Untapped opportunities for law graduates in the Banking & Finance industry

The banking and finance industry offers diverse roles for law graduates with various skills and experiences.
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Law graduates often face significant challenges in employment compared to their peers in STEM and management fields. They struggle to find well-paying jobs that offer career advancement and work-life balance.

Among the options law graduates consider are legal practice, law firms, judiciary, academia, research and legal journalism. However, banking and finance were rarely mentioned. As law graduates, we discovered the untapped potential within the banking industry, often overlooked by students and educational institutions.

The banking and finance industry offers diverse roles for individuals with various skills and experiences. From legal officers and assistants, who manage legal data without needing a legal background, to practicing advocates handling bank litigation, there are opportunities at every level. Legal managers in both private and public sector banks play crucial roles across various verticals. In the corporate verticals, they handle legal documentation, compliance and regulatory aspects. In branch banking, they manage legal aspects of daily branch operations and consumer issues.

This article explores the banking and finance sector as a viable career path for law graduates. Drawing from our experience as legal managers at one of India's leading banks, we will highlight the opportunities, the synergy between legal expertise and finance, and practical steps to establish a career in this dynamic field.

Specifically, we focus on role of legal managers in the litigation verticals of private sector banks. While corporate and branch banking roles are limited to major cities and public sector opportunities are scarce and competitive, litigation roles are more widely available across cities of all sizes. This discussion will explore the career prospects and growth in these litigation roles.

Role and functions of legal managers in the Banking and Finance Industry

Legal managers are crucial in debt recovery within the banking sector. Banks extend credit through loans, forming their significant revenue source. However, defaults on loan repayments are not uncommon among borrowers, posing challenges to both banks and the broader economy.

When customers default, the credit recovery or collections departments first attempt to recover debts through calls and visits. If these efforts fail, cases are escalated to legal managers, who then guide judicial remedies and supervise panel advocates in litigation to recover outstanding debts.

Legal tools for debt recovery

India's banking and debt recovery laws provide various legal tools for loan recovery, which legal managers utilise based on each case's specifics. These tools are categorised into 'soft tools' and 'hard tools.'

Soft tools include intimation notices, which in turn include:

Demand Notices: Request for payment of overdue instalments.

Loan Recall Notices: Demand full repayment when a loan becomes a Non-Performing Asset (NPA).

Asset Verification Notifications: Check the condition of secured assets.

Mediation and Conciliation Notices: Facilitate non-adversarial settlements.

Notices to authorities: Request actions like non-renewal of vehicle registrations or inform employers of defaulting borrowers.

Pre-Litigation Notices: Includes Pre-RRC Notice issued before filing a recovery suit in the court of Executive Magistrate and Pre-NPA Notice issued before initiating proceedings under the SARFAESI Act, 2002.

These measures help legal managers in effectively pursuing debt recovery for banks.

Hard tools in debt recovery involve initiating legal proceedings.

When softer approaches fail, Legal Managers use 'hard tools' to recover debts through formal legal channels. These tools include various legal proceedings and dispute resolution mechanisms to ensure effective debt recovery. Below, we explore the distinct categories of such hard tools:

Alternative Dispute Resolution (ADR) Mechanisms: Legal managers utilise ADR methods like arbitration and Lok Adalat for resolving disputes outside traditional courts.

Arbitration: Arbitration proceedings under loan agreements may involve interim measures like asset preservation and appointment of receivers. Legal managers enforce arbitral awards through civil court execution petitions.

Lok Adalats: Lok Adalats facilitate informal settlements between banks and defaulting borrowers. Awards from Lok Adalats hold equivalent legal status as court decrees under Section 21 of the Legal Services Authorities Act, 1987.

Quasi-Criminal proceedings: Legal managers employ quasi-criminal measures under the Negotiable Instruments (NI) Act, 1881 and Payments and Settlements Systems (PSS) Act, 2007 for debt recovery.

When borrowers default on cheque payments, legal managers issue a demand notice under Section 138 of the NI Act, allowing 15 days for settlement. Failure to comply results in criminal proceedings.

Addressing dishonoured electronic fund transfers, legal managers issue demand notices under Section 25C of the PSS Act before initiating legal action, following a process akin to Section 138 of the NI Act.

Civil proceedings under specific laws: Under the SARFAESI Act, 2002, banks enforce their security interests for NPAs on secured assets. Legal managers issue a sixty-day demand notice under Section 13(2). If the borrower fails to settle, actions under Section 13(4) ensue. These include taking possession of secured assets, managing borrower business, including appointing a manager and even issuing notices to the debtor of defaulting borrower.

