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RBI moves to ease overseas direct investment regulations under FEMA

Banking & Finance

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The Reserve Bank of India is planning to rationalise the existing provisions governing overseas direct investment regulations under the Foreign Exchange Management Act (FEMA), 1999.

This is to further liberalise the regulatory framework and promote ease of doing business, per the RBI’s draft Foreign Exchange Management/FEM (Non-debt Instruments – Overseas Investment) Rules, 2021 and the draft Foreign Exchange Management (Overseas Investment) Regulations, 2021.

Where a person resident in India wants to make any financial commitment or disinvesting such financial commitment has an account appearing as a Special Mention Account-1/2 or non-performing asset (NPA) or wilful defaulter or is under investigation by a regulatory body or investigative agencies in India, a no-objection certificate has to be obtained from these entities before making financial commitment or undertaking disinvestment of such financial commitment.

Where the disinvestment by the person resident in India pertains to ODI, the transferor shall not have any dues outstanding for receipt.

Restrictions

A person resident in India is prohibited from making ODI in a foreign entity engaged in (i) Real estate activity; (ii) Gambling in any form; and (iii) Offering financial products linked to Indian Rupee except for products offered in an International Financial Services Centre (IFSC).

Overseas investment by a person resident in India shall not be made in a foreign entity located in countries/ jurisdictions that are not FATF (Financial Action Task Force)and IOSCO (International Organisation of Securities Commission) compliant country or any other country/ jurisdiction as may be prescribed by the Central Government.

The Financial Commitment by a person resident in India in a foreign entity that has invested or invests into India which is designed for the purpose of tax evasion/ tax avoidance by such person is not permitted and any contravention under this rule shall be considered to be a contravention of serious/sensitive nature.

Acquisition of immovable property outside India (1) A person resident in India may acquire immovable property outside India by way of inheritance or gift or purchase from a person resident in India who has acquired such property as per the foreign exchange provisions in force at the time of such acquisition.

ODI in financial entity

An Indian entity which is engaged in financial services activity in India may make ODI in a foreign entity, which is directly or indirectly engaged in financial services activity subject to conditions, including the regulated Indian entity Indian entity posting net profits during the preceding three financial years.

An listed India entity having a minimum net worth of ₹500 crore based on the last audited balance sheet, can make ODI including by way of contribution in an Overseas Technology Fund, for the purpose of investing in overseas technology start-ups engaged in an activity which is in alignment with the core business of such Indian entity.

An Indian entity may engage in agricultural operations, including purchase of land incidental to such activity, either directly or through an office outside India.

Financial commitment

The total financial commitment made by an Indian entity, excluding capitalization of retained earnings, in all the foreign entities taken together at the time of undertaking such commitment shall not exceed 400 per cent (or as directed by the Reserve Bank from time to time) of its net worth as on the date of the last audited balance sheet.

However, financial commitment made by “Maharatna” public sector undertakings (PSUs) or “Navratna” PSUs or subsidiaries of such PSUs in foreign entities outside India engaged in strategic sectors shall not be subject to the limits laid down above.

The limit shall not apply where the investment is made out of the balances held in its EEFC (Exchange Earners Foreign Currency) account.

Overseas portfolio investment

A listed Indian company may make Overseas Portfolio Investment including by way of reinvestment within the limit of 50 per cent of its net worth as on the date of its last audited balance sheet.

An Indian entity, which is a software exporter, or any other entity as may be prescribed by the Central government in this regard, may receive foreign securities up to 25 per cent of the value of exports made to a foreign software company irrespective of whether such company is listed or not.

A registered trust or a registered society engaged in the educational sector or which has set up hospital(s) in India, with the prior approval of the Reserve Bank, may make ODI in a foreign entity. This is subject to the foreign entity being engaged in the same sector that the Indian trust or society is engaged in.

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Consultant for MARS: Pension regulator comes with new RFP

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Pension regulator Pension Fund Regulatory & Development Authority (PFRDA) has come up with a new Request for Proposal (RFP) for appointment of a consultant to help design a Minimum Assured Return Scheme (MARS) under the National Pension System (NPS).

The new RFP has relaxed the eligibility criteria set earlier for a bidder and has now allowed those with experience of designing or development of atleast one scheme with guarantee for its client, to bid for the consultant role, sources close to the development said.

Former RFP

The eligibility criteria had to be tweaked as the response for the previous RFP— issued in May this year— was very tepid with only one entity showing interest, they added.

The earlier RFP mandated that a bidder, which has to be a corporate entity registered in India, should have experience of designing or development of schemes of guarantee with atleast three schemes being in operation or running in India, after being offered by its clients to the public at large. This RFP was cancelled on July 22.

