Author: root

RBI panel, BFSI News, ET BFSI

Banking & Finance

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Well governed large urban cooperative banks (UCBs) which meet parameters should be allowed to function along the lines of small finance banks (SFBs) and universal banks, a Reserve Bank of India (RBI)-appointed expert panel has suggested.

The four-tiered structure

A Reserve Bank-appointed committee has suggested a four-tier structure for UCBs depending upon the deposits and prescribed different capital adequacy and regulatory norms for them based on their sizes.

The RBI committee said that UCBs can be split into four categories — Tier-1 with deposits up to Rs 100 crore; Tier-2 with deposits between Rs 100-Rs 1,000 crore, Tier-3 with deposits between Rs 1,000 crore to Rs 10,000 and Tier-4 with deposits of over Rs 10,000 crore.

It suggested that the minimum Capital to Risk-Weighted Assets Ratio (CRAR) for them could vary from 9 per cent to 15 per cent and for Tier-4 UCBs the Basel III prescribed norms.

The panel said tier-3 urban cooperative banks with deposits of Rs 1,000 crore to Rs 10,000 crore must function like SFBs if they meet a capital adequacy ratio of 15%. The loan portfolio of tier-3 urban cooperative banks shall conform to the stipulations made for SFBs, it added.

Tier-4 UCBs with deposits of over Rs 10,000 crore should be allowed to function like universal banks if they meet the 9% capital adequacy ratio requirement, leverage ratio and has a fit and proper board and chief executive. Such UCBs can be given operational freedom for branch expansion and authorized dealer licence on a par with universal banks.

Smaller UCBs with deposits of up to ₹100 crore will be categorized as tier-1 UCBs and those with deposits of ₹100-1,000 crore will be categorized as tier-2 UCBs.

The RBI panel has also prescribed separate ceilings for home loans, loan against gold ornaments and unsecured loans for different categories of UCBs.

In February, the RBI had the constitution of the Expert Committee on Primary (Urban) Co-operative Banks under the chairmanship of N S Vishwanathan, former RBI Deputy Governor.

Mergers of UCBs

The committee emphasised that all-inclusive directions (AID) should be treated on a par with moratorium under Section 45 of the Banking Regulation Act.

If AID is imposed, a bank should not continue thereunder beyond the time permitted to keep a bank under moratorium — three months extendable by a maximum of another three months.

Currently about 50 UCBs are under AID, causing lot of hardship to depositors as deposit withdrawals are capped.

On consolidation of UCBs, the panel said that RBI should be largely neutral to voluntary consolidation except where it is suggested as a supervisory action.

“However, the RBI should not hesitate to use the route of mandatory merger to resolve UCBs that do not meet the prudential requirements after giving them an opportunity to come up with voluntary solutions,” it said.

The minimum capital stipulation provides an embedded size to a UCB.

The committee said that under the Banking Regulation (BR) Act, the RBI can prepare scheme of compulsory amalgamation or reconstruction of UCBs, like banking companies.

This may be resorted to when the required voluntary actions are not forthcoming or leading to desired results.

The panel further said Supervisory Action Framework (SAF) should follow a twin-indicator approach — it should consider only asset quality and capital measured through NNPA and CRAR — instead of triple indicators at present. The objective of the SAF should be to find a time-bound remedy to the financial stress of a bank.

If a UCB remains under more stringent stages of SAF for a prolonged period, it may have an adverse effect on its operations and may further erode its financial position, it said.

The RBI may also consider superseding the board if the bank fails to submit a merger/conversion proposal within the prescribed timeframe and take steps to avoid undue flight of deposits once the news becomes public. A Stage III UCB is one where its capital to risk-weighted assets ratio/CRAR is less than 4.5 per cent and/or net non-performing assets/NNPAs is greater than 12 per cent.

Housing loans

On housing loans, the panel said the maximum limit on housing loans may be prescribed as a percentage of Tier 1 capital, subject to RBI-prescribed monetary ceiling for Tier 1 UCBs (but higher than the present ceiling) and respective board of directors-approved ceiling for Tier 2 UCBs.

