the listed companies are a step forward and involves a more inclusive analysis of compliances, in concert with a greater degree of vigilance primarily with respect to the sharing of information and structuring of a transaction. The unlisted companies in dissimilarity does not indulge in such a rigorous method of conducting due diligence, besides there is no such legal directive in India requiring legal due diligence by unlisted companies. In case of a listed company, first and foremost the provisions of the SEBI (Prohibition of Insider Trading) Regulations, 1992, as amended are applicable. It is the utmost duty of a company to ensure that the insider trading regulations are not violated in the due diligence process. As per the Regulation, due diligence should not include review of unpublished price sensitive information except in certain particular circumstances. Nevertheless, publicly available information under the listing agreement signed by the listed companies with the stock exchanges may not be adequate to base an investment decision. Coming to SEBI

Kaushal Shah & Associates, supra note 26

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(Substantial Acquisition of Shares and Takeovers) Regulations, 2011, analysis of potential triggers in case of a proposed acquisition or transfer also forms part of the legal due diligence exercise. Apart from this, SEBI mandates certain parties to undertake a due diligence, in respect of issuance of securities by a company. Chapter VI of ICDR30 expressly deals with such requirements, some of which are listed below:  Regulation 64, requires the Book Running Lead Manager (hereinafter referred to as BRLM) to exercise due diligence and satisfy themselves about all the aspects of the issue. The BRLM is also required to call upon the issuer, its promoters or in case of an offer for sale, the selling shareholders, to fulfil their obligations as disclosed by them in the offer document. Regulation 65 requires the BRLM to submit post-issue reports to the SEBI. The BRLM is also required to submit a due diligence certificate as per the format specified in Form G of Schedule VI, along with the final post-issue report [Regulation 65 (3)]. Regulation 83, states that a qualified institutions placement shall be managed by BRLM (s) registered with the SEBI who shall exercise due diligence. The BRLM, while seeking in principle approval for listing of the eligible securities issued under the qualified institutions placement, is required to furnish to each stock exchange on which the same class of equity shares of the issuer are listed, a due diligence certificate stating that the eligible securities are being issued under qualified issuers placement. Before the opening of the issue, the BRLM is required to submit a due diligence certificate along with the draft offer document to the SEBI. Under Regulation 8(2)(b), the lead banker is required to submit, after the issuance of observations by the SEBI or after the expiry of the stipulated period, if the SEBI has not issued observations, a due diligence certificate at the time of registering the prospectus with the Registrar of Companies. Under Regulation 10(3) (a), the BRLM is required to submit to the SEBI, along with the offer document, a due diligence certificate including additional confirmations.31

30 31

Issue Of Capital And Disclosure Requirements) Regulations, 2009 Due Diligence Process, supra note 4

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CONCLUSION From the discussions above, it is apparent that legal due diligence is one of the resources to facilitate the parties to finalise commercial negotiations. However, the same has long been downplayed in comparison to financial due diligence by corporations. One must appreciate that legal due diligence, if properly overseen counteracts many of the unanticipated future jeopardies. Quite perceptibly, a due diligence is a complex and far-reaching experience. It is multifaceted and obscure in view of the fact that more negatives may be established or envisaged. The line of questioning that is essential for collating information sometimes may come across as negative, intrusive and can often be misunderstood. However, this strain must be surmounted if the transaction needs to be successful, since the margin of error for survival in such critical transactions is very thin. Ideally due diligence should start even before negotiations are on track as an early launch can thwart long and expensive attempt to effectuate a transaction which should never have been entered into in the first place. As such, in view of the stakes involved, legal due diligence has now become an indelible need of an M & A transaction. Even though the process of legal due diligence may be complicated and might load the company with extra costs, it is undoubtedly worthy of going through for the interest of the company in the long term.32 Legal due diligence is indeed a decisive component to any significant corporate transaction. Although it can be a demanding process, once a company understands the reasons for legal due diligence and the basic manner in which it is usually conducted, the process should proceed more professionally, saving costs and enable the buyer to make a considered decision.33 Perhaps it is high time to recognise legal due diligence’s importance and treat it with as significance, professionalism and formality as financial due diligence is treated with for the time being. REFERENCES 1. 2. 3. 4. The Institute of Chartered Accountants of India, supra note 2, Legal Due Diligence, (last visited January 12, 2013) Ian Giddy, Mergers & Acquisitions: An Introduction, ~igiddy/articles/mergers_intro.htm Kaushal Shah & Associates, Legal Due Diligence - A Necessary Evil…?, 2007,

32 33

Kaushal Shah & Associates, supra note 26 Due Diligence Process, supra note 4

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Bhanu Pratap Singh (Ph.D) Research Scholar, School of Economics, University of Hyderabad, email:[email protected]

Dr. Alok Kumar Mishra, Assistant Professor, School of Economics, University of Hyderabad, Hyderabad, email:[email protected]

ABSTRACT The paper basically focuses to examine weather merger and acquisition (M&A) creates shareholder wealth or not- in particular for target and acquirer firms. The study is done in lieu of synergies and agency cost theories which explain the impact of M&A on shareholders wealth. Event study analysis is used to examine the impact of M&A on equity prices of major Indian pharmaceutical companies. The CAPM model and CAPM model including dummy for financial crisis is used separately to measure normal returns for firms. There is mix response from both acquire and targeted companies. For some company it creates wealth and for some it gives indication of agency element. The study also gives scope to check abnormal returns in multi-factor model a nd check market efficiency of Indian pharmaceutical market. KEY WORDS CAPM, Event Study, JEL Classification Codes: G14, G34, Merger and Acquisition (M&A) Pharmaceutical Industry. INTRODUCTION In business there is a simple rule: grow or die” (Sherman & Hart, 2006).M&A are very important for healthy economy. It is also one of the important ways to provide returns to investors and owners. In the last half decade 92% of liquidity events from venture capital funded firms were realized by M&A and only 8% of firms achieved their liquidity by initial public offering (Sherman & Hart 2006). Prime objective of M&A is to create shareholders wealth. One of the rationales behind M&A is to acquire a company to access today’s “knowledge worker” and obtain the intellectual property. In the present study we have tried to examine the impact of M&A on equity prices of Indian pharmaceutical companies. Historically it is found M&A leads to positive and negative returns. In particular M&A leads to creation of wealth on the one hand and it also reduces wealth on the other hand. The theory which explains the positive returns is known as synergy theory. According to this - 318 -

theory M&A leads to synergies via increasing market size, eliminating rivals, acquiring technologies and gaining competitive market size (Bohlin et al. 2011 ). In contrast the theory which explains negative returns is known as agency theory. According to this theory M&A leads to negative or zero abnormal returns because the equities of targeted firms are overvalued by acquirer firms. This happens basically due to managerial mischief in which interest of owner and managers diverge (Nyberg et al. 2010). The literature review in the later section broadly deals with past event study analysis on M&A and the reason behind positive and negative returns take place. This paper organized as follows. Section2 justifies the reason behind selecting pharmaceutical industry. The past literature on the topic is covered in section3. Data and methodology for the study is explained in section4. Section5 deals with empirical findings of the study. The test of abnormal returns is done in section6 and study concludes with section7. REASON FOR SELECTING PHARMACEUTICAL INDUSTRY There are various reasons for selecting pharmaceutical industry in particular. Some of the reasons pointed by Hassan et al. 2007 are: First, the industry is global in nature and engages in M&A activity extensively. Hence, findings for the industry have broad applicability. Second, the industry is different from most others because of the high cost of bringing a drug to market and the documented low rate of success for drugs coming through the pipeline. There is an inherent incentive for a company to use M&A activity either to supplement or to substitute for early stage research. LITERATURE REVIEW In the recent finance literature, most empirical analyses of the returns to M&A are based on event studies and the findings from these differ depending on whether the research is focused on the target or the acquiring companies. Loderer and Martin (1992) investigate 304 mergers and 155 acquisitions that took place from 1965 to 1986 and document a negative but statistically insignificant abnormal return over the five subsequent years for mergers and positive but an insignificant abnormal return for acquisitions. Using a market model with a moving average method for beta estimation, Firth (1980) finds an insignificant abnormal return of 0.01 percent over the 36 months following the bid announcement by examining 434 successful bids and 129 unsuccessful bids in the UK over the period 1965-1975. In contrast, Agrawal et al. (1992),Loughran and Vijh (1997),Asquith et al. (1983) and Andre´ et al. (2004) document significant and negative announcement period abnormal returns post M&A. The same kind of study using event study analysis is done by Hassan et al. (2007) on US pharmaceuticals industry. Our current study examines the impact of M&A on targeted and acquirer firm using CAPM model as well as CAPM model with financial crisis. - 319 -

METHODOLOGY Daily historical data of equity prices for 8 – targeted and acquirer pharmaceutical companies are taken from Bombay Stock Exchange from 02 January 2001 to 12 December 2012. SENSEX is taken as a proxy for market portfolio for same time period. The log returns is calculated from equity prices for all firms and log returns for market portfolio calculated from SENSEX. These returns are used to calculate normal returns using CAPM model and CAPM model with financial crisis. In the first stage we have divided whole period into three parts, viz , estimation window, event window and post event window. The parameters of CAPM model are estimated from estimation window. Following market model is used to calculate abnormal returns:

Where, Rit is a normal return, Rmt is return on markrt portfolio,  is a market beta and Uit is an error term. After calculation of normal return the excess or abnormal returns are calculated by the following equation: Abnormal Return = Actual Return – Normal Return Forty days – 20 days lead and 20 days lag event window is formed in order to check abnormal returns. The rationale behind taking 20 days lag is to control information leakage and slow price adjustment (Soderlind 2013). Again in order to check the impact of uncertain event like global financial crisis(200709) we have estimated the following CAPM model:

Where, Rit, Rmt,  and Uit are the same mentioned in the above CAPM model. D1 is a dummy variable D1= 1 for crisis period (2007-09) and D1 = 0 for control. In the second CAPM model whole range (2001- 12) is taken in order to calculate parameters. - 320 -


Piramal Life Sciences Ltd, Jubiliant Life Sciences Ltd, Abbot India Ltd and Torrentz Pharmaceutical Ltd were the acquirer firms which were selected for the study. Forty days event window was created in order to check the effect of M&A. The event window was common across the companies. The estimated parameters along with their test statistics using CAPM model are given in Table. 1. In case of Pirmal Life Sciences and Torrentz Pharmaceutical Ltd the impact of information leakages were found to be negative. The total abnormal returns were negative before the date of acquisition. In general the total abnormal returns for both firms at the end of event window were positive which supports synergy theory. Hence this event leads to creates shareholder wealth for Piramal Life Sciences Ltd and Torrentz Pharmaceutical Ltd. On the other hand the impact of information leakages were the same for Jubiliant Life Sciences Ltd and Abbot India Ltd but the overall total returns of the firm at the end of event window were negative which gives indication of agency element for both the firms. Trinity Lab, Cipla Ltd, Dabaur India Ltd and Pifzer Ltd were the targeted firms chosen for the study. These were the same firms acquired by the Piramal Life Sciences Ltd, Jubiliant Life Sciences Ltd, Abbot India Ltd and Torrents Pharmaceuticals Ltd, same event window were used across all targeted firms. In case of Trinity Lab and Pifzer the impact of information leakages were found to be positive and overall total abnormal returns at the end of event window were also positive for both the firms. Hence this leads to create shareholder wealth for these companies and support synergy theory. On the other hand impacts of information leakages were found to be negative for Cipla Ltd and Dabaur India Ltd. In general total returns at the end of event window were found to be negative for both the firms which gives indication of agency elements involved in both the firms. 1.2 CUMULATIVE ABNORMAL RETURNS (CAR)

The CAR was found to be positive at the end of event window for both Torrentz Lab and Piramal Life Sciences Ltd ( Part (a) and (g) of figure1.) .On the other hand CAR was negative for Abbot India Ltd and Jubiliant Life Sciences Ltd (Pat (d) and (f) ).In case of Torrentz and Piramal CAR (Part (a) and (g) of Figure1.) were negative in the lag period but it starts rising and remains positive at the end of event window. For Abbot India Ltd CAR - 321 -

(Part (d) figure1.) becomes positive for few days in the lag period and remains negative in the whole event window. Since from the starts of event window the CAR ( Part (f) figure 3 ) remains negative for Jubiliant Life Sciences Ltd. At the end of event window CAR were positive for Pifzer and Trinity Lab (Part (b) and (h) of Figure 1.) whereas it were negative for Dabaur India Ltd and Cipla Ltd (Part (c) and (e) of Figure1.). In case of Pifzer CAR ( Part (b) figure1.) was negative in lag period and started rising after the event and remained positive at the end of event window. For Trinity Lab the CAR (Part (h) of Figure1.) was found to positive throughout entire event window. In case of Dabaur India Ltd the CAR (Part (c) figure1.) was positive in the lag period but starts declining after the event and remains negative till the end of event window.For Cipla Ltd since from the start of event window the CAR (Part (e) figure1.) remains negative. 1.3 CROSS SECTIONAL ABNORMAL RETURNS Cross sectional cumulative abnormal returns was negative for all firms - acquirer and target firms ( Figure2.) . It starts increasing in the lag period but started declining after the event and remains negative at the end of event window. In general the response of overall Industry was found to be in favour of agency theory but this could not be taken conclusion for industry as a whole because such result can be result of small number of companies selected for the study. 2 2.1 CAPM MODEL WITH FINANCIAL CRISIS ABNORMAL RETURNS

When financial crisis took into consideration the abnormal returns were found to be positive only for Torrentz Ltd among all acquirer firms. On the other hand it was found to be negative for Abbot India Ltd and Piramal Life Sciences Ltd. Abnormal returns were positive for Pifzer Ltd and negative for Dabaur India Ltd. 2.2 CUMULATIVE ABNORMAL RETURNS In case of acquirer firms CAR was positive only for Torrentz Ltd( Part (a) Figure3.). It was negative in lag period and starts increasing after the event and remains positive at the end of event window whereas CAR was found to be negative for Abbot India Ltd and Piramal Life Sciences Ltd (Part (d) and (e) Figure3.). For Abbot India Ltd (Part (d) Figure.3) it becomes positive for few lag days but remains negative at the end of event window. In case of Piramal Life Sciences Ltd (Part (e) Figure3.) the CAR remains negative for both lead and lag days in the whole event window. Among targeted firms CAR were found to be positive for Pifzer Ltd (Part (b) Figure3.) and negative for Dabaur India Ltd (Part (c) Figure.3).For Pifzer Ltd (Part (b) Figure3.) CAR was negative in lag period but becomes positive in the lead period and remains positive at the end of event window. For Dabaur India Ltd (Part (c) Figure.3) CAR was positive in the lag period and starts declining after the date of event and remains negative at the end of event window. - 322 -



Cross sectional cumulative abnormal return was found to be negative for all firms in the Industry. The results were quite similar in both the market model even the market model with crisis support agency theory. The result obtained from CAPM model and CAPM model with financial crisis gives similar results. Only there is difference in the magnitude of abnormal returns measured from both the methods. TEST OF ABNORMAL RETURNS For testing non-zero abnormal returns, there are two sources of sampling uncertainty. First, the parameters of the normal return are uncertain. Second, even if we knew the normal return for sure, the actual returns are random variables—and they will always deviate from their population mean in any finite sample. The first source of uncertainty was checked using long estimation window The second source of uncertainty was taken care by checking serial autocorrelation of abnormal returns applying DW test. The results were satisfactory (Table 3) for all firms. The reason behind low we find that market was more reactive in pricing bad news than good news, upon information arrival, that is why decreases due to the increase of firmlevel information from the announcements. CONCLUSION The major finding of the study gives mix responses in the Indian pharmaceutical industry. The Indian pharmaceutical industry supports both synergies and agency cost theories both for acquirer and targeted firms. Even the results are quite similar in both CAPM model and the CAPM model with financial crisis. As we know financial crisis leads to decline market returns which further leads to decline in returns of individual firms. As per supposition the significant interaction dummies in all cases found to be negative. There is not much difference in the results in both the models only difference comes in the magnitude of parameters measured from both the models. But the sign of parameters were found to be same in both the models. Hence it does not contradict the basic argument in both the models. The paper gives scope to check the parameters in multifactor model and how it differs from market model and market model with crisis it gives scope to check market efficiency of Indian pharmaceutical industry. REFERENCES 1. 2. Bohlin et al (2011), Successful Post-Merger Integration: Realizing the Synergies Brown and Warner (1985), Using Daily Stock Returns: The Case of Event Studies, Journal of Financial Economics - 323 -


Duso et al. (2010), Is the event study methodology useful for merger analysis? A comparison of stock market and accounting data, International Review of Law and Economics Hassan et al. (2007), Do Mergers and Acquisition Creates Shareholders Wealth in Pharmaceutical Industry? , International Journal of Pharmaceutical and Healthcare Marketing Jhon J. Binder (1998), The Event Study Methodology Since 1969, Review of Quantitative Finance and Accounting Lepetit et al. (2006), Diversification versus specialization: an event study of M&A in the European banking industry, Applied Financial Economics Michael C. Jensen (1986), Agency Costs of Free Cash Flow ,Corporate Finance, and Takeovers, American Economic Review Michael C. Jensen (2004), Agency Cost of Overvalued Equity, European Corporate Governance Institute, Finance Working Paper No. 39/2004 Nyberg et al. ( 2010), Agency Theory Revisited:CEO Returns and Shareholder Interest Alignment, Academy of Management Journal, Paul Söderlind (2013), Lecture Notes in Financial Econometrics (M.Sc course),University of St. Gallen Sherman and Hart (2007), Merger and Acquisition from A to Z


5. 6. 7. 8. 9. 10. 11.

