Indusind Bank says whistleblower claims baseless; gave 84k loans sans client consent in May, BFSI News, ET BFSI

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Mumbai, Terming whistleblower allegations on loan evergreening as “grossly inaccurate and baseless”, Indusind Bank on Saturday admitted to have disbursed 84,000 loans without customer consent in May owing to a “technical glitch”. Lending without the consent was reported by the field staff in two days, and the glitch was also rectified expeditiously, the private sector lender said in a clarification.

On Friday, there was a media report about anonymous whistleblowers writing to the bank management and the RBI about BFIL, the microlending-focused subsidiary of the bank, allegedly resorting to evergreening of loans, wherein existing borrowers unable to pay dues were given new loans to present the books as clean.

“The bank strongly denies the allegations of ‘evergreening’. All the loans originated and managed by BFIL, including during the COVID period which saw the first and second waves ravaging the countryside, are fully compliant with the regulatory guidelines,” an official statement said.

“Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement,” it added.

“Operational issues” due to the pandemic’s second wave like lockdowns, containment zones, and restrictions at the village/panchayat level had necessitated disbursement of some loans in cash, it said.

At the end of September, 26,073 of these 84,000 clients were active with the loan outstanding at Rs 34 crore, which is 0.12 per cent of the September-end portfolio, the bank said, adding that it carries necessary provisions against the loans.

It also said that the Standard Operating Procedure has since been revised to make biometric authorization compulsory, and that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-COVID time.

During the pandemic, customers faced operational difficulties and some have turned to intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions, the bank statement said.

The bank added that help was rendered to such clients, including through additional liquidity support to the extent of 20 per cent of the outstanding as on February 29, 2020 as applicable under the ECLGS (Emergency credit line guarantee Scheme), restructuring, and additional loan with a longer tenor and lower EWI (equated weekly instalments) for customers, after they cleared of their arrears and with their due consent.

It can be noted that nearly all the lenders have reported reverses on the microloans front since the beginning of the pandemic. The activity is concentrated in rural areas, where field agents of a lender go deep to disburse loans and also collect dues in cash on a weekly basis.

With the easing of the lockdown measures, all lenders are reporting an improvement in collections and also disbursements.

Indusind Bank management had reported an increase in stress in the microfinance loans portfolio, with the gross non-performing assets ratio moving up to 3.01 per cent as of September, up from 1.69 per cent in June.

The fresh slippages in the book had stood at Rs 1,070 crore in the September quarter, while the net after-recoveries and upgrades stood at Rs 460 crore.

As per the media report on Friday, communication from the whistleblowers to the bank’s chief executive Sumant Kathpalia, independent directors and RBI officials had happened between October 17 and October 24. Additionally, there was also an “outsider” who had written to RBI on October 14, it said.

The report had highlighted that a month prior to the October 14 complaint, BFIL’s non-executive chairman M R Rao had stepped down and also flagged RBI’s concerns on the loans given without customer consent in his resignation letter, calling it a deliberate act to shore up repayment rates. PTI AA DRR DRR



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IndusInd Bank says whistleblower claims baseless; gave 84k loans sans client consent in May

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Terming whistleblower allegations on loan evergreening as “grossly inaccurate and baseless”, IndusInd Bank on Saturday admitted to have disbursed 84,000 loans without customer consent in May owing to a “technical glitch”.

Lending without the consent was reported by the field staff in two days, and the glitch was also rectified expeditiously, the private sector lender said in a clarification.

On Friday, there was a media report about anonymous whistleblowers writing to the bank management and the RBI about BFIL, the microlending-focused subsidiary of the bank, allegedly resorting to evergreening of loans, wherein existing borrowers unable to pay dues were given new loans to present the books as clean.

“The bank strongly denies the allegations of ‘evergreening’. All the loans originated and managed by BFIL, including during the Covid period which saw the first and second waves ravaging the countryside, are fully compliant with the regulatory guidelines,” an official statement said.

“Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement,” it added.

“Operational issues” due to the pandemic’s second wave like lockdowns, containment zones, and restrictions at the village/panchayat level had necessitated disbursement of some loans in cash, it said.

At the end of September, 26,073 of these 84,000 clients were active with the loan outstanding at ₹34 crore, which is 0.12 per cent of the September-end portfolio, the bank said, adding that it carries necessary provisions against the loans.

It also said that the Standard Operating Procedure has since been revised to make biometric authorization compulsory, and that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-Covid time.

During the pandemic, customers faced operational difficulties and some have turned to intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions, the bank statement said.

The bank added that help was rendered to such clients, including through additional liquidity support to the extent of 20 per cent of the outstanding as on February 29, 2020 as applicable under the ECLGS (Emergency credit line guarantee Scheme), restructuring, and additional loan with a longer tenor and lower EWI (equated weekly instalments) for customers, after they cleared of their arrears and with their due consent.

Also read: IndusInd Bank Q2 net profit up 72%

It can be noted that nearly all the lenders have reported reverses on the microloans front since the beginning of the pandemic. The activity is concentrated in rural areas, where field agents of a lender go deep to disburse loans and also collect dues in cash on a weekly basis.

With the easing of the lockdown measures, all lenders are reporting an improvement in collections and also disbursements.

IndusInd Bank management had reported an increase in stress in the microfinance loans portfolio, with the gross non-performing assets ratio moving up to 3.01 per cent as of September, up from 1.69 per cent in June.

The fresh slippages in the book had stood at ₹1,070 crore in the September quarter, while the net after-recoveries and upgrades stood at ₹460 crore.

As per the media report on Friday, communication from the whistleblowers to the bank’s chief executive Sumant Kathpalia, independent directors and RBI officials had happened between October 17 and October 24. Additionally, there was also an “outsider” who had written to RBI on October 14, it said.

The report had highlighted that a month prior to the October 14 complaint, BFIL’s non-executive chairman MR Rao had stepped down and also flagged RBI’s concerns on the loans given without customer consent in his resignation letter, calling it a deliberate act to shore up repayment rates.

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Bankers of McLeod Russel sign ICA for resolution on debt recast, BFSI News, ET BFSI

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Bulk tea major McLeod Russel India on Friday said its bankers have signed an Inter Creditors Agreement (ICA), a precursor to a resolution plan for debt restructuring, that rekindled hope of revival of the once largest tea producer of the world. After the promoters of McLeod reach a settlement with a financial creditor, Techno Electric & Engineering, the company could be out of National Company Law Tribunal‘s insolvency process.

The trigger for the insolvency application by Techno was a loan agreement for providing Rs 100 crore inter-corporate deposit (ICD).

“We hope to reach a satisfactory resolution shortly with the bankers on debt recast,” a McLeod official told PTI.

“All the banking lenders have signed/executed an Inter Creditors Agreement (ICA) to provide for ground rules for finalisation and implementation of Resolution Plan in respect of borrower/Company”, McLeod Russel said in a stock exchange filing.

There are nearly 8-10 lenders including a combination of private and public-sector banks, such as Axis Bank, UCO Bank, Allahabad Bank, Indusind Bank and ICICI Bank.

The outstanding debt including interest will be around Rs 2100-2300 crore, company officials estimated which is not sustainable for the tea major.

Till March 2018, McLeod had 52 estates in the country producing 67 million kg of tea with a total saleable production of 89 million kg. By FY20, its total saleable quantity had dropped by nearly 53 per cent to 42 million kgs with the company selling estates to square off debts.

A slew of ICDs – unsecured borrowings from other entities – extended to some of the other BM Khaitan group companies, hurtled the tea major into a serious crisis. PTI BSM NN NN



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Australia’s banking regulator looks into CBA’s jump into crypto, BFSI News, ET BFSI

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By Paulina Duran

SYDNEY, – Australia‘s banking watchdog said it was examining the regulatory implications of Commonwealth Bank‘s’s planned introduction of bitcoin trading to unsophisticated retail investors – the first bank in Australia to do so.