For Tier 2 UCBs, the risk weight on housing loans may be prescribed based on size of the loan and loan-to-value (LTV) ratio, in line with SCBs.

The panel has also made recommendations regarding loan against gold ornaments with bullet repayment option.

It also said that umbrella organisation (UO) is expected to play a crucial role in the strengthening of the sector.

For that, it must be a financially strong organisation with adequate capital and a viable business plan. The minimum capital for the UO should be Rs 300 crore with CRAR and regulatory framework akin to the largest segment of NBFCs, the panel said.

Alos, in the long run, the UO may take up the role of a Self-Regulatory Organisation (SRO) for smaller UCBs.

The report said there were two broad sources of constraints because of which the sector has underperformed.

The first set of factors are internal to the sector. Many UCBs are small and do not have either the capability – financial or human resources – and/or possibly inclination to provide technology enabled financial services.

The second set of constraints are external to the banks. These emanate from the rather restrictive regulatory environment under which they have had to operate.

There were suggestions that licensing of new UCBs should be immediately opened up. There are over 1,500 UCBs already. The committee has suggested that the existing UCBs may be allowed to expand their footprint.



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Rupee rises 9 paise against US dollar in early trade, BFSI News, ET BFSI

Personal Finance

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The rupee appreciated 9 paise to 74.13 against the US dollar in opening trade on Tuesday, following a positive trend in domestic equities. However, flight of foreign capital, a strong dollar overseas and higher crude prices restrained the rupee to gain momentum, forex dealers said.

At the interbank foreign exchange, the rupee opened strong at 74.12 against the dollar, then it weakened slightly to quote 74.13, a rise of 9 paise over its previous close.

On Monday, the rupee had settled at 74.22 against the US dollar.

On the domestic equity market front, BSE Sensex was trading 45.14 points or 0.08 per cent higher at 55,600.93, while the broader NSE Nifty rose 19.65 points or 0.12 per cent to 16,516.10.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.08 per cent to 93.04.

Global oil benchmark Brent crude futures surged 0.33 per cent to USD 68.98 per barrel.

Foreign institutional investors remained net sellers in the capital market on Friday as they offloaded shares worth Rs 1,363.36 crore, as per exchange data.

Meanwhile, Finance Minister Nirmala Sitharaman on Monday unveiled an ambitious Rs 6 lakh crore National Monetisation Pipeline (NMP) that included unlocking value by involving private companies across infrastructure sectors — from passenger trains and railway stations to airports, roads and stadiums.

“A four-year National Monetization Pipeline (NMP) to monetize Rs 6 trillion of brownfield infrastructure assets across sectors will definitely boost investors’ confidence by providing sufficient clarity on the number, size and type of assets that would be made available in the market,” Abhaya Agarwal, Partner, Infrastructure Practice, EY India, said.



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MSME ministry to support local manufacturing of toys, BFSI News, ET BFSI

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Trichy: Aimed at encouraging production of toys locally, the development institute of Micro, Small and Medium Enterprises (MSME-DI) has reached out to the MSMEs associations in Trichy with financial and technical support. Under the design scheme, the interested MSMEs will be guided to master additive manufacturing (production using 3D printers) and reverse-engineering practices to design and produce even complex toys.

As constraints in designing and mass production of components were cited as the disadvantages of MSMEs in manufacturing toys, the Union MSME ministry has formulated the design scheme to offer expert advice and cost-effective solutions. Under the scheme, the National Institute of Technology (NIT) across the country will serve as the implementing agency and will offer technical support for the MSMEs to produce toys on a large-scale. “Subsidy for technical and machinery upgradation for producing toys will be provided by the Union ministry. NIT-Trichy will serve as the implementing agency to support local MSMEs,” S Dharmaselvan, joint director, MSME DI, said.

Cuddalore, Thanjavur, Coimbatore, Dharmapuri and Krishnagiri districts that already have toy manufacturing units can focus on the design scheme, while districts such as Trichy that have a robust MSME presence has opportunities for the existing MSMEs to diversify their presence using technical support from the educational institutes in the region.

