Mumbai, Reserve Bank of India (RBI) remained a net buyer of the US currency in August after it net purchased USD 3.747 billion from the spot market. In the reporting month, RBI had purchased USD 10.887 billion and sold USD 7.14 billion in the spot market, according to the monthly RBI bulletin for October 2021 released on Monday.
In July, RBI net purchased USD 7.205 billion. It had bought USD 16.16 billion and sold USD 8.955 billion during the month. In August 2020, the central bank had net bought USD 5.307 billion from the spot market, the data showed.
During FY 2020-21, RBI had net purchased USD 68.315 billion from the spot market. It had bought USD 162.479 billion from the spot market and sold USD 94.164 billion during 2020-21, the data showed.
In the forward dollar market, the outstanding net purchase at the end of August was USD 49.606 billion compared with a net purchase of USD 49.01 billion in July. PTI HV RAM
The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.
The European Central Bank, in July 2021 launched a digital euro project. The investigation phase that will start this month and last for about two years will aim to address key issues regarding design and distribution.
Central banks around the world, including the Reserve Bank of India, have been contemplating the launch of their very own CBDC. A total of 81 countries, representing 90% of global GDP, are exploring CBDC as of May 2021, compared with 35 countries in May 2020, according to Atlantic Council, a US think tank.
“Some of the other countries, like the UK and Sweden, also have their own projects, which are more or less in a similar stage in terms of progress, following their own path in terms of policy and design,” Aleksi Grym, head of digitalisation at Bank of Finland said.
The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.
What is Digital Euro?
The Digital Euro would be a form of central bank money issued by the European Central Bank, and will remain its liability at all times.
According to the ECB, the Digital Euro would still be a euro, like banknotes but digital. It would be an electronic form of money issued by the Eurosystem (the ECB and national central banks) and accessible to all citizens and firms. It will not be a parallel currency.
“The broad consensus is that CBDC would complement rather than substitute any existing part of the financial industry,” said Grym.
The operational and legislative framework to introduce the CBDC will be discussed with the European Parliament and other European institutions, and the access to the digital euro will be intermediated by the private sector.
What are the reasons to issue a digital Euro?
The Digital Euro will be a viable option for the Eurosystem, in order to support digitisation in payments. It could act as a new monetary policy transmission channel and mitigate risks to the normal provision of payment services, the ECB said.
The bank further mentioned that it could serve as a response to a significant decline in the role of cash as a means of payment.
Furthermore, the bank said that it could reduce the significant potential for foreign CBDCs or private digital payments to become widely used in the euro area while fostering the international role of the euro.
What will it look like?
The ECB has not yet specified a particular design of a Digital Euro. It wants to fulfil a number of principles and requirements including accessibility, robustness, safety, efficiency and privacy.
Although, based on the possible features of a Digital Euro, two broad types have been identified that would satisfy the desired characteristics – offline and online.
“The design of the CBDC has to be compatible with the objective of monetary and financial stability,” Grym said.
“For the Eurozone, we primarily look at retail CBDC, and the reason for that is that we already have quite a sort of advanced infrastructure for the wholesale cases,” he added. When will the Eurozone have its CBDC?
The CBDC project was launched in July this year. However, the ECB has said that the end of this project will not necessarily result in the issuance of this currency, and that the central bank is merely preparing for the possibility of its issuance in the future.
“From the European perspective, we kind of envision what the world will look like not today but in 10, 20 or 30 years. The idea is that we’re looking at moving towards a much more digitized world, which is moving faster.That’s where cbdc will be designed for not necessarily the work we see today,” Grym said.
The investigation phase will examine the advantages and weaknesses of specific types of digital euro and how they would meet the needs and expectations of European citizens, businesses and financial intermediaries.
The Reserve Bank of India on Monday slapped a fine of Rs 1 crore on State Bank of India for failing to comply with fraud classification rules. The regulator said it had conducted a probe in accounts maintained with SBI and had found it deficient in reporting frauds.
“A scrutiny was carried out by the RBI in a customer account maintained with the bank and the examination of the scrutiny report and all related correspondence pertaining to the same, revealed non-compliance with the aforesaid directions to the extent of delay in reporting of fraud in the said account to RBI,” the regulator said in a statement.
It also issued a notice to the lender advising it to show cause why penalty should not be imposed on it for such non-compliance with the said directions.
“After considering the bank’s reply to the notice and oral submissions made by the bank in the personal hearing, RBI came to the conclusion that the charge of non- compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty,” the regulator said.
With the bad bank on the anvil, asset reconstruction companies have sought relaxation of the pricing structure for the purchase of bad loans, funding from banks, and clarity on participating in insolvency cases as a resolution applicant. These are among the suggestions made by ARCs to the committee formed by the Reserve Bank of India in April.
Usually, sales take place either on a full-cash basis or under the 15:85 structure, where 15% is paid as upfront cash and the remaining in the form of security receipts.
ARCs have sought a reduction in the minimum investment requirement to 2.5% from 15% in cases where cash is fully paid upfront.
The cash proportion of 15% has pushed the ARCs to raise their returns through securitisation and asset reconstruction.
Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, an ARC will make a loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed.
Also, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books. So there is no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are in cash.
Bank funding
Asset reconstruction companies have asked RBI to allow bank funding for them on the lines of provided to non-banking finance companies. They have also sought doing away with dual-provisioning norms, a move which will benefit banks the most.
ARCs have suggested that bank provisioning needs to be solely based on the rating agency-determined net asset value of the security receipts.