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Pankaj Sevta, BBA.LLB. (IV Year), National Law University, Odisha. Contact no. : 9439907780, 09583237902. Email : [email protected]

Anjali Upadhyay, B.A, LL.B, Dr. Ram Manohar Lohiya National Law University, Contact no. : 09956796221, Email : [email protected]

Nikhil Bansal, BA.LLB. (II Year),National Law University, Odisha. . Contact no. : 08984248685. Email: [email protected]

ABSTRACT It can be observed that in the instant business scenario there is solitary attitude in the corporate world i.e. antagonism and the motto is ‘Survival of fittest’. Due to such state of affairs, Mergers And Acquisitions came in portrait and achieved ample magnitude. The M & A is accomplished with the chief intention to create synergy and also for reshuffling and shaking up of business entities. There is no shadow of qualm that considerations upon M & A regime has become need of hour for every corporate personality. This on the scratch paper is an effort with ample supportive statistics, to offer an unlike vision toward M & A by impending up with varied perspectives and views like traditional depiction, legal sight, investors view, futuristic scope etc. With movement utterance, M & A had been worn both as shield and sword. In India trends of mergers and Acquisitions have never remained constant. With the dynamic environment on one hand, the uncommon inclination of Indian industrialist acquiring foreign enterprises has drastically undergone alteration and thereby now making it an imminent latest trend in the Indian commercial sector. A merger which accelerates growth of a company nevertheless, may lead to unwanted socio- economic implications that are often grow worst resulting in pressing effects across a range of sectors of the Indian financial system. Viewing from other perspective, in spite Mergers and acquisitions (M&A) in relation to international level, being regarded as a vital ingredient toward business tactic, there is still line of doubts. KEY WORDS Commercial Sector, M&A, Synergy Value. INTRODUCTION It can be observed that in the instant business scenario there is solitary attitude in the corporate world i.e. antagonism and the motto is ‘Survival of fittest’. Due to such state of affairs, Mergers and Acquisitions came in portrait and achieved ample magnitude. The - 325 -

Merger & Acquisition is accomplished with the chief intention to create synergy and also for reshuffling and shaking up of business entities. There is no shadow of qualm that considerations upon Merger & Acquisition regime has become need of hour for every corporate personality. In India trends of mergers and Acquisitions have never remained constant. With the dynamic environment on one hand, the uncommon inclination of Indian industrialist acquiring foreign enterprises has drastically undergone alteration and thereby now making it an imminent latest trend in the Indian commercial sector. A merger which accelerates growth of a company nevertheless, may lead to unwanted socio- economic implications that are often grow worst resulting in pressing effects across a range of sectors of the Indian financial system. The instant paper gives systematically legal examination whereby discussing various legislations dealing with mergers, acquisitions and takeover codes. ISSUE PERTINENT: SOME ASPECT TO BE CONSIDERED IN M & A WHY M & A: DOES IT MAKE ANY DIFFERENCE In the instant business atmosphere merger and acquisition has emerged as a must thing irrespective of field work. Some of the essentials which make M n A the highlight and need of the hour are SYNERGY VALUE - EMERGENCE OF A STRONG FORCE Every merger has its own distinctive reasons why mingle of two companies is a good. Today synergy is the result which every company aspire for. Revenues: By integrating the two companies, it will result in higher revenues, lower expenses, reduction in overall cost of capital etc. as compared to two companies operate separately. M n A gives effective functioning, activating and working and favorable results for both band. It helps in efficient business decision thereby proving fruitful for both the companies. SPOTTING AND CRACK FILLING - GRABBING OF OPPORTUNITY In order to survive and continue to exit grabbing the right spot has become the guru mantra. M n A aids by providing a platform through which the concerned companies can take benefit of future opportunities that can be exploited when the two companies are combined. The correct and accurate positioning according to the dynamic environment is the basic requirement for every company so as to take advantage of emerging trends in the marketplace. Through M n A one company can overcome its weakness and can pursue with fills-in strategic gaps that are essential for long-term survival. ORGANIZATIONAL COMPETENCIES - CAPTURE THE MARKET ACCESS Due to M n A the new structure acquires new human resources and sufficient intellectual capital which ultimately improve innovative thinking and contribute toward development process within the company. Acquiring a distant company can give a company quick access to emerging global markets. - 326 -

DIVERSIFICATION - A TOOL TO BE EMPLOYED It is essential for every corporation to have required stabilize earnings and attain more regular long-term growth and profitability. The particular option is best suited for companies where future growth is improbable. Many a times in situations where management is under pressure, M n A act as a boost to power up the performance and also represents a good investment. A lot of times M n A is undertaken due to financial reasons and not as a strategy. M & A: IF IT THE RIGHT THING TO DO THEN WHY IS IT DECREASING Some analysis and available data shows that there have been number of M&A deals reduce from 1,320 to 1,077, i.e. decreased by 18.5 per cent, in manufacturing sector it has decreased from 842 to 442, i.e. decreased by 47.5 per cent. The question arises at this moment is why is so. With all the above mentioned points why cut has been observed. There are a lot of factors due to which the concerned result is depicted for shrink in the number of deals of M&A in India throughout the previous link of years. 1. It cannot be ignored that the global level economic retard and slowdown is one of the most chief factor for decrease in the no. of M&A in India during the last couple of years. It is the examination of various investigation studies which offer that even administration and management cannot take the presumption that synergy can be created and profits can be amplified merely by departing for mergers and acquisitions. The dynamic environment cannot be ignored. The phase of 3 years that is around 2004-2007 which was a fizz in the Financial bazaar has emerged in the over evaluation and appraisal in the stock prices almost all of the companies thereby creating major troubles in accurate assessments. As per the specialists and market analysts state that devastating trend is of measured and unhurried M&A activity in the conditions of dropping market capitalizations, aeration credit lines and global financially viable uncertainty. Due to the instability and explosive nature in stock and credit markets along with altering environment makes it very difficult for the companies involved in a transaction to arrive at a “bidding price” thus creating future complicated issues.





TRADITIONAL VIEW: A HISTORIC THOUGHT IN INDIAN REGIME Even though currently mergers and acquisitions (M&As) have develop into a common observable fact but M&As are not latest in the Indian economy. M&As have participated as an vital role in the renovation of the industrial sector of India since the Second World War - 327 -

period. The economic and political conditions during the Second World War and post–war periods (including several years after independence) gave rise to a spate of M&As The inflationary circumstances throughout the wartime enabled lots of Indian businessmen to accumulate income by means of elevated profits and dividends and black money. This led to “wholesale infiltration of businessmen in industry during war period giving rise to hectic activity in stock exchanges. There was an obsession to acquire be in charge of industrial units in spite of swollen prices of shares. The practice of cornering shares in the open market and trafficking of managing agency rights with a view to acquiring control over the management of established and reputed companies had come prominently to light. The net effect of these two practices, viz of acquiring control over ownership of companies and of acquiring control over managing agencies, was that large number of concerns passed into the hands of prominent industrial houses of the country. As it became clear that India would be gaining independence, British managing agency houses gradually liquidated their holdings at fabulous prices offered by Indian Business community. Apart from the transfer of managing agencies, there were a great number of cases of shift of interests in individual industrial units from British to Indian hands. Further at that time, it used to be the fashion to obtain control of insurance companies for the purpose of utilising their funds to acquire substantial holdings in other companies. The big industrialists also floated banks and investment companies for furtherance of the objective of acquiring control over established concerns. The subsequent-war period is considered as an age of M&As. A big number of M&A can be witnessed in business and commerce like insurance, banking, jute, cotton textiles, electricity etc. It has been establish that, in spite there were a bulky number of M&A s in the premature post independence period, the anti-big government policies and regulations of the 1960s and 1970s critically discouraged M&As. But conclusion cannot be drawn that this phenomenon was scarce and infrequent during the controlled regime. The prevention was mostly to straight i.e. horizontal combinations which, outcome in concentration of economic power to the common detriment. However, there were many conglomerate combinations. There have been instances where, even the Government gave positive response to M&As mainly for ill units. Likewise in 1956 the formation of the Life Insurance Corporation and nationalization of the life insurance business was consequence in the takeover of 243 insurance companies. Related development can also be observed in the general insurance dealings. The national textiles corporation (NTC) took over a large number of sick textiles units. - 328 -

CURRENT SCENARIO AND TRENDS OF M & A: A GLIMPSE SHOWING THE REALISM Table No 1 Distribution of M&A across Industry Groups From 1990-91 to 2000-01 The resultant behaviour and pattern of M&As activity during the period of study may have been occurred due to the following factors
INDUSTRY / YEARS Pharma Petro chem. Energy, Gas, Power Non metallic mineral Tourism, travels Paper products Food products Textiles, wearing Finance, Banking It & telecom Electricals, electronics Basic metal, alloy Equipment, machinery Transport equipment Tobacco, beverages Others TOTAL M& A 2 2 1 0 3 1 2 1990 -91 1991 -92 1992 -93 1993 -94 2 1994 -95 0 1995 -96 5 4 1996 -97 27 11 1997 -98 47 5 1998 -99 29 11 1999 -00 57 13 2000 -01 34 13 Total

201 57

























1 8 8

9 10

4 9

1 20

4 13

19 74












0 3

1 0

0 0

7 11

24 20

35 31

51 45

33 51

152 161




































0 12

4 31

3 37

5 61

6 58

22 199













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LEGAL PERSPECTIVE: A HAND WITH LEGAL BOUNDARIES IN M & A There are various laws dealing with mergers and acquisition. In India merger and acquisition is regulated under Companies Act 1956, competition Act, SEBI Act and other Income Tax Act etc. Provisions which deals with it are as underCOMPANY LAW, 1956: Main corporate law provisions governing mergers areSections 108A to 108I of Companies Act 1956, which place restrictions on the transfer and acquisition of shares where the shareholdings of the bidder or transformer would either:   Result in a dominant undertaking; or In case of a pre-existing dominant undertaking, result in an increase in the production, supply, distribution or control of goods and services by it.