CBA says it would welcome a clear regulatory framework for crytpocurrencies, which are not formally regulated in Australia.

On Wednesday CBA broke banking industry ranks to match offerings from fintech firms by announcing it will become the first main-street bank in the developed world to offer a platform for retail customers to trade cryptocurrencies.

The move is forcing financial watchdogs in Australia to immediately focus on the volatile $2 trillion crypto trading industry that many argue has no intrinsic value and relies on users’ complete trust in different types of software.

A spokesman for the Australian Prudential Regulation Authority (APRA) told Reuters the country’s largest lender had made the regulator aware of its plans and the authority was “examining regulatory issues that this raises”.

After a staged pilot for 2,000 people, CBA will give easy access to crypto trading in 10 assets to about a third of Australian adults already using its industry-leading mobile banking app, which also offers energy retailers discounts and carbon emission trackers.

CBA’s crypto trading service will be provided in partnership with Gemini Trust Company, one of the world’s largest crypto exchanges that was created in 2014 by the Winklevoss brothers, famous for accusing Facebook’s founder of stealing their idea.

The anti-money laundering watchdog the Australian Transaction Reports and Analysis Centre said that it was “engaging … in relation to this new product offering” with both CBA and Gemini.

CBA says it would welcome regulatory clarity in the space, and that its product was designed with risk-mitigation and regulatory concerns front of mind for both the bank and to ensure people feel safe when using the product.

“We would really welcome regulatory clarity for crypto assets. We think it would improve the market, enhance trust and it would raise the bar in terms of customer protection,” said Sophie Gilder, Commonwealth Bank’s head of Blockchain and the bank’s project leader.

CBA’s offering will be a “a closed loop” connected to a CBA bank account, that would be monitored with cryptocurrency anti-money laundering services from Chainalysis for any potential suspicious activity.

“We’ve got complete transparency as to customer activity and can report on that to regulators when necessary,” Gilder said, which includes customary reporting to the taxation authority.

“We will not, as soon as the pilot ends, open it to everyone. It will be a more gradual process than that, which I think is appropriate considering the volatility of crypto.”

(Reporting by Paulina Duran in Sydney; Editing by Michael Perry)



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Dhanlaxmi Bank Q2 net plunges 74% as bad assets rise

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In value terms, gross NPAs increased to Rs 604.15 crore from Rs 448.72 crore in the year-ago period.

Dhanlaxmi Bank on Friday reported a 74% year-on-year (Y-o-Y) decline in its net profit to Rs 3.66 crore for the quarter ended in September 2021 as provisions rose due to a spike in bad loans. The Thrissur-based lender had reported a net profit of Rs 14.01 crore in Q2 of FY21 and Rs 6.79 crore in the preceding quarter.

Provisions and contingencies have increased by 422% to Rs 22.40 crore, as against Rs 4.29 crore in the year-ago period.

The asset quality has worsened with gross NPA as a percentage of gross advances rising to 8.67% for the quarter under review, against 6.36% in the second quarter of last fiscal and 9.27% in Q1 of FY22.

The net NPA ratio was reported at 4.92%, compared to 1.66% reported in the year-ago period and 4.58% in the first quarter of the current fiscal.

In value terms, gross NPAs increased to Rs 604.15 crore from Rs 448.72 crore in the year-ago period.

The total income for Q2 of FY22 was higher by 6.7% YoY to Rs 266.59 crore, while the bank’s interest income falling to Rs 229.01 and other income increasing to Rs 37.58 crore from Rs 5.69 crore in the comparable period of last fiscal.

The provision coverage ratio (including technical write-off) as of September 30, 2021, was 74.18% and the capital adequacy ratio stood at 13.64%.

