Category: Banking & Finance

Explainer: Digital currency vs cryptos – how are they different?

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The Centre’s plans to ban cryptocurrencies but introduce an official, digital currency. There is some confusion on the differences between the two – there are at least six key variances between official digital currency and cryptocurrency. While all cryptocurrencies could be considered digital currencies, not all digital currencies need to be official sovereign backed currencies. For instance, the virtual currency used in say, an online game, is also a form of digital currency, not backed by a central bank but governed by the game creators. Apart from that, the other key differences are: 

Issuing authority 

Offical digital currencies are issued by the central banks of a nation-state that oversees the banking system in that country. For instance, in India, like regular fiat currency, it will be the Reserve Bank of India that will issue digital currency, when mandated by the government. Similarly, in the US, it will be the Federal Reserve. However, in the case of cryptocurrency, there is no single issuing authority. Cryptocurrencies are usually developed by teams as a piece of code used for issuance through ‘mining’. Creation, as well as use, is maintained through a distributed ledger. They transmit value across a decentralised network of users. Thus while digital currencies are centralised, cryptocurrencies are de-centralised. 

Encryption and underlying tech 

There is little encryption that happens in official digital currency and no special cybersecurity measures. Anyone with a regular online bank account, for instance, can store and use digital currencies. Think of this as a form of e-cash. However, blockchain is the underlying technology used in most cryptocurrencies and, usually, these are stored in ‘wallets’ with a high degree of cyber security. 

While it is true that some of the crypto wallets have been hacked, generally the degree of cyber protective measures taken beforehand are more in the case of cryptocurrencies. 

Stability and fluctuation 

While official digital currencies are largely stable in value and thus easy to own and use in the global market, cryptocurrencies can wildly swing in value. In a single day, the price of a unit of cryptocurrency can vary as much as 50 to 70 per cent. Thus, fiat digital currencies provide more stability, while cryptocurrencies are known for their high degree of volatility and consequent risk. 

Transparency 

One key area where cryptos score is transparency. In this case, the entire history of transactions between two parties can be seen as it is done on blockchain and is immutable (cannot be changed). However, in the case of central bank-issued digital currency, it is the centralised issuing authority that decides how much information it wants to share. The receiver or sender of digital currency will receive information only related to that transaction. 

Cost of transaction 

In the case of digital currency, the issuing authority or the centralised controller can levy transaction fees each time the currency is debited or credited. The blockchain technology used in cryptocurrencies ensures that such expenses are minimised as there is no commission for third parties. This is especially useful when cryptocurrency is used to buy or sell, high-value assets. 

Legal framework 

In most countries, there is some kind of legal framework and protection around official digital currencies. However, when it comes to cryptocurrencies, that is not the case; in several parts of the world, it is still a grey area. Except for El Salvador, which decided to use Bitcoin (currently the most popular cryptocurrency) as legal tender, cryptocurrencies are in unchartered territory with their legal status not clearly defined. 

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PCHFL and API Holdings partner for financing solutions in healthcare

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Piramal Capital and Housing Finance Limited (PCHFL) has partnered with API Holdings through its digital platform Retailio to provide financing solutions to consumers, retailers and merchants in the API Holdings’ healthcare ecosystem.

Retailio is the country’s largest digital B2B healthcare platform.

Under this partnership, PCHFL has earmarked an initial amount of ₹100 crore for disbursement by March 2022, it said in a statement on Thursday, adding that the amount could be increased based on the initial market response.

BNPL solution

Further, PCHFL will provide solutions like Buy Now Pay Later (BNPL) for consumers and merchants, multi-collateral loans for retailers, supply chain financing, hospital financing, invoice discounting, among others.

Jairam Sridharan, Managing Director, PCHFL said, “This partnership is in is line with our strategy of expanding our retail portfolio through a mix of collaboration-led origination model and leveraging our distinguished digital lending capabilities. We look forward to a profitable and long-term partnership with API Holdings.”

With the acquisition of DHFL, PCHFL has become one of the leading players in the retail lending segment with access to over 10 lakh customers, presence in 24 States with a network of over 300 branches.