“Prospects are high for the Trichy-based MSMEs to manufacture toys made of metal and plastic materials. We are planning a series of sensitisation drives involving the MSME department to encourage the MSMEs to make toys,” N Kanagasabapathy, chairman, Trichy Trade Centre, said. The local production of toys will also reduce the cost of the products that are being imported so far. Toy tricycle has been identified as one of the viable products to design and fabricate in Trichy. The price of locally made toys will be 40%-50% lower than the imported toys, MSMEs said.

The micro and small industries can avail 60% to 70% of the design intervention cost as subsidy. Financial support will be paid in three different stages till successful completion of the design.



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HDFC Bank will issue 3 lakh cards a month, regain lost ground, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: HDFC Bank on Monday unveiled its plans to regain the market share it lost in credit cards during an eight-month ban on new issues.

The bank said that it will issue three lakh cards a month — its monthly run rate before the ban — for the next two to three quarters, following which it will scale up to five lakh cards a month.

Outlining the plans, the bank’s group head for payments & consumer finance, digital banking and IT, Parag Rao, said, “In the next three to four quarters, we will regain all our lost market share. The bank has lost close to 2% as rivals like ICICI Bank, Axis Bank and SBI Card swooped in to fill the demand.”

According to Rao, the four-pronged strategy would be to tweak the products, sell more cards to its six-crore customer base, add more partners like fintech companies, telecom, hospitality and pharma companies. It has also revamped the digital process to allow more do-it-yourself features to customers on the bank’s app.

Rao said that despite the embargo from the RBI, the bank managed to scale up spend volumes by 60% year-on-year during the first quarter.

“Our card spend is on an average one and a half times that of the industry,” said Rao. He said in the eight months the bank has been busy analysing industry trends and customer behaviour and now planned to put them to work.

“During the pandemic, we have seen cards being used for low-value transactions as well. In the past, lower credit limits resulted in inactive cards. We are now seeing active users voluntarily opting for lower limits,” Rao added.

HDFC Bank’s outstanding credit cards has declined to 1.48 crore as of June 2021 from 1.53 crore in November 2020 as a result of the ban. The same for ICICI Bank increased to 1.10 crore from 97 lakh, and SBI Card had its number increase to 1.20 crore in June 2021 from 1.12 crore in November 2020.

In a statement, the bank said that it has 20 new partnerships lined up for the next 6-9 months, including co-branded offerings. Rao said while the bank lost market share in terms of number of active cards, it has been able to retain its share by overall spending courtesy specific initiatives to prod customers.



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Buy This Pharma Stock For 23% Gains, Says Motilal Oswal

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Investment

oi-Sunil Fernandes

|

Broking firm, Motilal Oswal is bullish on the stock of Cadila Heatlhcare for 23% returns from the current levels of Rs 541. The firm has set a target price of Rs 670, thus giving potential returns of 23% from the current levels.

Vaccine opportunity for Cadila Healthcare

Cadila Healthcare has received emergency use authorization (EUA) for its plasmid DNA COVID- 19 vaccine ZyCoV-D. The latter is the first COVID-19 vaccine approved in India for adolescents in the 12-18 years age group.

“The management expects to start supplying the vaccine in India from Oct’21.
Based on our conservative estimates, we expect CDH to ramp-up production to
40 million doses from Oct’21. We expect a 75:25 split between the government and
private channel and a blended price of Rs 320 per dose for FY22,” Motilal Oswal Institutional Equities has said.

Cadila Healthcare expects to begin supplies of 100-120m doses of ZyCoV-D per annum starting mid-Sep’21. It is in discussions with the Government of India (GoI) with regard to its pricing and supply.

Cadila Healthcare is the only company manufacturing the drug substance for its vaccine. “Demand for the vaccine would be driven by requirement of an additional booster dose of other vaccines, scope for improvement in immunogenicity, and ability to protect from new COVID-19 variants. The management expects monthly sales of Rs 2-2.5 billion from Oct’21, which can be scaled up to a run-rate of Rs 5 billion per month. It has a marketing plan in place to drive demand through pediatricians/state government,” Motilal Oswal Institutional Equities has said in its report.