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Banks make higher-than-required provisions for Srei Group exposure

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Large public sector banks (PSBs) have proactively made substantially higher provisions, ranging from 40-100 per cent, towards their exposure to the Kolkata-based Srei Group against the usual regulatory requirement of 15 per cent.

Forensic audit

This is due to the uncertainty over what a forensic audit of the account may reveal and the haircut lenders may have to take under the corporate insolvency resolution process (CIRP) initiated against the group.

The Reserve Bank of India’s norms require banks to make a general provision of 15 per cent on their total outstanding exposure to a substandard asset. Unsecured substandard assets attract an additional provision of 10 per cent.

Bankers say they don’t want any surprises on the provisioning front in the coming quarters vis-a-vis the Srei account, which comprises Srei Infrastructure Finance Ltd (SIFL) and its wholly owned subsidiary Srei Equipment Finance Ltd (SEFL).

Moreover, recovery from the resolution of DHFL and healthy profit in the second quarter have given them the elbow room to increase the provisions.

The banks that have made higher upfront provisions towards their exposure to the Srei Group include State Bank of India (SBI, 100 per cent), Union Bank of India (UBI, 65 per cent), Bank of India and Central Bank of India (BoI, CBoI 50 per cent each), and Punjab National Bank (PNB, 40 per cent). PNB has an exposure of ₹2,600 crore to the Srei group, UBI ₹2,558 crore, BoI ₹1,024 crore in direct exposure and ₹970 crore via pooled route, and CBoI ₹1,149 crore. SBI’s exposure is believed to be over ₹2,000 crore.

₹26,476-crore borrowings

As at March-end 2021, the consolidated borrowings of the Srei Group stood at ₹26,476 crore. This includes term loans, working capital facilities, collateral borrowings and unsecured loans. Liabilities in the form of debt securities and subordinated liabilities stood at ₹2,441 crore and ₹2,785 crore respectively.

Governance concerns

RBI had, on October 4, 2021, superseded the Board of Directors of SIFL and SEFL. The central bank, in a statement, said it took this action owing to governance concerns and defaults by these companies in meeting their various payment obligations.

It appointed Rajneesh Sharma, Ex- Chief General Manager, Bank of Baroda, as the Administrator of the aforesaid companies.

The central bank’s applications for initiation of CIRP against SIFL and SEFL under the Insolvency and Bankruptcy Code (IBC), 2016, read with Financial Service Providers Insolvency Rules were admitted by the Kolkata Bench of the National Company Law Tribunal on October 8.

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Muthoot Finance sees net profit grow 11% to ₹994 crore in Q2

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Gold loan lender Muthoot Finance has posted 11 per cent growth in its net profit to ₹994 crore in Q2FY22 against ₹894 crore in Q2FY21.

Consolidated profit was ₹1,002 crore compared to ₹979 crore in the corresponding period of the previous fiscal. Loan assets stood at ₹55,147 crore compared to ₹47,016 crore last year, a growth of 17 per cent. Over the quarter, gold loan assets increased by ₹2,613 crore, a rise of 5 per cent.

Also see: Muthoot Fincorp organises Small Shop Days in Kochi

George Jacob Muthoot, Chair, Muthoot Finance, said, “As the second wave of the pandemic ebbs and the economy further unlocks, corporate India has emerged stronger and better. We were able to maintain growth momentum during the quarter with all of our branches now open for business. Our consolidated AUM stood at ₹60,919 crore as of end September 2021, clocking a growth of five per cent QoQ and a growth of 17 per cent YoY despite a challenging business environment. The contribution of our subsidiaries to the overall consolidated AUM stands steady at 10 per cent.”

Growth in gold loans

George Alexander Muthoot, Managing Director, Muthoot Finance, said, “The demand environment remains strong and as we enter the festive season, we remain optimistic about growth momentum in gold loan over the second half of FY22. We are optimistic about growing our gold loan book further and maintain 15 per cent growth guidance for FY22.

