On the cusp: regional integration in Asia

It’s 2015, the mid-point of the decade and a good time to start looking at major trends in Asian financial services over the next five to ten years. One of the major themes will be regional integration, which is another way of saying the development of cross-border markets. There are at least two important threads here: the ongoing internationalization of China’s currency, and the development of the ASEAN Economic Community (AEC) in Southeast Asia. RMB internalization is really about the loosening of China’s capital controls and its full-fledged integration into the world economy. And everyone seems to want a piece of this action, including near neighbors such as Singapore who are vying with Hong Kong to be the world’s financial gateway to China. The AEC is well on its way to becoming a reality in 2015, with far-reaching trade agreements designed to facilitate cross-border expansion of dozens of services industries, including financial sectors. While AEC is not grabbing global headlines the way China does, we see increasing interest in Southeast Asia among our FSI and technology vendor clients. From Celent’s point of view, both trends will open significant opportunities across financial services. In banking, common payments platforms and cross-border clearing. In capital markets, cross-border trading platforms for listed and even OTC products. In insurance, the continued development of regional markets. Financial institutions will be challenged to create new business models and technology strategies to extract the opportunities offered by regional integration. It’s the mid-point of the decade, and the beginning of something very big.

Lok Adalat: The road to efficient dues recovery

Dues recovery for loans, credit cards and cheque bounces by banks in India has always been a dicey issue. Filing civil cases in India’s over burdened courts leads to prolonged litigation and inordinate delay. Hence banks employ collection agencies who sometimes use coercion or other quasi-legal methods which have been frowned upon by Indian courts. In such a scenario, Lok Adalats have presented a viable alternative for dues recovery. Lok Adalat (People’s Court) is an Alternative Dispute Resolution (ADR) mechanism in India for compoundable offences which are organized by the government and presided over by a judge or a person of respect with legal knowledge. A bank which has a large number of outstanding cases in the normal courts, can request the Legal Service Authority of a state to organize a Lok Adalat especially for the unresolved cases, the cost of which is generally borne by the bank. The advantages of Lok Adalat are: • It resolves disputes through negotiation and compromise in an informal atmosphere. If a compromise cannot be reached it is sent back to the normal court • Technical legal procedures are not strictly followed and hence the process is much quicker than normal courts. A Lok Adalat in January in Chennai this year disposed of 226 cases and recovered a whopping Rs.11.2crore (approx USD 2.4mn) on a single day. • No requirement of court fees or a lawyer and hence cheaper • Any decision by a Lok Adalat is fully enforceable by law and cannot be appealed against Indian banks have increasingly turned to Lok Adalats for dues recovery. The trend, which was started by public-sector banks like the State Bank of India, Bank of Baroda and Central Bank of India, has been adopted by private banks like ICICI as well. Public response has been extremely positive towards this mechanism as it is easier to resolve these issues via Lok Adalats rather than letting them linger on in normal courts and facing collection agents. The easier and quicker redressal of cases, more favourable terms of settlement (than would be possible in a normal court) coupled with the legal validity and enforceability of Lok Adalat decisions have made people adopt Lok Adalats. Lok Adalats have been hugely successful not only in metropolitan cities like Delhi and Chennai but also in smaller cities. With the increasing success of Lok Adalats, Lok Adalats have expanded in terms of size and technology use. ICICI organized a “digital” Lok Adalat in Delhi for 100,000 cases. It was organized across 5 district court compounds which were connected to a centralized server through which the case facts could be accessed and the resolution be electronically sent to the concerned judges. It is not that Lok Adalats have an unblemished track record – they have been somewhat of a failure in Mumbai – but Lok Adalats have offered a viable alternative to banks for dues recovery and it is likely to be adopted by more banks in future.