Also read: After DHFL buy, focus is now on implementation: Ajay Piramal

“By bringing together our potential synergies, we aim to provide capital to the underserved SME and MSME segment that would in-turn help fuel growth for these businesses,” said Harsh Parekh, Whole-time Director and Co-founder, API Holdings said.

API Holdings also has presence in Thyrocare and Akanamed, and through its subsidiary, owns the PharmEasy brand along with the proprietary technology platform which powers the PharmEasy marketplace

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Only a handful of cryptocurrencies that exist today likely to survive: Raghuram Rajan

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Out of the 6,000-odd cryptocurrencies currently in existence, only a few are likely to survive, according to the former RBI Governor Raghuram Rajan.

Rajan, in a recent interview with CNBC TV-18 said that only one or two, or at most, only a handful of the cryptocurrencies that exist today would survive in the future.

“If things have value only because they will be pricier down the line, that’s a bubble,” Rajan said.

The former RBI governor compared the current mania in cryptocurrencies to the tulip mania in the Netherlands in the 17th century.

Also Read: Explainer: Digital currency vs cryptos – how are they different?

He added that the issue was that most cryptocurrencies did not have permanent value. Additionally, some of them would survive to facilitate payments, especially cross border payments.

“In the US, crypto is a $2.5 trillion problem that nobody really wants to regulate,” he said.

According to Rajan, part of the problem was the lack of understanding of the space and how to regulate it, among regulators.

He added that the government can examine these crypto entities more closely when they get too big to make sure that there isn’t fraud.

Rajan’s remark come as the bill to ban all private cryptocurrencies and facilitate introduction of the Central Bank Digital Currency (CBDC) topped the government’s busy agenda for the Winter Session of Parliament.

Also read: Exchanges on tenterhooks as they await details of proposed cryptocurrencies Bill

Top cryptocurrencies including Bitcoin, Ethereum, USDT, Shiba Inu, Dogecoin, Sandbox among others crashed overnight on Indian crypto exchanges on Wednesday as investors panicked following the government’s plans on the bill seeking to prohibit private cryptocurrencies while allowing certain exceptions to promote the underlying technology.

Additionally, the former RBI Governor said that the government must focus on the underlying blockchain technology, letting it flourish adding that blockchain ways of transacting were much cheaper, especially across borders.

There has been a fair share of regulatory concerns when it comes to cryptocurrencies.

However, despite regulatory uncertainty and the Reserve Bank of India’s (RBI) concerns, India now has close to 400 cryptocurrency-based start-ups offering various services to the crypto ecosystem.

According to data sourced by BusinessLine from Tracxn, there are 380 crypto start-ups and 12 Non-fungible Tokens-based (NFT) start-ups currently operating in the country, as per previous reports.

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Fed officials express resolve to address inflation risks

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Federal Reserve officials in discussions earlier this month said the central bank “would not hesitate” to take appropriate actions to address inflation pressures that posed risks to the economy.

In minutes released on Wednesday of the Fed’s November 2-3 meeting, Fed officials maintained that the spike in inflation seen this year was still likely to be transitory while acknowledging that the rise in prices had been greater than expected.

The minutes covered a meeting in which the Fed voted to take the first step to roll back the massive support it has provided to an economy pushed into a recession last year after widespread lockdowns to contain the Covid-19 virus.

At the November meeting, the Fed approved reductions in the amount of Treasury bonds and mortgage-backed securities it had been purchasing to put downward pressure on long-term interest rates.

Also read: The return of inflation and what central banks are doing

The committee approved reducing by $15 billion in November and another $15 billion cut in December in the $120 billion in monthly purchases of Treasury bonds and mortgage-backed securities it had been making. The expectation was that these monthly reductions would continue until the bond purchase programme was phased out in the middle of next year.

Inflation in recent months has been hitting levels not seen in decades. Fed Chairman Jerome Powell and other Fed officials have argued that the prices pressures were likely to be transitory and fade away once problems such as supply chain bottlenecks are resolved.