Section- 390 to 394 deals with the right of companies to enter into a merger or amalgamation, which governs the schemes of arrangement between companies and their respective shareholders and creditors, under the supervision of the relevant High Court. COMPETITION LAW, 2002 This law is aimed at protecting adverse effect on trade related competition in Indian market and also protects the interest of private individual. There are provisions that give power to the high court to sanction and enforce the amalgamation, provisions relating to proving of necessary information to parties concerned in the scheme of amalgamation, provisions relating to preservation and protection of account books and papers of amalgamated company. Section 5 and 6 of the Act deals with laws regulating ‘combinations’. SEBI REGULATIONS- TAKEOVER CODES, 1994 SEBI provides for procedure for takeovers. Regulation 3 provides a threshold limit for mandatory public offer .section 25 of the Act prohibits public offers after 21 days of the public announcement of first public offer. There have been certain amendments in takeover code. Also section 11(1) deal with the consolidation of share or voting rights beyond 15%55%, provided acquirer does not acquire more than 5%of shares in one financial year. INCOME TAX ISSUES Under Income tax Act 1961, an amalgamated company is eligible for certain tax benefits and deductions. As per section 47(vi) amalgamating company is exempted from capital gain tax, also under section 47(vii) relief is given to the shareholders of an amalgamated company. Section 72A talks about relief for amalgamated company that is, it deals with the mergers of sick companies with healthy companies and to take advantage of the carry forward of accumulated losses and unabsorbed depreciation. These benefits can only be gained if the combination comes within the definition of ‘amalgamation’ under Section 2(1B). - 330 -

RECOMMENDATIONS AND SUGGESTIONS Merger and acquisitions helps in economic growth of a county. It has both pros and cons. Various laws are there dealing with merger and acquisitions, still few amendments are required in them to make it close to reduce failures. Some of suggestion and recommendations are as follows  Companies bill has proposed a single forum for merger and acquisition matters, is a welcoming step. It is pertinent to note that confidentiality is the factor that should be in consideration for both the sides. In order to prevent the target company from losing its value, a strict confidentiality agreement should come into picture by which acquiring firm agrees to keep information confidential. In today’s practice it is common to expect and observe significant differences between book values and market values. In order to ensure there is no manipulation of values, it should be kept in mind that in case both of these are not considerably poles apart, then due diligence should dig deeper. Merger and acquisition aims at cutting the cost, but while doing this cultural and human resource issues should be given due weight. The so called “people” issues are extremely vital and avoidance of same would might not provide the concrete foundation for post-merger integration While approaching to actual put together of two companies efforts should be taken by adopting mix move toward of pay and benefits, incentive programs so to retain crucial personnel during post merger etc. During the M n A process, Management must continue to pay attention to and communicate with employees and relay accurate and comprehensive Information so as to avoid inaccurate rumors.

CONCLUSION It can be seen that in the earlier history, companies have employed M&As to nurture and recent practices are such that, Indian corporate enterprises are rethinking for core competence, market allocate, worldwide competitiveness and consolidation. The concerned process of refocusing has further been accelerated by the arrival of foreign competitors. Indian corporate enterprises have undertaken restructuring exercises primarily through M&As to create a formidable presence and expand in their core areas of interest. The practical significance of M&As is undergoing a aquatic change since liberalisation in India. There is no doubt that some legislations have cropped and subsequently been amended in the business domain, thereby paving way for large business groups and foreign companies to resort to - 331 -

the M&A route for growth. The available data clearly mentions that that M&As have accelerated but due attention is must in respect of investor protection. Thus it can be concluded that such phenomenon process should be carried out keeping both pros and cons in consideration as well as in the prescribed walls of legal boundaries. REFERENCES 1. Agrawal, A., Jaffe, J. F. & Mandelker, G. N.: “The Post-Merger Performance of Acquiring Firms: a Re-examination of an Anomaly.” The Journal of Finance, 47(4), 1992, pp-1605-1621. Andrade, Gregor, Mark, Mitchell and Erick Stafford :”New Evidence and Perspectives on Mergers” Journal of Economic Perspective, 15[2], spring, 2001, pp103-120. Annonymous: “The Raider s Road Map” Business India, May 7-21,1995, pp-66. Annonymous: “Mega Money Mergers”, Business Today, Dec-7-21, 1996, p-84. Augustine , Babudas :” A Growing Case for Takeovers.”, Business World, I Nov. 1995, pp 64-66. “Corporate Response to Economic Reforms” Economic and Political Weekly, Mar4, 2000. Beena, P. L. : “Mergers and Amalgamations: an Analysis in the Changing Structure of the Indian Oligopoly”. Unpublished Ph.d. Thesis submitted to JNU, New Delhi, 1998. Bharadwaj Neera. : “Mid Merger Blues”, Business India, 18 Nov, 1996.pp-74. Buono, A.F. : “Seam-less Post-merger Integration Strategies: A Cause for Concern”, Journal of Organizational Change Management, Vol. 16 No.1, 2003, pp.90-8. Cannella, A. A. Jr. & Hambrick, D. C. :”Effects of Executive Departures on the Performance of Acquired Firms”. Strategic Management Journal, 14, 1993, pp 137152. Caves, R.E.: “Mergers, Takeovers and Economic Efficiency: Foresight vs. Hindsight,” International Journal of Industrial Organization 7, 1989, pp. 151-174. CMIE: Economic Intelligence Service, Monthly Review of the Indian Economy, various Issues, CMIE, Mumbai. Cowling, K et al.: Mergers and Economic Performance, Cambridge: Cambridge University Press. 1980. Das, Nandita. : “A Study of the Corporate Restructuring of Indian Industries in the Post New Industrial Policy Regime. The Issue of Amalgamations and Mergers” Unpublished Ph.d. Thesis submitted to University of Calcutta, 2000. - 332 -

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Gajanethi Swathi Kumari, Research Scholar (OU), Associate Professor, R.G.Kedia College. She can be reached at [email protected], 9959566029.

ABSTRACT India has, for a long time, recognized the social and economic imperatives for broader financial inclusion and has made an enormous contribution to economic development by finding innovative ways to empower the poor. Starting with the nationalization of banks, priority sector lending requirements for banks, lead bank scheme, establishment of regional rural banks (RRBs), service area approach, selfhelp group-bank linkage program, etc., multiple steps have been taken by the Reserve Bank of India (RBI) over the years to increase access to the poorer segments of society. Importance of financial inclusion arises from the problem of financial exclusion of nearly 3 billion people from the formal financial services across the world. Today the term ‘bottom of the pyramid’ refers to the global poor most of who live in the developing countries. These large numbers of poor are required to be provided with much needed financial assistance in order to sail them out of their conditions of poverty. This paper is an attempt to comprehend and distinguish the significance of Financial Inclusion in the context of a developing country like India wherein a large population is deprived of the financial services which are very much essential for overall economic growth of a country. KEY WORDS Economic Development, Financial Inclusion, Financial Services, Regional Rural Banks, Reserve Bank Of India. INTRODUCTION India has seen historic progress and growth in the past decade. While the growth story has been impressive, there are causes for concern on other dimensions. We have a long way to go in addressing concerns of absolute poverty. Low-income Indian households in the informal or subsistence economy often have to borrow from friends, family or usurious moneylenders. They have little awareness and practically no access to insurance products that could protect their financial resources in unexpected circumstances such as illness, property damage or death of the primary breadwinner. It is now well understood that commerce with the poor is more viable and profitable, provided there is ability to do business with them. The provision of uncomplicated, small, affordable products can help bring low- 334 -