MARS

The whole idea behind having MARS is to have a separate scheme that can offer a guaranteed minimum rate of return to NPS subscribers, especially those who are risk averse. Currently, the NPS gives returns annually, based on prevailing market conditions.

The appointed consultant, with requisite actuarial skills, is expected to help formulate or design a MARS that can be offered to existing and prospective subscribers by the pension funds.

The chosen consultant is also expected to set up a procedure to evaluate and approve basic scheme design modifications by the pension funds and supervise MARS. The consultant would be required to prescribe fees, solvency requirements, risk management and reporting mechanisms for pension funds in respect of MARS.

Pension funds

To enable pension funds and its sponsors to offer MARS like products, PFRDA has already tweaked the capital requirement norms for the sponsors and stipulated higher net worth and paid up capital for those looking to set up pension funds in the country. As such products carry risk, it is better to be well capitalised to take care of eventualities, experts said.

India’s pension assets under management have already crossed the ₹6 lakh crore mark and are expected to touch ₹7.5 lakh crore by end March this fiscal. PFRDA is aiming for AUM of ₹30 lakh crore by the year 2030.

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How To Invest In The Sovereign Gold Bond Scheme Recently Issues By The RBI?

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Investment

oi-Kuntala Sarkar

|

The RBI has recently issued the Sovereign Gold Bond (SGB) Scheme 2021-22 – Series V for the subscription. This tranche will be open from today (9th August) to 13th August 2021. The gold price will be working out to Rs. 4790 per 1 gram gold. The nominal value of the bond is based on the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period. Investors who will apply online will be offered an additional discount of Rs. 50 per gram lesser than the nominal value. For them, the issue price of a gold bond will be Rs. 4740 per 1 gram gold.

How To Invest In The Sovereign Gold Bond Scheme Recently Issues By The RBI?

How to start the investment procedure?

As the RBI has issued its fifth tranche of SGB scheme investors are eyeing for it – consistently decreasing gold prices now are winding up more people towards gold investments.

The procedure to invest in SGB starts with filling up the application form of SGB. The application form is provided by the issuing banks or Stock Holding Corporation of India Limited (SHCIL) offices or designated Post Offices or the agents. The form is also available at the RBI’s official website. Banks now also provide online application facilities.

The application form must be accompanied by the Know-Your-Customer (KYC) norms. It will require a ‘PAN Number’ issued by the Income Tax Department to the investor.

The investor is allowed to hold only one ‘unique investor Id’ linked to any of the prescribed identification documents. The unique investor ID will be used for all subsequent investments in the scheme. quoting of PAN in the application form is mandatory for holding securities in the dematerialized (Demat) form. A given mail ID will receive a confirmation mail after confirming the buy.

In case of the investment through SBI, the application form is available on the SBI’s official website (onlinesbi.com) under e-services. Similarly, on the other banks’ websites, the form will be available. Else the investors can contact their concerned bank’s branch directly to invest in SGB.

SGBs are also listed on the exchange 10-15 days after the issue and can be traded. If an investor wants to buy SGB via Zerodha at the exchange, they will have to log in to their Zerodha account first. Then the page ‘Invest in gold bond and ETFs’ will have to be reached. One has to be sure of having sufficient funds in the equity account on the last day of the issue. Then under SGB, the price, quantity to invest (units of SGB), and offer dose will have to be filled. Thus an investor can place the required order. Units will be allotted to the Demat account within 10 working days and a confirmation e-mail will be sent.

Who can invest in SGBs?

A person resident in India is eligible to invest in SGB. Eligible investors include individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. Individual investors with subsequent changes in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
Joint holding of SGB is allowed. Additionally, guardians can also apply for SGB on behalf of a minor for the child’s future.

The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond is one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts and similar entities. In the case of joint holding, the limit is 4 kg. The annual ceiling will include bonds subscribed under different tranches during initial issuance by the government and those purchased the same from the secondary market.

Benefits of SGB

The Bonds bear interest at the rate of 2.50% per annum (half-yearly basis) on the amount of initial investment. The last interest will be payable on maturity along with the principal.

There will no capital gain tax on redemption and it can be used as collateral for loans. For SGB there is no financial pressure of making charges or GST or storage costs. SGB offers an easy liquidity option as it can be traded in the secondary market.

Story first published: Monday, August 9, 2021, 17:42 [IST]



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RBI policy review: A subtle shade of policy normalisation, says Acuite Ratings

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The expanded scope of Variable Rate Reverse Repo (VRRR) auctions for temporary absorption of liquidity surplus could act as a precursor for monetary policy normalisation, according to Acuite Ratings & Research.