Fed needs to reduce bond purchases quickly

But the Fed minutes showed a growing concern that the unwanted price pressures could last for a longer tie and the Fed should be prepared to move to reduce bond purchases more quickly or even start raising the Fed’s benchmark interest rate sooner to make sure inflation did not get out of hand.

“Various participants noted that the committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the committee’s objectives,” the minutes said.

The Feds policy rate was cut to a record low of 0 per cent to 0.25 per cent in the spring of 2020 as the Fed focused its efforts on keeping the Covid recession from spiralling into a deeper downturn.

The Fed will next meet on December 14-15 and some private economists said the central bank may decide to send a stronger signal at that time of the Fed’s intentions to address the economy’s jump in inflation.

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78.6% of women have bank accounts, up from 53% in NFHS-4, BFSI News, ET BFSI

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NEW DELHI: Nearly 81% women in urban India and 77.4% in the country’s rural area own a bank account that they operate themselves, as per the National Family Health Survey-5 (2019-21), the findings of which were released on Wednesday. Overall, there has been a big jump in numbers, with 78.6% women across India owning bank accounts as compared to 53% recorded in NFHS-4 (2015-16)

The survey also brought out data on how much of a “voice” women have in key household decisions. NFHS-5 assesses this by taking into account how many married women usually participate in three household decisions – healthcare for herself, making major household purchases, and visits to her family or relatives. NFHS-5 data shows that most women participate in these decisions and the percentage is quite high at 91% in urban India and 87.7% in rural parts.

The all-India percentage is 88.7% and is an increase over 84% in 2015-16. In terms of property ownership, there is still a long way to go even though there is an overall increase from 38.4% in 2015-16 to 43.3% in NFHS-5. Clearly the percentage of women owning a house and or land alone or jointly with others remains low. A notable fact here is that a much higher percentage of women in the country’s rural part (45.7%) have a property in their name compared to women in urban India (38.3%).

Women having a mobile phone that they themselves use has also gone up with 69.4% women in urban and 46.6% in rural India using a phone of their own. Overall, there has been an increase of 8% over the two NFHS periods from 45.9% to 54%.

It also showed how many women aged 15-24 years use hygienic methods of protection during their menstrual period – it is 89.4% in urban India and 72.3% in rural parts. Overall, compared to 57.6% women using hygienic methods of protection during menstruation in 2015-16 as per NFHS-4, 77.3% women use locally-made napkins, sanitary napkins, tampons and menstrual cups.



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Bank of Baroda arm partners OneCard for a new mobile-first metal card, BFSI News, ET BFSI

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Mumbai: Bank of Baroda’s credit card arm has partnered FPL Technologies-owned start-up OneCard to launch co-branded mobile-first metal credit cards. The internationally card will be issued by BFSL and managed by OneCard on VISA’s Signature platform.

OneCard offers users complete control of the credit card on spends, rewards, limits and payments through the app. The features include lifetime validity, zero joining and annual fee, instant virtual card issuance, instant issuance of reward points, and redemption within the app. It also claims to have the lowest forex fee in the market at just 1%.

Speaking at the launch, Shailendra Singh, MD & CEO, BFSL said, “BFSL is currently on its transformation journey, investing in technology, processes and people. The mobile-first OneCard further bolsters our portfolio of offerings, especially for the young, tech-savvy generation and reinforces our commitment towards unique and differentiated offerings for our customers”

BFSL was established as BOBCARDS in 1994 by Bank of Baroda, to manage the cards business. BFSL issues and manages Bank of Baroda Credit Cards, and is committed to becoming one of the largest Credit Card issuers in the country.

According to Anurag Sinha, Co-founder & CEO, OneCard the pandemic has brought about a drastic shift in consumer sentiments driving a strong inclination towards easy digital payments solutions.



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Union Bank of India partners Capri Global for co-lending, BFSI News, ET BFSI

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Mumbai: Union Bank of India has partnered Capri Global Capital (CGCL), an NBFC focused on MSMEs, and affordable housing finance segment, for co-lending. The two partners entered into a co-lending agreement under which they aim to disburse MSME loans across over 100 centres in India.