income families into the formal financial sector. Taking into account their seasonal inflow of income from agricultural operations, migration from one place to another, and seasonal and irregular work availability and income, the existing financial system needs to be designed to suit their requirements. Mainstream financial institutions such as banks have an important role to play in this effort, not as a social obligation, but as a pure business proposition. Financial inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players. Financial inclusion has become one of the most critical aspects in the context of inclusive growth and development. The importance of an inclusive financial system is widely recognized in policy circles and has become a policy priority in many countries. Several countries across the globe now look at financial inclusion as the means to more comprehensive growth, wherein each citizen of the country is able to use earnings as a financial resource that can be put to work to improve future financial status and adding to the nation’s progress. Initiatives for financial inclusion have come from financial regulators, governments and the banking industry. The banking sector has taken a lead role in promoting financial inclusion. The correlation between financial inclusion and economic growth has been long recognised: low financial inclusion impedes economic growth. Access to easy and affordable mainstream financial services by disadvantaged social groups is acknowledged as a key criterion for poverty alleviation and reducing social inequity. Such unfettered access enables the financially excluded population to build savings, carry out investments, avail safe and low-cost credit and perhaps most importantly it enables the poor to mitigate risks of income seasonality, illness and employment loss. However despite broad international consensus on the importance of access to finance as a powerful social 1 development instrument, it is estimated that over 2 billion people globally continue to be excluded from the formal financial sector resulting in them languishing in an endless cycle of deprivation and segregation from the mainstream economy. Financial exclusion relegates the poor to a subsistence livelihood and increases the probability of their being dependant on social welfare schemes thereby increasing the burden on the economy. Difficulty in accessing credit from formal financial institutions leads these disadvantaged groups to depend on non-formal sources including local un-regulated credit providers especially for non-productive consumption oriented expenses e.g. medical emergencies, social ceremonies and marriages etc. Financial exclusion also has an adverse national economic impact as it precludes large sections of the population from micro-entrepreneurship opportunities thereby restricting them from becoming economically productive and increasing their contribution to the national GDP in a bigger way. While the largest concentration of the global financially excluded population resides in India, China and Brazil, huge numbers of the financially excluded also populate Africa and other parts of Asia. It is estimated that China has 263 million financially - 335 -

excluded households followed by India with 135 million and Africa with 230 million financially excluded households. The United Nations has estimated that in the least developed countries (LDCs), more than 90% of the population is excluded from access to the formal financial system. IMPORTANCE OF THE STUDY Importance of financial inclusion arises from the problem of financial exclusion of nearly three billion people from the formal financial services across the world. The review of literature suggests that the most operational definitions are context-specific, originating from country-specific problems of financial exclusion and socio-economic conditions. Thus, the context-specific dimensions of financial exclusion assume importance from the public policy perspective. The operational definitions of financial inclusion, have also evolved from the underlying public policy concerns that many people, particularly those living on low income, cannot access mainstream financial products such as bank accounts and low cost loans, which, in turn, imposes real costs on them -often the most vulnerable people (H.M. Treasury, 2007). Thus, over the years, several definitions of financial inclusion/exclusion have evolved. The financial services include the entire gamut - savings, loans, insurance, credit, payments etc. By providing these services, the aim is to help them come out of poverty. Financial inclusion has particular significance for developing economies as it helps in improving the effectiveness of the social development initiatives by reducing leakages in welfare disbursements. It can also enable replacement of goods based welfare schemes e.g. heavily subsidized food, into targeted cash subsidies which can be disbursed directly to the beneficiaries. OBJECTIVE OF THE STUDY 1. 2. 3. To explain the role and importance of financial inclusion in Indian Financial System. To examine the role of banking system in extending banking services for financial inclusion. To suggest some policy prescriptions

DEFINING AND MEASURING FINANCIAL INCLUSION Given the impact of social, geographical and economic variables, it is not surprising that financial inclusion lacks a universally accepted definition. Many definitions of financial inclusion are prevalent today ranging from defining 2 financial inclusion in terms of geographical access to a more holistic definition covering unbiased awareness, access and usage of financial products and services. The scope of financial inclusion is also evolving from being limited to a bank account and simple saving products to include remittances, savings, loans, financial counseling, insurance (life and non-life). Consequently a holistic financial inclusion ecosystem will include banks, co-operatives, and microfinance and insurance institutions. - 336 -

The Reserve Bank of India (RBI) defines financial inclusion as “the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost”.However it needs to be emphasized that mere ownership of a financial product does not result in financial inclusion. It is the usage of the financial product for economic self-reliance and growth which ultimately leads to financial inclusion. Measuring the extent of financial inclusion is not a perfect science despite the increased focus on addressing financial inclusion. Published financial inclusion literature does not provide a comprehensive set of lead and lag measures to indicate the extent of financial inclusion across nations and regions. Typical measures include number of bank accounts, number of bank branches and credit disbursement to disadvantaged social groups. In more mature financial systems, the measures may include usage of products like credit cards and life insurance, among others. Unfortunately these indicators only provide limited information about the extent of financial inclusion. These information gaps, result in partial understanding of the most vulnerable social groups, which products, services and financial institutions are most suitable for access by the poor households and what are the elements of an enabling regulatory framework etc. Not surprisingly, the quantitative and qualitative lack of information about the extent of financial inclusion is more prevalent in developing nations where a majority of the global financially excluded population resides. SCOPE OF FINANCIAL INCLUSION

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FINANCIAL INCLUSION IN INDIA With 135 million financially excluded households, India faces a severe financial inclusion crisis. Only 34 percent of the Indian population is currently engaged with the formal financial sector. If usage intensity of a savings account is considered as a true indicator of financial inclusion rather than mere ownership, then the financial inclusion percentage will certainly be much lower. Table No 1 COVERAGE OF BANKING SERVICES IN INDIA
Current accounts 4215701 1814219 3178102 4666014 16552856 Savings account 52416125 47876140 49525101 83386898 304349534 Total population 132676462 227613073 149071747 223445381 1027015247 Total no. Of accounts 56631826 49690359 66456406 88052912 320902390 No. Of acc.per 100 of population 43 22 26 39 31

Region North East West South All India

Source: Situation Assessment Surcey, National Sample Survey The financially excluded population in India includes landless labourers, oral lessees, marginal farmers, unorganized sector work-force, urban slum residents and socially excluded groups. With 82 percent of India’s poor households located in rural locations, vast majority of rural India can be considered as financially excluded. Some key statistics 5 regarding the extent of financial inclusion in India are as follows:  41% of the Indian population is unbanked (80 million households). Out of this, 40 % is unbanked in urban areas and 60 % in rural areas. Only 14% of adult population has credit accounts with formal financial institutions. Out of the 203 million households in India, 147 million households are located in rural India. Out of these rural households, 89.3 million households are famer households. 66 percent of farmer households are marginal farmer households. 51.4 percent farmer households (45.9 million out of 89.3 million) are financially excluded from both formal and informal financial sources. 27 percent farmer households have access to formal sources of credit. Among noncultivator households nearly 80 percent do not access credit from any source - 338 -

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North-East, Eastern and Central India account for 64 percent of all financially excluded farmer households in India. Overall indebtedness to formal finance sources is 19.66 % in these three regions. Geographically, 256 districts (out of 640 districts) representing 40 % of total districts in India, spread over 17 states and 1 UT have critical credit exclusion thresholds in respect of access to formal credit. The proportion of people having some form of life insurance cover stands at 10 percent and people with any form of non-life insurance cover stands at less than 1 percent. There are only 3.1 policies per thousand people in India (2007)

The following is a summary of the key national financial inclusion initiatives over the last four decades
1960’s, 70’s - Focus on increasing credit to the neglected economy sectors and weaker

sections of society - Development of the rural banking ecosystem including RRBs, Rural and Semiurban etc - Implementation of the social contract with banks; Lead bank scheme launched for rural lending

- Branch licensing policy to focus on expansion of commercial bank branches in rural areas - Establishment of national bank for agriculture and rural development (NABARD) to provide refinance to banks providing credit to agriculture. - SHG-Bank linkage program launched by NABARD
- The term ‘Financial inclusion’ introduced for the first time in RBIs Annual

2000 on wards

policy Statement for 2005-06. - Banks asked to offer ‘no-frills account’, General credit card facility at rural and semi-urban branches - Know Your Customer(KYC) norms simplified - Banking Correspondent and banking facilitator concept introduced to increase out-reach - 100 percent financial inclusion drive launched - Restrictions on ATMs deployment removed

CURRENT OPERATIONAL MODEL FOR FINANCIAL INCLUSION The various operational models used for financial inclusion by the banks today converge on certain key processes and technology components. Typically most of the models include a smart card issued to the beneficiary in which his transaction history is maintained, a multi- 339 -

function hand-held device used by the BC for enrolment and transactions and a local computer which integrates the field transactions with the bank’s CBS. Some key elements of the current operational model are as follows:

CHALLENGES OF THE CURRENT OPERATIONAL MODEL        High cost Economic viability of BC model Lack of standards Low technology adoption Lack of products Lack of accountability Poor counselling capacity

FROM OBLIGATION TO OPPORTUNITY Ensuring sustainable scalability for financial inclusion will require the supply side and demand side issues to be addressed simultaneously through systemic solutions. Every stakeholder of the financial inclusion ecosystem including financial institutions, regulatory agencies, technology service providers and civil society organizations will not only need to play their individual parts effectively but more importantly collaborate with each other to architect and implement effective interventions. The size and the heterogeneity of the financially excluded population - 340 -

preclude a single ‘silver bullet’ approach or model which can be prescribed globally. Instead, models which are contextual to the local consumer requirements are required as has been demonstrated by the success of Grameen Bank in Bangladesh and MPESA in Kenya and India’s own SHG-bank linkage initiative with each being specific to its local environment. Multiple and diverse approaches also mitigate systemic risk, increase competition and improve efficiency. ROLE OF FINANCIAL INSTITUTIONS The financial institutions have perhaps the largest stake in the success of financial inclusion. However to realize this opportunity, they will need to create an entirely new portfolio of products and services delivered through radically different distribution structures which are aligned to the needs and lifestyles of the financially excluded consumer.  PRODUCTS: Products (deposits, loans, insurance, remittances etc) with the following features are required by the financially excluded consumer:     Small denominations as the financial needs of the poor are often small and predominantly for personal Flexible repayment schedule Collateral-less lending for small loans below a certain threshold. Given the extremely low uptake of insurance by the poor.