The Reserve Bank of India (RBI) had announced on August 6, 2020, that it will conduct fortnightly VRRR auctions of ₹2.5 lakh crore on August 13, 2021; ₹3 lakh crore on August 27; ₹3.5 lakh crore on September 9; and ₹4 lakh crore on September 24.

“In our opinion, the policy review of August 2021 has a subtle shade of policy normalization in the form of the scale up of the VRRR auctions for temporary deployment of excess liquidity since it can lead to some firming of short-term rates and realignment of the yield curve.” the credit rating agency said.

The agency continues to expect the central bank to start normalisation of the policy rates by increasing reverse repo rate from 3.35 per cent currently, to 3.75 per cent by end of Q3FY22 or during Q4FY22. Then followed by a 25 basis points hike in the repo rate to 4.25 per cent in Q1FY23.

In his bi-monthly monetary policy review statement on August 6, RBI Governor Shaktikanta Das emphasised that the enhanced VRRR auctions should not be misread as a reversal of the accommodative policy stance, as the amount absorbed under the fixed rate reverse repo is expected to remain more than ₹4.0 lakh crore at end-September 2021.

Referring to the Governor’s post policy press conference statement that the RBI continues to remain in “whatever it takes” mode for providing support for nurturing nascent growth impulses, Acuite said this highlights the unambiguous policy desire to backstop growth till Covid related economic and financial uncertainties remain.

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GIFT City, India Insurtech Association ink pact to promote fintech in insurance space

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India Insurtech Association (IIA), a not-for-profit body promoting tech-driven insurance ecosystems in India inked a memorandum of understanding (MoU) with International Financial Services Centre at GIFT City, (GIFT-IFSC) to collaborate on building thought leadership in the field of insurance and promoting GIFT City for Indian and foreign insurance companies.

To raise awareness about GIFT IFSC, the collaboration will organise events, information series, seminars, and conferences. The two institutions will also research regulatory sandbox projects for GIFT IFSC, which will benefit insurtech start-ups, re-insurance businesses, politicians, service providers, and individuals.

Tapan Ray, MD and Group CEO, GIFT City, said, “We have presence of some of the major insurance players in GIFT City and now, with this collaboration, we can aspire to be a vibrant hub for world-class insurance products and services and encourage innovation in the segment.”

Through the integrated platform of GIFT City, the endeavour is to highlight India’s international financial services potential by offering international firms a world-class infrastructure and facilities to conduct their business in India.

Elaborating on the collaboration, Prerak Sethi, Director and Co-founder of IIA, said, “Through this collaboration, our goal is to assist worldwide financial organisations in developing top-notch financial services. IIA will provide support towards bringing various Indian and global insurance, re-insurance and insurtech participants to benefit from the regulatory sandbox initiatives at GIFT City.”

Under the terms of the MoU, the IIA has promised to work closely with the GIFT SEZ in various areas, including bringing global insurance businesses, Indian insurtech companies, and insurance players to the GIFT City.

The association will promote new digital business models, build collaboration between start-ups and all the other participants of the insurance industry.

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Banks report improved NII, lower NPA provisioning in Q1, BFSI News, ET BFSI

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The provision for cumulative non-performing assets (NPA) by banks softened in the June 2021 quarter after a spike in the previous quarter when they resumed accounting for slippages after RBI’s schemes to defer the recognition of actual NPAs ended in December. For a sample of 28 banks, the loan loss or NPA provision fell by 6.8% year-on-year and 43.8% sequentially to Rs 36,805.4 crore in the June quarter.

The aggregate provision by the public sector (PSU) banks fell by 27% year-on-year due to a sharp double digit drop reported by State Bank of India, Punjab National Bank, Canara Bank, and Bank of Baroda. On the other hand, private sector banks reported 51% jump following a sharp increase reported by HDFC Bank, Kotak Bank, Bandhan Bank and RBL Bank. As a result, their share in the total NPAs increased to 42.5% from 26.1% in the year-ago quarter.

The total sample’s net interest income (NII) increased by 4.8% year-on-year to Rs 1.2 lakh crore. A majority of the banks, 20 to be precise, reported higher net interest from the year-ago level. The share of the private banks in the sample’s net interest expanded to 43.8% from 41.7% a year ago.

The sample’s cumulative COVID provisioning increased to Rs 34,641.5 crore in the June quarter from Rs 29,892.8 crore in the previous quarter. Here, the share of PSU banks increased to 34.7% from 26.7% sequentially.