Valuation and view on Cadila Healthcare stock

“We arrive at an NPV of Rs 12 per share for the opportunity arising from the COVID-19 vaccine. We continue to value Cadila Healthcare base business at 25 times its 12-month forward earnings to arrive at our target price of Rs 658. We arrive at a target price of Rs 670, including the vaccine opportunity and maintain our Buy rating on the stock,” the brokerage has said.

Buy This Pharma Stock For 23% Gains, Says Motilal Oswal

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only and is picked from the brokerage report of Sharekhan. Be careful while investing as the Sensex has now crossed 55,500 points. Investors can invest small amounts and avoid putting lumpsum.

Story first published: Tuesday, August 24, 2021, 10:36 [IST]



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This Is A Stock To Buy That Can Yield 50% Returns, Says India’s Top Brokerage

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Buy Greaves Cotton for a price target of Rs 194

Current market price Rs 129.55
Target price Rs 194
Gains 49.88%

The brokerage sees a rally in the stock to levels of 194, from the current market price of around Rs 130. According to Sharekhan, Greaves Cotton reported weak performance in Q1FY22, marred by lockdown restrictions due to the second wave of COVID-19.

Standalone and consolidated net revenues declined 53.1% q-o-q and 56% q-o-q to Rs 214.4 crore and Rs 229 crore respectively in Q1FY22. The drop in revenue was due to lockdown restrictions. The 3W segments was down 72% q-o-q, while Ampere sales was impacted due to 8 weeks COVID led factory lockdown in Coimbatore. The consolidated gross margin improved 10 bps q-o-q to 28.6% in Q1FY22.

Rationale for buying the stock

Rationale for buying the stock

According to Sharekhan, the company’s management says it is witnessing strong recovery from July 2021 onwards. We expect Greaves Cotton to clock a 24% revenue CAGR during FY2021-23E also see a sharp rise in margins, leading to a 245% earnings CAGR,” the broking firm has said.

“Greaves has ramped up its e-mobility business at a much faster pace than we had anticipated earlier. Recently, Ampere has acquired a strategic stake in L5 e-3W manufacturer, MLR Auto, to operate as a full range last mile electric vehicle company with mass mobility solutions in both E-2W & E-3W segment. We believe Greaves Cotton is well positioned to benefit from the government’s push towards fast adoption of electrical vehicles.

We continue to maintain our positive stance on Greaves because of its timely investments in the e-mobility business. Greaves acquired Ampere in 2018 and now holds an 81.2% stake. Through its subsidiary Ampere, Greaves is setting up a EV mega site manufacturing facility at Ranipet, with a proposed investment plan of Rs. 700 crore to build capacity of producing one million e-2Ws in a phased manner over a period of 10 years,” the brokerage has said.

“In addition to its new venture in e-2W business, the company has incubated multi-businesses in-house, which includes non-auto engines, e-rick, mega/smart gensets, Greaves care (retail services arm), and multi-brand spares divisions. In our view, the refocus strategy has played well for the company, as Greaves Cotton has managed to display a strong quarterly revenue run-rate despite lacklustre sales in 3W engines with Q1FY22, being an exception,” the brokerage has said.

Sharekhan says that it maintains a buy on the stock Greaves Cotton Limited with an unchanged price target of Rs. 194, owing to positive business outlook for mobility business.

Disclaimer

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only and is picked from the brokerage report of Sharekhan. Be careful while investing as the Sensex has now crossed 55,500 points. Investors can invest small amounts and avoid putting lumpsum.



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3 Pharma Stocks To Buy As Suggested By Sharekhan For Double Digit Growth

Personal Finance

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Buy Lupin with target price of Rs 1,400

Lupin is a renowned pharmaceutical company with a presence in nearly every market in the world. Sharekhan is positive on Lupin, recommending a buy rating and a target price of Rs 1400 in a research report.