Instead of individual insurance, group insurance products can be offered to members of a SHG.   PROCESSES: The entire set processes deployed in the financial institutions needs to be simplified, OUTREACH: The geographic dispersal of the financially excluded consumers and their challenge of accessing the formal financial sector necessitate the accessibility challenge to be addressed on a war-footing. Banking Correspondents: Deploying a well established network of trained BCs is perhaps the most cost-effective way of addressing the accessibility challenge. Self-Help Groups: The SHG-Bank linkage program launched in the 1980s in India has been a big success and today 40 million households were linked with banks in India. This program needs to be expanded further particularly in the backward districts Apart from SHG, the initiative on Joint Liability Groups (JLG) also needs to move beyond the pilot stage. - 341 -

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Leverage existing distribution networks: The proliferation of smart cards in India’s financial inclusion drive should stimulate the financial institutions to leverage the network of kirana (small grocery stores) and post offices to provide POS based access for small value transactions. FINANCIAL COUNSELLING: The extremely low levels of financial literacy of the financially excluded consumers will require the financial institutions to invest in creating a capacity within their organisation which can offer financial counselling and mentoring to the poor as part of basic banking services. MARKET DEVELOPMENT: Market development activities targeting the financially excluded population need to be stepped up through unconventional means. INTERNAL STAFF: Instead of going the ‘extra-mile’, the staff of the financial institutions establishments located in the rural locations often tends to be dismissive and rude in their interactions with the poor thereby reinforcing the alienation.

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ROLE OF REGULATORY AND PUBLIC POLICY AGENCIES The traditional role of the regulatory and public policy agencies has been largely prescriptive and supervisory in nature which needs to transform into a more pro-active role towards creating an enabling policy and regulatory framework for financial inclusion. In India, the RBI has been the prime-mover towards the promotion of financial inclusion. However the need for a systemic strategy for accelerating financial inclusion requires other regulatory agencies including IRDA, IDRBT, IBA, BIS etc to participate more vigorously. Some recommendations for an enabling policy framework are elucidated below:   A National Mission for Financial Inclusion should be established to provide the requisite national focus. A National Financial Inclusion Plan (NFIP) should be created which is further disaggregated into State Financial Inclusion plans which can be further disaggregated into district/block level implementation. The pivotal role of the RRBs in scaling up financial inclusion requires the RRBs to be made financially viable, have specially trained staff and be allowed more operational autonomy. Increasing the financial counseling capacity in RRBs and PACS will require training the staff of these institutions through special courses and certification. While the public sector scheduled banks have implemented Core Banking Systems (CBS) and made their processes IT enabled, the IT adoption level in the RRBs, - 342 -

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PACS and UCS is quite abysmal. This is counterproductive as it firstly inhibits these institutions from scaling up their services efficiently and secondly it creates impediments in their integration with other institutions and national level financial infrastructure e.g. payments and settlements systems. The RBI should facilitate the creation of a special fund for the IT up-gradation of the RRBs, PACS and UCS.    Transaction costs and the service tax on insurance premium payments can be reduced by waiving off stamp duty on small loans to the financially excluded consumers. To increase the effectiveness of the BCs and BFs, they need to be trained and certified. Ideally only trained and certified BC/BF should be allowed to operate in the field. The success of the SHG-Bank linkage model needs to be further scaled up by evolving the SHG’s current focus from micro-credit into micro-entrepreneurship. This will require a special thrust including increased funding support and capacity building in entrepreneurship and basic financial management skills amongst the SHG members. The rapid urbanization and migration trends are creating a huge pool of urban financially excluded people. The role of micro-finance (MF) in addressing financial exclusion is widely recognized. In India, the MF movement has gained wide popularity and it is estimated that there are about 1,000 NGO-MFIs and 20 company MFIs operational today. Currently the business and operational scope of the MFIs is limited to providing ‘financial assistance in small quantum’. To further scale up the MF business in India, it is worth considering an increase in the scope of the activities of MFI to include other financial services including small deposits, micro-insurance, remittances etc. This increase in scope will need to be accompanied by a greater oversight and supervisory role by regulators.

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ROLE OF GOVERNMENT AGENCIES One of the key challenges of the financial inclusion is to create the demand pull .i.e. how to encourage the financially excluded consumers to use the products and services of the formal financial sector. The usage aspect is important because it has been often observed that many of the ‘no-frill’ accounts opened by financially excluded consumers often become dormant due to poor usage. In india, there are currently a large number of social development schemes where the central government and state governments make financial payments to socially disadvantaged groups. While difficult to quantify, anecdotally it is estimated that for every inr 1 spent by government on social subsidies, only inr 0.16 (16 percent) reaches the actual beneficiaries. One such flagship social scheme is nrega (national rural employment guarantee act) which has scaled up from covering 21 million rural poor households in 200 districts in 2006-07 to - 343 -

over 60 million rural poor households in 615 plus districts in 2008-09. Unfortunately there are increasing instances where targeted beneficiaries under nrega often do not receive their benefits mainly due to the corruption at various processing levels which includes falsifying muster rolls, beneficiary impersonations or in many instances simply not making the payments. Apart from the payments under the social development schemes, government-backed institutions make several other payments including old age pensions, defense pensions and widow pensions etc. These payments are often manually disbursed with the beneficiary having to visit a government office to collect the payments resulting in substantial inconvenience due to travel expenses incurred and lost wages. ROLE OF INFORMATION TECHNOLOGY Information Technology (IT) ubiquity coupled with the rapid increase in the telecommunication network and service quality has the potential being the force-multiplier for scaling up financial inclusion. ICT enabled interventions can impact financial inclusion on the following dimensions:  REDUCE OPERATING COST OF PROVIDING SERVICES: Perhaps the most significant impact of ICT on financial inclusion will be on reducing the operating cost of providing financial services because the high cost of servicing low value transactions is often cited as the major impediment for the financial institutions to provide services to the poor. ENABLE PRODUCT INNOVATION: Many of the innovative products being created for the financially excluded consumer would not have been possible without the usage of technologies like mobile, wireless connectivity, bio-metrics etc. ICT also enables rapid market testing and reduction in the time-to-market. IMPROVE SERVICE EFFICIENCY: High financial illiteracy and inability to travel away from work result in simplified procedures and quick-turnaround time as two attributes valued by the financially excluded in their interactions with the financial institutions. INCREASE OUTREACH: Central, East and North-East India have some of the largest concentrations of the financially excluded population in India due to lack of infrastructure including roads and power and dense forestation have had a detrimental impact on the development of the financial sector in these regions. The proliferation of mobile services in these sub-par infrastructure regions can result in an increased outreach of financial services at a faster pace through technology enabled service delivery. - 344 -

ROLE OF INTER-SECTOR COLLABORATION While the financial sector has the primary responsibility for addressing financial exclusion, the scale of the challenge will require financial institutions to actively collaborate with their peers in other sectors in order to create the required products and distribution innovations. Some typical inter-industry collaboration opportunities which can be leveraged are elucidated below:  TELECOM: It is highly likely that while many of the rural poor do not have bank accounts, they have mobile phones. Some of the products and services which can be deployed through this collaboration are as follows; - Remittances - Balance inquiry - Bill payment - Payment transactions at POS - Mobile wallets - Peer-to-peer payments - Alerts  POST OFFICES: Many developing countries have reasonably well functioning postal networks. Not only do the post offices have a large outreach including remote areas, they are also trusted by the general population. The postal staff including postmen often belongs to the local communities and hence enjoys a high degree of acceptability. India with 155,516 functional post-offices at end of March 200512 has a well established postal network. The Indian postal department is the only organization apart from banks that can open bank accounts in India. Apart from providing postal services, post offices in India also offer basic financial services including saving accounts, simple saving products, basic life-insurance etc. NGOs AND SOCIAL ORGANIZATIONS: Local NGOs and social organizations can play a vital role in promoting financial literacy and providing financial counseling services to the financially excluded population.These organizations have deep roots in the local communities and enjoy the trust of the local population which the staff of the financial institutions will take a long time to develop.