Also see: Why gold loans continue to glitter in these trying times

“We are witnessing improved collections across microfinance, vehicle finance and home loans. In the last quarter, we had consciously decided to go slow on non-gold lending business. We continue to remain conscious and monitor the space for emerging opportunities. We will continue to follow the strategy of balanced growth while maintaining overall asset quality,” he added.

Subsidiary contributions

Muthoot Homefin (India) has posted a PAT of ₹0.23 crore in Q2 and total revenue of ₹46 crore. Belstar Microfinance achieved a PAT of ₹2 crore and total revenue for Q2 stood at ₹150 crore. Muthoot Insurance Brokers achieved a PAT of ₹5 crore. Asia Asset Finance achieved a PAT of LKR 2 crore (around ₹0.73 crore). Muthoot Money achieved a PAT of ₹0.92 crore.

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Bandhan Bank eyes reduction in group microfinance loans

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Bandhan Bank is looking to bring down the share of group microfinance loans to around 50 per cent by March 2022 and to 30 per cent of its total loan book in the next four to five years.

Diversify asset mix

The share of group loan to the total loan book of the bank, which was around ₹81,660 crore, currently stands at close to 57 per cent.

The bank plans to grow the share of individual loans which are typically not restrained by ticket size (as in the case of group loans) to around 20–30 per cent (of its total loan book) from the current 10 per cent as a part of its strategy to diversify its asset mix.

Group to individual loans

According to Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank, the bank is in the process of upgrading some of their group loan borrowers into individual loanees. The bank chooses some of its existing borrowers under group loan model who have been doing well and generating “good income”. It also checks for the credit quality using data from credit bureaus before upgrading the customer into an individual borrower.

Also see: Bandhan Bank posts ₹3,009-cr net loss in Sept quarter on high provision

“We developed this product (group loan to individual loan) about two years back and we have tested the system and processes. It has witnessed a very good growth of around 155 per cent on a y-o-y basis. Individual loans account for around 14 per cent of our total microcredit book and in the future we are looking to diversify group loan to individual loan,” Ghosh told BusinessLine.

Save on time

While there may not be much of a difference in terms of interest paid by both set of borrowers, individual loanees are usually not required to attend group meetings which are organised on a weekly or fortnightly basis, thereby saving time. Staff can utilise the time to grow other businesses.

Besides, unlike in group loans where there is a cap on the amount that can be disbursed to a particular group (by a set of lenders), in individual loans that is not the case and the bank can extend a loan based on the viability of the business model, Ghosh said. Moreover, the bank would also be free to cross-sell other products including housing loan, consumer loan etc to these customers, thereby bringing in more business in the future.

Vision 2025

The bank, which had unveiled its Vision 2025 last year and laid out a roadmap for diversification, expects the plan to get pushed back by a few months due to Covid induced slowdown and its impact on businesses.

As on September 30, 2021, its total advances stood at ₹81,660 crore. Of this, group microcredit (EEB Group) accounted for around 57 per cent, individual loans (EEB Individual) around 10 per cent, commercial 8 per cent, housing 24 per cent, and retail one per cent.

Also see: RBI approves Bandhan Bank as ‘agency bank’ to conduct govt biz

Under Vision 2025, the share of group loans should come down to 30 per cent; individual and commercial loan together should account for around 30 per cent; housing would be another 30 per cent and the share of retail is expected to increase to 10 per cent.

“Our Vision 2025 plans may get delayed by one year because of this Covid…. we should get a clearer picture next year and we would be able to revise our plan accordingly,” Ghosh said.

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Crypto exchanges launch crypto gift cards

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Amidst rising investor interest, cryptocurrency exchanges have launched crypto gift cards as an alternative to traditional gifts like sweets given on Diwali and other festive occassions.

Bitbns has launched exclusive crypto gift cards.

“These gift cards will be available in multiple cryptocurrency options like Bitcoin, Ethereum and many more,” it said in a statement.