According to the brokerage, in the short term, price erosion is projected to have an impact on the US business, but 2HFy2022 is expected to see a significant improvement due to the ramp up in Albuterol and Brovana. Launches in FY23 with high potential and limited competition provide the company even more room to grow.

“Lupin’s Q1FY22 operating results marginally missed estimates and so we have tweaked our earnings estimates for FY22E/FY23E. Given the robust growth outlook and the long term growth levers intact, and improving return ratios, we retain Buy on Lupin with an unchanged PT of Rs. 1,400.

Lupin’s domestic formulations business has a strong growth outlook and is expected to stage growth in the high teens for FY2022 backed by a chronic-heavy presence and growth in the overall business. The US business on the other hand is witnessing price erosion, which is expected to lead to a subdued Q2,” the brokerage has said.

Buy Cadila Healthcare with target of Rs 720

Buy Cadila Healthcare with target of Rs 720

Cadila Healthcare is a bullish stock, with Sharekhan recommending a buy rating and a target price of Rs 720 in its research report.

According to Sharekhan, the Indian business grew by 42.8 percent, with the human health business growing by a remarkable 63.6 percent. Cadila expects the DCGI to approve its COVID-19 vaccine ZyCoV-D for emergency use within the next two weeks.

“Strong growth prospects and earnings visibility, a sturdy balance sheet, healthy return ratios and multiple growth triggers are key positives for Cadila. We retain our Buy recommendation on the stock with unchanged PT of Rs. 720.

Cadila is developing a strong portfolio to treat the COVID-19 virus and this includes vaccines as well as drugs. Cadila has already applied with the DCGI seeking an emergency-use approval for its COVID-19 vaccine – ZyCov-D, the brokerage has said in its report.

Buy Aurobindo Pharma with a target of Rs 915

Buy Aurobindo Pharma with a target of Rs 915

Sharekhan is strong on Aurobindo Pharma, recommending a buy rating and a target price of Rs 915 in a research report.

“At CMP, the stock is trading at a valuation of 12.4x and 10.8x its FY22E and FY23E EPS, which is attractive. A possible de-merger of the injectables business could provide value

unlocking opportunities. Hence we retain our Buy recommendation on the stock with a revised

PT of Rs. 915, the brokerage has said.

According to Sharekhan, multiple challenges have surfaced, particularly for Aurobindo’s US business, such as increased price erosion and a build-up of stocks across channels. At least in the short term, these headwinds are projected to put downward pressure on US revenues.

Disclaimer

Disclaimer

Investing in stocks has the risk of financial loss. As a result, investors must proceed with prudence. Any losses incurred as a result of decisions based on the article are not the responsibility of Greynium Information Technologies, the author, or the brokerage houses. The preceding content is provided for informative purposes only and was taken from Sharekhan’s brokerage report. Due to the fact that the Sensex has now crossed 55,500 points, investors should exercise caution. Investors can invest little amounts rather than putting down a large chunk of money.



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RBI committee suggests measures to strengthen the Urban co-operative banks, BFSI News, ET BFSI

Banking & Finance

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Larger urban co-operative banks may be allowed to issue stock exchange tradable instruments to shore up capital and allow them to function as an universal bank according to the recommendations of an Expert Committee on Primary (Urban) Co-operative Banks which also suggests more enabling regulations giving their role in enhancing financial inclusion.

The committee headed by former deputy governor N S Vishwanathan, suggesting a four tiered structure based on the size of deposits recommends setting up of an Umbrella Organisation with a minimum capital of Rs 300 crore to help smaller co-operative to acquire scale and help with capital and liquidity support whenever needed.

In the long run, the umbrella organisation -UO- may take up the role of a Self-Regulatory Organization (SRO) for smaller UCBs where the organisation could run an independent audit/inspection and supervisory division. Once the UO stabilizes, it may explore the possibilities of converting into universal bank and offer value-added services on behalf of its member banks. An UCB could get an incentive of lower capital requirement if it is a member of the UO

The committee also seeks to address capital raising constraints of larger UCBs banks by facilitating issue of tradable securities . It suggests that RBI declare certain securities issued by UCBs eligible to be covered under the Securities Contract Regulation Act to facilitate their listing and trading in a recognised stock exchange may be made. ” Till such time, the RBI may consider allowing banks in Tier 3 and 4, having the necessary technology and wherewithal, to issue shares at premium to persons residing in their areas of operation subject to certain conditions” the RBI report said. This is significant in the context of the recent collapse of PMC Bank where its capital was almost wiped out.