The financial institutions should develop formal relationship with NGOs and invest in training the NGO staff in providing financial counseling, providing collateral and also meeting basic expenses. Institutions like NABARD can also provide small grants to NGOs who are engaged in capacity building. - 345 -

CONCLUSION Financial exclusion is often described as a scourge which perpetuates poverty and leads to several social ills. With over two billion financially excluded people globally, addressing the complex and deep-seated challenge of financial exclusion does not lend itself to simple solutions. Achieving sustainable financial inclusion will require a systemic effort which leverages technology, regulatory framework and appropriate business models cohesively. It is not a preserve or responsibility of one sector and will instead require game-changing innovations which more often than not occur at the intersection of different sectors e.g. banking and telecom. However the financial sector will have to lead the way as many of the current issues exist because of the reluctance of the financial sector to embrace change and innovation. Financial sector institutions which address financial inclusion as an opportunity instead of a social obligation and commit themselves to creating innovative products and services will find themselves ahead of the curve competitively. The growing ubiquity of IT and proliferation of wireless communication coupled with falling hardware and mobile phone costs provides a unique opportunity to deliver mainstream financial services to the poor at the required scale and affordability by leveraging ICT. Appropriate and affordable technology accompanied by the right business model can make financial inclusion economically viable for the formal financial sector and transform it from an obligation to an opportunity. REFERENCES 1. 2. 3. 4. 5. 6. 7. 8. 9. Fisher and Shriram (2002) Beyond Micro Credit, Vistaar Publications. 2002. GOI(2008), Report on the Committee on the Financial Inclusion, January 2008 Hans, V. Basil (2006), Towards A Vibrant Indian Agriculture, Kisan World, Vol. 33, No.2, February, pp. 18-20. Karmakar, K.G. (2002) Micro finance revisited, Financing Agriculture, Vol.34, No.2, April-June 2002. Lalitha (1998) Rural Women Empowerment and Development Banking, Kanishka Publication, New Delhi, 1998. Ledger wood Joanna, (2000) Microfinance: Sustainable Banking with the Poor, The World Bank Washington D C 2000. Mahendra Dev S (2006) Financial Inclusion: Issues and Challenges, Economic and Political Weekly, Vol. 41 No. 41 October 14-October 20. NABARD Annual Report 2007. - 346 -

10. 11. 12. 13. 14.

Nadarajan S. and R. Ponmurugan (2006), Self Help Groups: Bank Linkage Programme, Kisan World, Vol. 33, No.2, February, pp. 35-36. Patnaik, Priti (2006), Nabard to oversee micro-lenders, The Economic Times, Friday, 27, p. 3. Priya Basu, Pradeep Srivastava (2005) Exploring Possibilities Microfinance and Rural Credit Access for the Poor in India, Economic and Political Weekly, Vol. 40 No. 17 April 23 - April 29, 2005. Rajshekar D. (2004), Micro Finance, Poverty, and Empowerment of Women: A case study of two NGOs from Andhra Pradesh and Karnataka, ISEC publications, Bangalore, 2004. Rana Mitra (2007), Financial Inclusion: Meeting the Challenge, People’s Democracy, Vol. XXXI – II, No. 17, April 29, 2007. Reserve Bank of India at the HMT-DFID Financial Inclusion Conference , Whitehall Place, London, UK. Shahidur R. Khandker, (1998), Fighting poverty with micro credit: Experience in Bangladesh, Oxford University Press, New York. Subba Rao K. G. K (2007), Financial Inclusion: An Introspection, Economic and Political Weekly, Vol. 42, No 05, February 03- February 09. Thingalaya N.K. (2002), Micro finance and poverty alleviation: some issues, Financing Agriculture, Vol.34, No.2, April-June 2002. Thorat, Usha (2007a), Taking Banking Services to the Common Man – Financial Inclusion, Deputy Governor, Reserve Bank of India at the HMT-DFID Financial Inclusion Conference 2007, Whitehall Place, London, UK, June 19. Thorat, Usha (2007b), Financial Inclusion – The Indian Experience Text of speech by Deputy Governor.

15. 16. 17. 18. 19. 20.


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V.Kishore Kumar, Associate Professor, Swarna Bharathi College Of Engineering, Khammam. He can bereached at : [email protected]

ABSTRACT Financial Inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. The main focus of financial inclusion in India is to promote sustainable development and generating employment in rural areas for the rural population. Out of the 600,000 habitations in the country, only about 30,000 had a commercial bank branch. Just about 40 per cent of the population across the country had bank accounts. The proportion of people having any kind of life insurance cover was as low as 10 per cent and proportion having non-life insurance was an abysmally low 0.6 per cent. People having debit cards comprise only 13 per cent and those having credit cards only a marginal 2 per cent. The National Sample Survey data revealed that nearly 51% of farmer households in the country did not seek credit from either institutional or non-institutional sources of any kind. There are many factors affecting access to financial services by weaker section of society in India. Several steps have been taken by the Reserve Bank of India and the Government to bring the financially excluded people to the fold of the formal banking services. The Committee on Financial Inclusion recommended the setting up of a mission mode National Rural Financial Inclusion Plan (NRFIP) with a target of providing access to comprehensive financial services to at least 50 per cent of the excluded rural households by 2012 and the remaining by 2015. KEY WORDS Financial Inclusion, Financial services,Generating employment, Sustainable development, Rural households. INTRODUCTION There are several factors affecting access to formal banking system in any country. They include culture, financial literacy, gender, income and assets, proof of identity, remoteness of residence, and so on. The Reserve Bank of India has taken several measures since Independence to improve access to affordable financial services through financial education, leveraging technology, and generating awareness. - 348 -

The aim of financial inclusion is to promote sustainable development and generating employment for a vast majority of the population especially in the rural areas. In the firstever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries, India has been ranked 50. At present, only 34% of the India’s population has access to basic banking services. The latest National Sample Survey Organisation survey reports that there are over 80 million poor people living in the cities and towns of India and they lack access to the most basic banking services - such as savings accounts, credit, remittances and payment services, financial advisory services, etc. Low-income groups do not have access to the formal banking systems, as they usually do not have the documents needed to open a bank account. As a result, they depend on the informal sector for their savings and loan requirements. Recognising the importance of inclusive growth in India, efforts are being taken to make the financial system more inclusive. The Report Committee on Financial Inclusion headed by Dr.C.Rangarajan (2008) has observed that financial inclusion must be taken up in a mission mode and suggested a National Mission on Financial Inclusion (NMFI) comprising representation of all stakeholders for suggesting the overall policy changes required, and supporting stakeholders in the domain of public, private and NGO sectors in undertaking promotional initiatives. NEED FOR FINANCIAL INCLUSION Out of the 600,000 habitations in the country, only about 30,000 had a commercial bank branch. Just about 40 per cent of the population across the country had bank accounts. The proportion of people having any kind of life insurance cover was as low as 10 per cent and proportion having non-life insurance was an abysmally low 0.6 per cent. People having debit cards comprise only 13 per cent and those having credit cards only a marginal 2 per cent. The National Sample Survey data revealed that nearly 51% of farmer households in the country did not seek credit from either institutional or non-institutional sources of any kind. There are number of factors affecting access to financial services by weaker section of society in India. The lack of awareness, low incomes and assets, social exclusion, illiteracy are the barriers from demand side. The distance from bank branch, branch timings, cumbersome banking procedure and requirements of documents for opening bank accounts, unsuitable banking products/schemes, language, high transaction costs and attitudes of bank officials are the barriers from supply side. Hence, there is a need for financial inclusion to build uniform economic development, both spatially and temporally, and ushering in greater economic and social equity. A sample study carried out by the Banking Codes and Standards Board of India in Mumbai revealed the poor awareness about ‘no-frills’ accounts and relaxed KYC norms amongst the bank staff itself, a general unwillingness by the bank staff to open ‘no-frills’ accounts for persons of small means, the account opening forms were not simplified and did - 349 -

not contain any information about the required documents under simplified KYC norms and none of the branches the staff were in a position to offer any guidance in case the prospective customer was not in a position to produce required documents in proof of identity and address. As a result, the weaker sections of India hesitate to take part in financial inclusion and help to increase economic growth of the country. The Eleventh Five Year Plan (2007-12) envisions inclusive growth as a key objective. The inclusive growth implies an equitable allocation of resources with benefits accruing to every section of society. It is aimed at poverty reduction, human development, health and provides opportunity to work and be creative. Achieving inclusive growth in India is the biggest challenge as it is very difficult to bring 600 million people living in rural India into the mainstream. One of the best ways to achieve inclusive growth is through financial inclusion. REVIEW OF LITERATURE In recent years, Indian banking sector is grappling with the issue of financial inclusion. But, it is not altogether a new exercise. Financial inclusion was envisaged and embedded in Indian credit policies in the earlier decades also, though in a disguised form and without the same nomenclature (Rao, 2007). Banks would have to evolve specific strategies to expand the outreach of their services in order to promote financial inclusion. One of the ways in which this can be achieved in a cost-effective manner is through forging linkages with micro finance institutions and local communities. Banks should give wide publicity of no frills account. Banks need to redesign their business strategies to incorporate specific plans to promote financial inclusion of low income group treating it both a business opportunity as well as a corporate social responsibility (V.Leeladhar, 2005). Micro-finance offers significant potential for achieving financial inclusion. The experience of the bank in this segment has been quite encouraging. In the words of Prof.C.K.Prahalad “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value conscious consumers, a whole world of opportunity will open up” (K.C.Chakrabarty, 2008). In the paper by Laveesh Bhandari and Sumitha Kale (2008) titled ‘Digital Payments and Financial Inclusion’ enough emphasis has been given to the present scenario and the paper has brought out the importance of embracing technology as a cost effective measure to improve financial inclusion. Payments through mobile phones have been suggested as the most appropriate measure. Access to financial services allows lower income groups to save money outside the house safely, prevents concentration of economic power with a few individuals and mitigates the risks that poor people face as a result of economic shocks (Beck, Demirguc-Kunt & - 350 -