In November 2020, the RBI had issued guidelines enabling banks to co-lend with finance companies to the priority sector. The tie up aims to enhance last-mile credit and drive financial inclusion to MSMEs by offering secured loans between Rs 10 lakh to Rs 1 crore in tier-2 and -3 markets.

The agreement was signed in the presence of Rajkiran Rai G, MD & CEO, Union Bank of India and Rajesh Sharma, MD, Capri Global Capital. The NBFC will have the advantage of low cost funds while the bank will get the benefit of last mile efficiency of the NBFC.

“The partnership with CGCL is part of UBI’s strategy to support the MSMEs by providing tailor-made financial solutions and accelerating the growth of MSMEs to contribute to the country’s economic development,” said Rai.

According to Sharma, the aim is to reach out to a large section of society by offering easy, convenient, and efficient credit solutions and empowering them to be key contributors to fiscal growth. “Our focus is to support the grassroots entrepreneurship that creates economic value,” said Sharma.



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Technology, collaborations, personalisation will drive customer experience, say top bankers, BFSI News, ET BFSI

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Zuzar Tinwalla and Charu Mathur were part of a fireside chat, moderated by Amol Dethe, Editor, ETBFSI.

BFSI companies have been undergoing rapid digitisation for some years now. While many organisations had already been at the forefront in digitisation, the COVID-19 pandemic further amplified this adoption of new technologies.

“Pandemic has presented us with both difficulties and opportunities,” said Zuzar Tinwalla, COO-India & South Asia, Standard Chartered Bank at a fireside chat of ETBFSI Converge, titled ‘Crafting Tailor Made Products for Customers’.

Customer centric models

“Earlier, technologies were designed by keeping the internal processes guidelines and efficiency in mind, but that’s no longer the reality. Now, to be relevant, you have to keep the customer’s needs in mind.” he said, while elaborating on digitisation and how banks are catching up with it.

Charu Mathur, CDO & Head-Business Strategy of IndusInd Bank, adding to this, explained how banks have to be customer centric and not just process centric.

Technology, collaborations, personalisation will drive customer experience, say top bankers

“It is extremely important for us now to understand our clients very deeply and keep our ears close to them,” she added.

Zuzar Tinwalla and Charu Mathur were part of a fireside chat, moderated by Amol Dethe, Editor, ETBFSI.

Adopting technology: Data science, AI & ML

Banks are rapidly adopting new technologies like data and analytics, AI & ML, bots and robots. Tinwalla said, “ Anything more than 90 days is now considered obsolete.”

“We are investing capabilities in building the basic data foundation, and that’s a very critical function as you go along. And then sitting on top of that, you need an intelligent modeling capability or a data science function as we call it. Leveraging machine learning and artificial intelligence, and connecting dots and making logical sense out of it is important. And then at the top, you need a delivery mechanism,” said Mathur.

Although AI will progress, it will never replace human intelligence, Tinwalla said. “What is going to be appropriate for the organisation is still a human decision,” Zuzar added.

What does the future look like?

The panelists agree that many collaborations with fintechs are going to be witnessed in the coming years.

“There’s a lot to learn from fintechs,” said Tinwalla, while explaining how fintechs complement and compete with banks.

Technology, collaborations, personalisation will drive customer experience, say top bankers

On the innovation front, Mathur said, “Personalisation aspect will play a major role in driving customer experience. We see brands like Amazon and Netflix doing it quite well. I think more and more banks will probably start delivering something on the personalisation aspect, and demonstrate their ability of understanding the customer much deeper than what we do today.”

Furthermore, she believes that composable systems, which are completely API native to the core, will allow the banks to create products and services completely tailor made to a client’s unique requirements.



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Niti Aayog suggests setting up of full-stack ‘digital banks’

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A detailed architecture and sequencing of reform has been proposed in this paper, the purpose of which is to undertake stakeholder consultations. Based on the comments received, the paper will be finalised and shared as a policy recommendation from Niti Aayog.

The government think-tank Niti Aayog on Wednesday suggested setting up of full-stack ‘digital banks’ to deepen access to financial services in the country.