June ’20 September ’20 December ’20 March ’21 June ’21
Loan loss provision (Rs crore) 39504.8 33896.1 28828.5 65542.2 36805.4
Loan loss provision (YoY % change) -17.0 -11.0 -59.6 19.5 -6.8

Share of PSU banks in quarterly provisioning (%)

June ’20 September ’20 December ’20 March ’21 June ’21
PSU share (%) 73.9 77.5 63.7 66.4 57.5
Non-PSU share (%) 26.1 22.5 36.3 33.6 42.5

Data for a sample of 28 banks. Source: Bank data, ETIG



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HDFC Bank to hire 500 more to expand MSME coverage, BFSI News, ET BFSI

Banking & Finance

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Country’s largest private sector lender HDFC Bank, which has a focus on the MSME sector, is hiring 500 more relationship managers this fiscal as the bank is expanding its coverage to 575 districts, a senior banker has said. The headcount addition will take the bank’s Micro, Small and Medium Enterprises (MSME) vertical strength to 2,500. As of June end, the HDFC Bank’s employee strength stood around 1.23 lakh.

The bank’s MSME vertical covers 545 districts now with dedicated relationship managers and supervisors, which will be expanded to 575 districts or more by the end of this fiscal.

“As we are expanding our MSME footprint to 575 districts from 545 now, we are hiring over 500 more to the 2,000-strong headcount at the MSME vertical this fiscal year. This should take the overall headcount at the vertical to a little over 2,500,” Sumant Rampal, senior executive vice-president for business banking & healthcare finance, told PTI on Monday.

After reclassification and the resultant tagging of wholesaler and retailer loans under the MSME book, the bank closed the MSME book at Rs 2,01,833 crore in March 2021 quarter, marginally up from Rs 2,01,758 crore in December 2020, when it grew by over 30 per cent.

The government recently asked MSMEs to be re/de-classify themselves based on their turnover and get a Udhyam registration certificate.

The bank’s MSME portfolio is spread across sectors like textiles, fabrication, agri-processing, chemicals, consumer goods, hotels & restaurants, auto components, pharma and paper industry, and also include the entire selling chain ranging from wholesalers, retailers, distributors, stockists and supermarkets, Rampal said.

Rampal said the bank has been increasing its focus on the sector since the past two years, and the same only increased since the pandemic when the government opened a slew of measures to help small businesses tide over the crisis with the emergency credit line guarantee scheme (ECLGS) being the biggest booster helping it disburse 30 per cent more loans by December 2020, to Rs 2,01,758 crore.

Rampal said his team has already identified the districts for expansion. Though the bank has regular branches in these identified districts, MSME lending needs special focus based on their unique needs, he said.

He said of the over 5,500 branches, a little over 1,800 of them have more than 25 per cent of their loans coming in MSME accounts and 4,800 of them service this segment of customers.

Geographically speaking, the bank is present in 630 districts of which 545 districts now have special MSME counters.

Giving a break-up of the hiring, he said, of the total 500 planned additions, half will be for the small & medium sub-vertical, which already is a 975-strong team.

Though the RBI last Friday said there was nothing alarming about rise in MSME bad loans, a SIDBI-CIBIL report in late July said, the NPA levels among MSME borrowers surged to 12.6 per cent in the March 2021 quarter, up from 12 per cent in December 2020, while loans to them have jumped to Rs 9.5 lakh crore in FY21 from Rs 6.8 lakh crore in FY20.



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RBL Bank selects AWS to accelerate AI efforts

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RBL Bank has selected Amazon Web Services (AWS), an Amazon.com company, as its cloud provider.

AWS would help RBL Bank strengthen its AI-powered banking solutions and drive digital transformation at the lender.

“The bank is building on its analytics practice and investing in AI capabilities to implement various use cases across multiple segments, including risk, customer service, human resources, and operations,” RBL Bank said in a statement on Monday.

It will leverage Amazon Textract, a machine learning service that automatically extracts text, handwriting, and data from scanned documents, across the bank’s risk and operations divisions to analyse documents such as financial statements, stock statements, and stock audit reports to predict default risk.

“Using ML allows analysts at RBL Bank to extract data and automate the handling of 2,500 documents per quarter,” the bank said.

Other use cases already being tested within the operations division include using services like Amazon Rekognition and Amazon Textract to automatically extract and match customer signatures and running fuzzy match algorithms to replace manual name match for various processes, it further said.

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Digital transactions grew 80% in last 250 days: Razorpay report

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Digital transactions have grown by 80 per cent during the 250 days between November 30, 2020 to August 6, 2021, based on transactions held on the digital payments platform Razorpay.

The financial solutions company on Monday released the ninth edition of ‘The (Covid) Era of Rising Fintech’ report with insights about digital payments in the last 500 days up till August 6, 2021.