Debt Recovery Tribunals (DRTs) are tribunals that specialise in adjudicating on recovery matters where outstanding amounts exceed twenty lakh rupees. Legal managers initiate proceedings by filing applications under Section 19 of the Recovery of Debts and Bankruptcy Act. For debts below this threshold, legal managers pursue recovery through civil suits in regular courts.

Debt recovery through proceedings before Executive Magistrate: This involves utilising state-specific laws that facilitate swift recovery of dues owed to banking institutions under loan agreements. For instance, in Madhya Pradesh, the Madhya Pradesh Lok Dhan (Shodhya Rashiyon Ki Vasuli) Adhiniyam, 1987 enables expedited adjudication of such matters before Executive Magistrates. Legal managers initiate proceedings by submitting an application with the required certificate to the Magistrate, who then takes actions such as issuing attachment notices against secured assets to recover outstanding amounts as arrears of land revenue.

Realisation of debt through insolvency resolution process and liquidation under IBC: In cases where a borrower defaults on a debt exceeding ₹1 crore, legal managers can initiate insolvency proceedings under the Insolvency & Bankruptcy Code, 2016. This involves filing an application with the National Company Law Tribunal (NCLT). Throughout this process, legal managers protect the bank's interests by assessing claims, representing the bank in Committee of Creditors (CoC) meetings, strategically voting on resolution decisions, and evaluating plans. They also decide between pursuing resolution or opting for liquidation. If liquidation is chosen, they negotiate final claim amounts and oversee asset distribution with the liquidator.

Additional roles of legal managers

Legal managers critically assess each case, considering factors like outstanding amounts, loan characteristics, potential litigation costs and other pertinent factors to determine the optimal legal strategy for securing debt recovery for the bank.

In addition to managing debt recovery, legal managers oversee the bank's defence before consumer dispute redressal commissions, ensuring compliance with regulatory requirements. They also address fraud and counterfeit currency issues during loan repayment, reporting incidents to the Reserve Bank of India (RBI) and the police, and supporting investigations. These roles underscore the significant contributions of legal managers in safeguarding the bank's interests.

Navigating career paths in the industry

In the banking sector, law graduates enjoy structured career paths with growth opportunities and benefits. Fresh graduates begin as Executive Trainees or Management Trainees, progressing based on performance during probation. They advance to roles like Deputy Legal Manager, Legal Manager, and Senior Legal Manager. Senior Legal Managers can move into supervisory roles such as Area Legal Manager (State Head) and Zonal Legal Manager (Zonal Head), with top positions like National Legal Head overseeing legal strategy nationwide. The industry offers competitive pay, including benefits like house rental allowance, medical insurance, retirement plans, paid leave and flexible work hours, promoting work-life balance alongside career advancement.

How to secure an opportunity in the industry

1. Understand banking and finance laws: Develop a strong theoretical foundation in banking and finance laws, covering essential topics like banking regulations, economic and debt recovery laws.

2. Internships: While direct internships within banks may be restricted due to data confidentiality concerns, law students and graduates can gain valuable experience by interning under advocates who are empaneled with banks. These advocates handle litigation and legal matters on behalf of banks, providing interns with practical insights into banking operations and legal challenges.

3. Pre-placement talks and training: Actively participate in university-organised pre-placement talks and training programs with banking institutions. These events offer networking opportunities and insights into industry expectations.

4. Microsoft Excel proficiency: Master basic MS Excel skills for effective data management and analysis; it is crucial for roles in banking and finance. Explore online tutorials or short courses to gain this essential edge.

These steps equip law graduates to position themselves successfully for careers in the banking industry.

Conclusion

The banking and finance sector offers law graduates rewarding career opportunities, especially in litigation roles within private banks and financial institutions. These positions provide professional growth, intellectual challenge and attractive perks with clear career paths. By leveraging their legal expertise in debt recovery and navigating regulatory frameworks, law graduates can contribute significantly to financial institutions while advancing their careers. Success in this dynamic field requires a strong foundation in banking laws, adaptable skills and readiness to meet evolving industry demands. Embracing these opportunities promises a fulfilling journey where legal acumen meets financial strategy, shaping a promising future in banking and finance.

Shubham Saxena and Udayan Sharma are Legal Managers at HDFC Bank.

Bar and Bench - Indian Legal news
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