The Committee felt that a liberal regulatory approach may be adopted for UCBs that meet a certain minimum level of capital and reserves (net worth) and CRAR requirements.

A Tier-4 UCB with a deposit base of over Rs 10,000 crore which meets both the entry point capital and CRAR requirements applicable to universal bank may be allowed to function on the lines of a universal bank if RBI is satisfied that it meets the financial requirements and has a fit and proper Board and CEO.

Given that UCBs have the potential of driving financial inclusion and credit delivery to those with limited means, the committee felt that regulatory policies can now be more enabling.

At the same time, there were divergent views on allowing the UCBs to convert into joint stock companies. One view was that conversion of UCBs into banking companies is against the co-operative principles as the retained earnings in co-operative structure cannot be distributed.

A contrary view was that voluntary conversion after a well-informed decision taken by the General Body of the UCB in a democratic manner should not be barred by regulation, particularly where the underlying legislation is not restrictive on the use of retained earnings.



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Groww, Upstox, Motilal Oswal to be hit by Sebi’s latest rules on digital gold sale, BFSI News, ET BFSI

Personal Finance

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The National Stock Exchange (NSE) has instructed all members, including stockbrokers and wealth managers, to wind down the sale of digital gold on their platforms by September 10.

This came after capital markets regulator, the Securities and Exchange Board of India (Sebi), flagged such sales as a breach of the Securities Contracts (Regulation) Rules (SCRR), 1957.

The move, ahead of the crucial festive season months when Indian consumers typically become active purchasers, has hit the country’s nascent yet burgeoning digital gold industry.

Investors are worried over its future as well as its legitimacy in the eyes of financial sector regulators, Sebi as well as the Reserve Bank of India.

Sebi’s concerns may have stemmed from potential use of client funds by brokers to buy digital gold which it views as a non-broking business, according to a review of documents and discussions with multiple industry sources.

The lack of regulatory oversight on companies that sell and store physical gold corresponding to the virtual assets being allocated to the end-consumer, is also cause for concern.

“…It has, however, come to the notice of SEBI/Exchange that certain members are providing a platform to their clients for buying and selling of digital gold. SEBI vide a letter dated August 3 has informed the Exchange that the said activity is in contravention of Rule 8 (3) (f) of SCRR, and members should refrain from undertaking any such activities,” a circular issued by NSE on August 10 showed.

According to a source, similar notices have been issued by all leading exchanges in India in recent weeks. ET could not independently verify this.

New age fintech brokers such as Upstox, Groww, Paytm Money as well as traditional brokers such as HDFC Securities and Motilal Oswal offer customers an option to “invest” in digital gold.

These companies have been given time till September 10 to discontinue the product as well as inform consumers about the move, as per the circular, which ET has reviewed.

Uptsox, Groww, NSE and Sebi did not respond to ET’s emails. Spokespersons for Paytm Money and HDFC Securities declined to comment.

The sale of digital gold in India, although a new concept, is “nothing but facilitating the purchase and sale of physical gold through a digital medium, and the ability to hold it digitally,” said Kishore Narne, head of commodities and currencies at Motilal Oswal.

“We understand Sebi’s concerns as it doesn’t fall under its scope of regulation, they have asked all Sebi-regulated entities to refrain from offering such products, and we are honouring it,” Narne said, adding that customers already holding digital gold would not be impacted by the new rules.

The NSE move comes as a jolt to fintech startups that have been building business models around facilitating purchase and sale of gold virtually in partnership with metal and gold firms – Augmont Gold Ltd, MMTC-PAMP India and Digital Gold India.

The business model involves customers being allowed to buy gold for as low as one rupee, as a digital asset. The gold companies then store an equivalent amount of gold in their lockers – against a virtual certificate of purchase.