Starting on November 4, anyone can avail of the benefits of the crypto gift cards irrespective of whether they invest or trade in cryptocurrency, it said.

CrossTower

Similarly, CrossTower has also introduced an e-gift card feature that allows its users to gift cryptocurrencies of their choice to friends and families.

“Indian users can create a personalised gift card by adding their preferred cryptocurrency from CrossTower wallet, to generate a unique card ready for sharing,” it said.

Users receiving the e-gift card can redeem it at the CrossTower India App (Application) by sharing the voucher link in the ‘Redeem’ section, after registering with the platform. The cryptocurrency will be automatically updated in their CrossTower wallet.

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Dollar in driver’s seat as payrolls loom; sterling staggers

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The dollar was on course for a second straight week of gains against major peers on Friday, ahead of a key US jobs report that could sway the timing of Federal Reserve interest rate increases.

Sterling headed for its worst week in 11 after the Bank of England caught the market off-guard by keeping rates steady on Thursday.

The dollar index, which measures the greenback against a basket of six rivals, was steady at 94.327 after rallying 0.51 per cent overnight. That lifted it into the positive for the week, adding 0.20 per cent.

The British pound was little changed on Friday following a 1.36 per cent tumble in the previous session that set it upfor a 1.39 per cent slump for the week.

Investors have been forced to reset monetary policy expectations this week, after some of the biggest global central banks knocked back bets for early rate hikes.

European Central Bank President Christine Lagarde pushed back on Wednesday against market bets for a rate hike as soon as next October and said it was very unlikely such a move would occur in 2022.

Also on Wednesday, Fed Chair Jerome Powell said he was in no rush to hike borrowing costs, even as the Federal Open Market Committee announced a $15 billion monthly tapering of its $120 billion in monthly asset purchases.

The Fed has set a labour market recovery as a condition for rates lift-off. US non-farm payrolls due later on Friday are forecast by economists to show a 450,000 surge in jobs in October, following a 194,000 rise in the prior month.

“The FOMC delivered a ‘dovish taper,’ but the USD is still better positioned than most,” Westpac strategists wrote in a client note.

“Payrolls this week should be at least as strong as consensus given signs that recovery momentum is accelerating again,” making dips into the mid-93s a buying opportunity for the dollar index, they said.

Euro trades flat

The euro was little changed at $1.1556 after dropping 0.49 per cent overnight, putting it on course for a 0.16 per cent decline this week.

“If the markets are indeed dominated by the ‘taking away the punch bowl’ theme, then this force will prove consistently corrosive against the EUR,” Deutsche Bank macro strategist Alan Ruskin wrote in a research note.

“It may need more than payrolls to break 1.15, but payrolls will not stand in the way of the USD chipping away at EUR/USD’s major downside support.”

The dollar was about flat at 113.67 yen, down 0.29 per cent since last Friday. While the Bank of Japan is set to be slowest among developed-market central banks to normalize policy, the Japanese currency benefited as those expectations remained constant while investors cut bets elsewhere.

The Reserve Bank of Australia set the tone for the week on Tuesday, when policy makers stuck to their dovish stance in the face of increasingly sticky inflation pressures.

On Friday, the RBA said in its statement on monetary policy that “an increase in the cash rate in 2023 could be warranted. However, in the Board’s view, the latest data and forecasts do not warrant an increase in the cash rate in 2022,” as markets are pricing.

The Aussie dollar was slightly lower on the day at $0.7394, adding to the previous session’s 0.67 per cent decline and putting it on course for a 1.67 per cent drop this week.

New Zealand’s kiwi dollar slipped 0.09 per cent to $0.70915 after a 0.81 per cent slide on Thursday, setting up a 1.07 per cent weekly loss.

Among cryptocurrencies, bitcoin was around $62,100, having largely traded sideways since it hit its all-time high above $67,000 last month.

Ether, the second-biggest cryptocurrency, traded around $4,500 after hitting a record high of $4,670.81 on Wednesday.

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