August 6 marked 500 days of the pandemic since the national lockdown was first announced, starting March 25, 2020. The report based on transactions held on Razorpay platform between the first 250 days (March 25, 2020 to November 29, 2020) and the next 250 days (November 30, 2020 to August 6, 2021).

The report provides a detailed view of the evolving FinTech ecosystem, the digital spending patterns of consumers and an analysis of how different sectors and payment modes performed during this time, when businesses and life were hit by Covid, the company said.

Every sector and payment mode had been negatively impacted at the start of the pandemic and online payments declined by 30 per cent in early 2020

Multiple sectors have shown significant signs of recovery.

Businesses, especially from tier-2 and tier-3 cities have been a major boost for digital payments exhibiting a growth of 40 per cent from the first 250 days to the next 250 days.

While the metropolitan cities continued to show growth, businesses & consumers from places such as Jammu, Ahmedabad, Shimla and Coimbatore witnessed a growth of 195 per cent, 87 per cent, 49 per cent and 30 per cent, respectively

Additionally, the demand for payment options like Buy Now Pay Later (BNPL) has also increased, registering a growth of 220 per cent so far.

With increased digital adoption amid the pandemic, small businesses are also expected to increase investment in digital technologies in 2021. Affordable payment options such as Buy Now Pay Later (BNPL) have seen an increased preference which is expected to rise and increase transactions for SMBs, the report said.

The Services industry, that is the likes of home services such as carpentry, plumbing and more, has also increased adoption of digital payments with transactions increasing by 138 per cent.

The digital transactions by Freelancers and Homepreneurs saw a growth of 69 per cent during the last 250 days.

Digital transactions in Social Commerce grew by 65 per cent while Direct-to-Consumer (D2C) businesses witnessed a growth of 87 per cent during the last 250 days as compared to the first 250 days of the national lockdown.

Harshil Mathur, CEO and Co-Founder of Razorpay said, “The last 500 days haven’t been ordinary as almost every person and business has realised the need for digital awareness and presence. Fintech companies like us, banks, investors, government and regulators have worked hard during the last 16+ months to speed up digital innovation and adoption amongst consumers and small businesses.”

“What makes me really happy is the fact that not a single sector showed negative growth in the last 250 days. This was possible because businesses have recognised the crucial importance of using new payment technologies to support and improve their business growth. The way I see it, I expect this revolution of FinTech to extend from payment innovation to business banking innovation in the next two years,” added Mathur.

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Equitas SFB launches fintech accelerator programme ‘Equitech’

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Equitas Small Finance Bank on Monday announced the launch of ‘Equitech’ – a fintech accelerator programme aimed at the start-up ecosystem. The programme, designed to scale-up, will help fintechs to curate their products and define a go-to-market strategy.

In a press release, the Chennai-based lender said, Equitech will help fintechs to reach the next level and take its product to the market in a more targeted manner. The programme was launched on August 7 and the application process for the enrolment has commenced. “Indian fintech ecosystem is experiencing exponential growth from almost all the sub-segments ranging from payments and regtech to robo-advisory and blockchain. This growth is driven by the innovative fintech start-ups that were able to create unique banking trends like BaaS, neo banking, open banking, autonomous finance etc,” Murali Vaidyanathan, Senior President and Country Head – Branch Banking – Liabilities, Products & Wealth, Equitas Small Finance Bank said in the release.

Also read: After hit by pandemic hard, start-ups on growth path: EY

“These innovations have significantly impacted the way Indian banking industry functions and has resulted in India seeing a 60% increase in fintech investments despite the pandemic. We are glad to be able to assist and nurture the future unicorns in upgrading the banking system for the next level,” he added.

Focus on banking technologies

Equitech will focus on banking aspects such as payments, lending, CASA, transaction banking, API banking, governance & regulations as well as technologies such as agri-tech, banking tech, clean energy, government tech and other horizontal segments across key focus areas. The shortlisted firms will be granted direct access to a world class infrastructure through Equitas Small Finance Bank’s tech platform and API sandbox for product development.

Besides, there will be specific cohorts along with mentors and a panel of experts, the start-ups will work closely with these experts to create their products. Equitas will provide the necessary support required from legal and regulatory aspects. The selected fintech may also get to service Equitas SFB either as their first commercial business partner or as a co-brand partner, the bank’s release said.

Eligibility

To enroll, a fintech start-up must be registered / incorporated within the last 6 years as on date of the accelerator programme opening and should have at least two full-time employees, with most important team members having expertise in their field. The start-up must present an innovative product/ idea with significant advantages over current industry offerings and should represent original ideas wholly owned with the freedom to use.

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