These companies, though not under the purview of any financial sector regulator, are said to have a self-regulatory audit and diligence mechanism.

The NSE circular is only applicable to members of the NSE, said Renisha Chainani, Head of Research, Augmont Gold.

“This circular has been issued pursuant to some clarifications put by the regulator, Sebi, on NSE members for offering digital gold. All such partners shall work within the framework and guidelines prescribed by Sebi from time to time,” said Chainani.

MMTC and Digital Gold India did not comment.

Non-broking platforms such as PhonePe and Google Pay among others also offer digital gold to customers and are unlikely to be affected by this development.

India’s digital gold market is worth about Rs 5,000 crore annually, according to industry insiders.

The number of users with over Rs 100 balance in digital gold could be in the range of 5-6 million, said Deepak Abbot, the cofounder of Indiagold, a gold loan fintech.

“This could be an early indication that the regulator is looking to come up with regulations for the industry. Currently, these transactions are not under the purview of either Sebi or RBI,” said Abbot.

A senior stock exchange official told ET that brokers cannot offer such unregulated products through their Sebi-registered entity or platform.

“All the listed products are settlement guaranteed and carry a different risk profile. If an investor loses money due to such digital gold, neither the regulator nor the exchanges can be held responsible,” the executive said. “Hence, our action is limited to the extent that you cannot use Sebi-licensed platforms to sell such products.”

A leading securities lawyer who represents the interests of several brokerages said digital gold typically falls in a regulatory grey zone currently and unless Sebi comes out with a set of regulations, brokers cannot sell the products.

“The problem seems to be that some of the fintech players offer digital gold on the same page right next to where they sell mutual funds or listed shares,” the lawyer said. “However, there is no bar on these fintech firms to create a separate legal entity and set up a different page to sell digital gold.”



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RIL cuts term SOFR deal with JP Morgan, heralds a new era, BFSI News, ET BFSI

Banking & Finance

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Reliance Industries has cut a trade-financing deal with Wall Street bank JP Morgan using the Term SOFR (Secured Overnight Financing Rate), heralding a new era in loan-pricing benchmarks as the hitherto popular reference frame LIBOR is phased out after decades of international duty.

LIBOR is being replaced in phases by alternative rates for all loans and derivative deals starting January next year.

The financing deal was sealed at the bank’s overseas branch, likely in Singapore, and it involved discounting a Letter of Credit (LC). The amount involved was about $50 million.

Reliance is said to have obtained an LC from an Indian bank for procuring raw materials from the global market, three market sources familiar with the matter told ET. This LC will be discounted at a rate determined by SOFR Term rate with maturity running between two and three months.

“The financing will be provided by JP Morgan at the SOFR Term Rate,” said one of the persons cited above.

The SOFR Term rate, with a three-month maturity, yields 0.05043 percent.

Officials at Reliance and JP Morgan did not comment on the matter untill publication of this report.

“With a transition away from the LIBOR benchmark now inevitable, Indian users will have to start getting familiar with alternative reference benchmarks such as SOFR,” said Ananth Narayan, associate professor at the SP JAIN Institute of Management. “Larger corporates and banks leading the way in this transition is actually a good sign.”

CME group, the world’s largest derivative exchange, got the approval from the Alternative Reference Rates Committee (ARRC) to launch SOFR Term rates end-July.

“We…have been delivering robust, forward-looking SOFR term rates to the industry, based on our deep and liquid underlying CME SOFR futures market, since September 2020,” said Sean Tully, CME Group Global Head of Financial and OTC Products, in a statement.

SOFR is a benchmark rate administered by the Federal Reserve Bank of New York, which has been selected to replace dollar-denominated LIBOR. SOFR is reportedly based on overnight transactions in the US Treasury repo market.

Nearly two months ago, India’s central bank warned banks and financial institutions against structuring deals linked to LIBOR.

In its bi-monthly monetary policy RBI relaxed norms to facilitate the financial industry’s migration to alternative reference rates instead of LIBOR. It directed banks and borrowers to work a smooth transition.



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