Peria, 2006). The breadth of financial inclusion in a region or a country is usually measured by the percentage of people in the region who have access to bank accounts (Beck & De la Torre, 2006). This is primarily because a bank account enables poor households to perform important financial functioning such as saving money safely outside the house, accessing credit, making loan or premium payment and transferring money within the country. Thus, although a bank account covers only one aspect of financial inclusion, it may determine access for many other financial services (Littefield et al, 2006). STATUS OF FINANCIAL INCLUSION IN INDIA The status of financial inclusion in India has been assessed by various committees in terms of her people’s access to avail banking and insurance services. Only 34% of the India’s population has access to banking services. The Eleventh Five Year Plan (2007-12) envisions inclusive growth as a key objective. Achieving inclusive growth in India is the biggest challenge as it is very difficult to bring 600 million people living in rural India into the mainstream. One of the best ways to achieve inclusive growth is through financial inclusion. The process of financial inclusion in India can broadly be classified into three phases. During the First Phase (1960-1990), the focus was on channeling of credit to the neglected sectors of the economy. Special emphasis was also laid on weaker sections of the society. Second Phase (1990-2005) focused mainly on strengthening the financial institutions as part of financial sector reforms. Financial inclusion in this phase was encouraged mainly by the introduction of Self- Help Group (SHG)-bank linkage programme in the early 1990s and Kisan Credit Cards (KCCs) for providing credit to farmers. The SHG-bank linkage programme was launched by National Bank for Agriculture and Rural Development (NABARD) in 1992, with policy support from the Reserve Bank, to facilitate collective decision making by the poor and provide ‘door step’ banking. During the Third Phase (2005 onwards), the ‘financial inclusion’ was explicitly made as a policy objective and thrust was on providing safe facility of savings deposits through ‘no frills’ accounts. The Report Committee on Financial Inclusion headed by Dr.C.Rangarajan (2008) has observed that financial inclusion must be taken up in a mission mode and suggested a National Mission on Financial Inclusion (NMFI) comprising representation of all stakeholders for suggesting the overall policy changes required, and supporting stakeholders in the domain of public, private and NGO sectors in undertaking promotional initiatives. Several steps have been taken by the Reserve Bank of India and the Government to bring the financially excluded people to the fold of the formal banking services. They include the following: Introduction of ‘No-Frills’ account Relaxing ‘Know Your Customer’ (KYC) norms General - 351 -

Purpose Credit Card (GCC) Schemes Role NGOs, SHGs and MFIs Business Facilitator (BF) and Business Correspondent (BC) Models. Nationwide Electronic Financial Inclusion System (NEFIS) Project Financial Literacy Financial Literacy and Credit Counseling (FLCC) centers National Rural Financial Inclusion Plan (NRFIP) Financial Inclusion Fund (FIF) Financial Inclusion Technology Fund (FITF) Some of the major achievements of the department in the area of financial inclusion during 2011 are as follows: I. Of the about 73,000 habitations having a population of over 200 identified by banks for extending banking facilities by March 2012 through Business Correspondents (BCs/Business Correspondent Agents(BCAs/Bank branches, about 49,000 villages have been provided with banking facilities till November 2011. Out of 81 unblocked Blocks in the country as on 31 March, 2011, with the persistent efforts of the Government, banking facilities have been provided 39 blocks from April 2011 to November 2011. Banks have been further directed by the Government to provide banking facilities in all the unbanked blocks by March 2012. For furthering the Financial Inclusion efforts of banks, detailed Strategy and Guidelines on Financial Inclusion have been issued by the Government to banks on 21 October, 2011which inter-alia provide emphasis on: a) b) c) d) e) IV. Setting up more brick and morter branches with the objective to have a bank branch within a radial distance of 5 km. To open bank branches by September 2012 by all habitations of 5,000 or more population in under banked districts and 10,000 or more population in other districts. To provide a Business Correspondent within a radial distance of 2 km. To cover village of 1,000 and more population in 10 smaller States/Uts by September 2012. To consider Gram Panchayat as a unit for allocation of area under service area approach to bank branch and BC.



Banks have been advised to transfer subsidies through Electronic Benefit Transfer (EBT) under 32 schemes which are in operation and funded by the government of India, so that benefit gets credited directly to the account of the beneficiaries. - 352 -

The 100 per cent financial inclusion drive is progressing all over the country. The State Level Bankers Committee (SLBC) has been advised to identity one or more districts for 100 per cent financial inclusion. So, far, the SLBC has identified 431 districts for 100 per cent financial inclusion. As on 31st March 2009, 204 districts in 18 States and 5 Union Territories have reported having achieved the target. The success of the financial inclusion can be measured by the actual quantity and quality of usage of the newly opened No Frill accounts. The number of ‘no frills’ accounts increased from 4,89,497 on 31st March 2006 to 3,30,24,761 on 31st March 2009. The lead bank in each district has been asked by RBI to draw a roadmap by the end of March 31, 2010 for ensuring that all villages with a population of over 2,000 will have access to financial services through a banking outlet, not necessarily a bank branch, by March 31, 2012. There will be an intermediate target to be achieved by March 31, 2011. Keeping in view the enormity of the task involved, the Committee on Financial Inclusion recommended the setting up of a mission mode National Rural Financial Inclusion Plan (NRFIP) with a target of providing access to comprehensive financial services to at least 50 per cent of the excluded rural households by 2012 and the remaining by 2015. CONCLUSION In achieving inclusive growth in India, the Financial Inclusion will play a vital role and help the nation to drive away the not only rural poverty but also urban poverty in India. It is the duty of every Indian citizen to ensure that all the Indian will have bank account and everybody should take part actively in achieving 100% financial inclusion in India. REFERENCES 1. 2. 3. A Study on Financial exclusion in Australia a Report by Chant Link & Associates, November 2004. Banks Back RBI’s Inclusion Plan with no Frills Account, Business Standard, December 30, 2005. Das, V (2006), “Financial Inclusion Initiatives” Inaugural address delivered at the ‘National Conference on Financial Inclusion and Beyond Issues and Opportunities for India”, September 19-20, 2006, Cochin. Devaki Muthukrishnan, “Financial Inclusion”, The Journal of Indian Institute of Banking and Finance, April-June 2008, Pp.30-33 Gadewar, A.U , “Financial Inclusion: Issues and Challenges”, Vinimaya, Vol.XXVII (4), 2006-07, Pp.49-56 - 353 -

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Hemavathy, R (2009), “Financial Inclusion defies Economic Crisis” International Congress of Social Philosophy, 2009. Layshon,T,(1995),”Geographies of financial exclusion financial abandonment in Britain and the United States”, Transactions of the Institute of British Geographers New Series, 20, pp.312-341. Leeladhar, V (2005), “Taking Banking Services to the Common Man: Financial Inclusion”, Commemorative Lecture by Shri V.Leeladhar, Deputy Governor, RBI, Fedbank Hormis Memorial Foundation, Ernakulam, December 2, 2005. Littlefield, Elilzabeth; Helms, Brigit; Porteous, David (2006), “Financial Inclusion 2015 Four Scenarios for the future of Microfinance” CGAP Focus Note No.39. Mahendra Dev.S.(2006), “Financial Inclusion – Issues and Challenges”, Economic and Political Weekly, Vol.41 (41), October 14-October 20, 2006. Mathew Joseph, “Financial Inclusion for Inclusive Growth”, Vinimaya, Vol.XXVIII, No.2, 2007-08, pp.13. Nair, M.V., “RBI Policy Reiterates Stress on Financial Inclusion”, The Financial Express, April 19, 2006. Pratima Trivedi, “Financial Inclusion: A Must for Financial Stability”, Vinimaya, Vol.XXIX (2), 2008-09, Pp.59-64 Punnathara, C.J., “No-Frills Accounts: Financial Inclusion is Good Economics”, The Hindu Business Line, June 8, 2006. Rakesh Mohan, (2006), “Economic Growth, Financial Deepening and Financial Inclusion”, Address by Dr.Rakesh Mohan at the Annual Bankers’ Conference 2006, at Hyderabad on November 3, 2006. Ramesh,M, “RBI Pilot Project on Financial Inclusion in Pondy”, The Hindu Business Line, November 22, 2005. Rana Mitra (2007), “Financial Inclusion meeting the Challenge”, People’s Democracy, Vol.XXXI-II, No.17, April 29, 2007. Rangarajan,C. (2007), “Financial Inclusion – Some Key Issues”, Lecture delivered at Mangalore University, Mangalore, August 10, 2007. Report of the Committee (Chairman: C.Rangarajan) on the Financial Inclusion, Government of India, January 2008. Sameer Kochal (2009), “Financial Inclusion”, Eastern Book Corporation, New Delhi - 354 -


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