In a discussion paper, Niti Aayog examines the global scenario, and based on the same, recommends a new segment of regulated entities — full-stack digital banks.
A detailed architecture and sequencing of reform has been proposed in this paper, the purpose of which is to undertake stakeholder consultations. Based on the comments received, the paper will be finalised and shared as a policy recommendation from Niti Aayog.

Upon progression from the sandbox into the final stage, a full-stack digital business bank will be required to bring in `200 crore (equivalent to that required of the Small Finance bank). “Digital Banks” or DBs referred in this Paper means Banks as defined in the Banking Regulation Act, 1949 (BR Act).

“In other words, these entities will issue deposits, make loans and offer the full suite of services that the BR Act empowers them to. As the name suggests however, DBs will principally rely on the internet and other proximate channels22 to offer their services and not physical branches,” the think-tank said in the paper. However, as a natural corollary to being a “Bank” in full sense of its legal definition, it is proposed that DBs will be subject to prudential and liquidity norms at par with the incumbent commercial banks, it said.

Creating a new licensing / regulatory framework is being proposed as regulatory innovation and not as regulatory arbitrage. “

Having said that, DBs offer a differentiated proposition and as such, there is scope for differentiated treatment in adjacent areas of their operation consistent with treating them identically with incumbent commercial banks, in the critical areas of prudential and liquidity risk, it added.

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Fearing ban, crypto prices crash

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Prices of top cryptocurrencies, including Bitcoin, Ethereum, USDT, Shiba Inu, Dogecoin and Sandbox, crashed on Indian crypto exchanges on Wednesday as investors panicked after the government moved a Bill seeking to prohibit private cryptocurrencies while allowing certain exceptions to promote the underlying technology.

The cryptocurrencies were trading 15-20 per cent lower in the morning hours after which crypto exchanges rushed to calm investor frenzy over social media, asking them to hold on to their assets until the details of the proposed law become public. As of 5:25 pm, on Wednesday, while a few cryptocurrencies recovered, several top tokens continued to trade in red. Bitcoin’s price was still down by 8.3 per cent, Tether or USDT’s was trading lower by 8.77 per cent, Shiba Inu plunged 14.85 per cent and Ethereum was down by 5.4 per cent, according to data on WazirX.

Also read: Government moves to ban all private cryptos

But crypto exchanges said the proposed Bill may not ban cryptocurrencies altogether. Nischal Shetty, Founder, WazirX told BusinessLine, “While the description of the draft Bill appears to be the same as in January 2021, several noteworthy events have occurred since January. The understanding and knowledge around crypto today is far greater than it was until a few months ago. This is what gives me the hope that we’ll soon be able to classify crypto into currency, asset, utility or security. As an industry, we’re in sync with the fact that INR is the only legal tender in India, and crypto being an asset/utility which people buy and sell.”

Ashish Singhal, Founder and CEO, CoinSwitch Kuber, said investors should calm down and take investment decisions without relying on secondary source of information. “Our discussions with stakeholders over the last few weeks indicate that there is a broad agreement on ensuring users are protected, financial system stability is reinforced and India is able to take advantage of the crypto technology revolution.”

Investment caps

According to an industry source, the proposed law may bring in investment caps to protect small investors. Another source said that existing investors will be given time to exit if there was a ban. The government did not shed any light on the provisions of the Bill which added to investor confusion, leading many to sell at a loss. “I had invested ₹5,000 last year which had grown to ₹16,000 but I sold it today after I read about the proposed Bill,” said Sumit Manikchand from Mumbai.

Others like 26-year-old retail investor Viraj Sheth, Co-founder and CEO Monk Entertainment, bought more. “People start selling when prices start dropping by 15-17 per cent, thinking it would tank further. But it has already started recovering. It’s up by 7 per cent or more. I have actually bought more Ethereum, Bitcoin and Matic in the morning today. I am okay to hold it for 10 years. And just in case its value goes down to zero tomorrow, it is still okay as it is only 20 per cent of my wealth. My bet truly is on the exponential return it will possibly give me if it does not go down to zero,” Sheth told BusinessLine.

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