From April 2018, banks have had to make provisions for stressed assets that are sold, assuming they remain on the books. This is applicable in cases where security receipts make up for more than 10% in the sale of non-performing assets.
Banks also have to make mark-to-market provisions in cases where the rating of security receipts is downgraded. Security receipts are valued on net asset values, linked to recovery ratings, which is an assessment of probable recovery from an underlying non-performing asset by rating agencies.
With banks not having to go for dual provisioning, they sell NPAs on a 15:85 structure, making more NPAs available for ARCs.
Currently, outstanding security receipts are estimated to be around Rs 1.1 lakh crore.
In April this year, the RBI has formed a six-member panel under the chairmanship of Sudarshan Sen, former RBI executive director, to examine the role of asset reconstruction companies (ARCs) in stressed debt resolution, including under the Insolvency & Bankruptcy Code (IBC), 2016 and review their business model.
The committee is reviewing the legal and regulatory framework of ARCs and recommend measures to improve their efficacy. It will submit its report within three months from the date of its first meeting. As of January, the number of ARCs registered with the RBI stood at 28.
In an order dated September 20, the Hyderabad ‘B’ bench of the Income Tax Appellate Tribunal had said that Soma Infrastructure was a subsidiary of Soma Enterprise.
ICICI Bank on Monday sought expressions of interest (EoIs) from asset reconstruction companies (ARCs) for its Rs 338-crore exposure to Soma Infrastructure. The asset is being offered on a full-cash basis. Soma Infrastructure is a Hyderabad-based company that owes ICICI Bank over Rs 149 crore in principal dues, and another Rs 189 crore in accrued interest and other charges.
In an order dated September 20, the Hyderabad ‘B’ bench of the Income Tax Appellate Tribunal had said that Soma Infrastructure was a subsidiary of Soma Enterprise. “…it is clear that assessee is a subsidiary company and assessee has diverted the funds sanctioned by ICICI Bank to the step down subsidiaries i.e. Beta Infratech P. Ltd. and Soma Jabalpur Rewa Tollway Pvt. Ltd.(SPV),” the tribunal observed in the order.
The tribunal further said that Soma Infrastructure is a company incorporated and active in providing consultancy services to its parent company and has no other business connections with the other step-down subsidiaries of Soma Enterprise, except related concern. “The assessee was utilised by the parent company to source the funds from the bank after giving the required bank guarantee. “The funds were utilised by the step down companies and we notice that assessee has advanced to M/s Beta Infratech as long term unsecured loan,” the order said. The funds were utilised in the business for the purpose of making payments for fixed assets and capital work-in-progress. At the same time, Soma Jabalpur Rewa Tollway received the loan from Soma Infrastructure and diverted it to the holding company, the appellate tribunal said.
In February this year, lenders to the parent company Soma Enterprise, led by State Bank of India, had also initiated the process for selling their loans. The loans to this company stood at Rs 2,099 crore as on March 31, 2020, while investments in it were to the tune of Rs 1,345 crore.
The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹1.95 crore on Standard Chartered Bank (StanChart)-India and ₹1 crore on State Bank of India (SBI).
In the case of StanChart, RBI has imposed the monetary penalty for non-compliance with its directions on ‘Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions’, ‘Cyber Security Framework in Banks’, ‘Credit Card Operations of banks’ and ‘Creation of a Central Repository of Large Common Exposures – Across Banks’ .
Non-compliance
In the case of SBI, the central bank has imposed the monetary penalty for non-compliance with its directions contained in ‘Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions 2016’.
RBI had conducted a Statutory Inspection for Supervisory Evaluation (ISE) of StanChart with reference to its financial position as on March 31, 2020. The central bank, in a statement, observed that examination of the Risk Assessment Report, Inspection Report and all related correspondence pertaining to the same, revealed, inter-alia, non-compliance with the above-mentioned directions to the extent of: failure to credit (shadow reversal) the amount involved in the unauthorised electronic transactions; and not reporting cyber security incident within the prescribed time period.
Further, RBI found non-compliance with directions relating to authorising the direct sales agents (outsourced third party) to conduct KYC (know your customer) verification; and failure to ensure integrity and quality of data submitted in Central Repository of Information on Large Credits (CRILC).
RBI said, in furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for contravention of / non-compliance with the aforesaid directions, as stated therein.
“After considering the bank’s replies to the notice, oral submissions made during the personal hearing, and additional submissions made by the bank, RBI came to the conclusion that the charge of contravention of / non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty on the bank, to the extent of non-compliance with the aforesaid directions,” per the central bank.
In the case of SBI, RBI had carried out a scrutiny in a customer account maintained with SBI and the examination of the scrutiny report and all related correspondence pertaining to the same, revealed, inter alia, non-compliance with the aforesaid directions to the extent of delay in reporting of fraud in the said account to RBI.
In furtherance to the same, a notice was issued to the bank advising it to show cause why penalty should not be imposed on it for such non-compliance with the said directions.
“After considering the bank’s reply to the notice and oral submissions made by the bank in the personal hearing, RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty, to the extent of non-compliance with the aforesaid directions,” the statement said.
In the case of both the banks, RBI said its action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.
Edelweiss Group on Monday announced the divestment of its majority stake in Edelweiss Gallagher Insurance Brokers Ltd (EGIBL) after approval from the Insurance Regulatory and Development Authority of India (IRDAI).
On receipt of the necessary approvals, the company, has in the first tranche, transferred 61 per cent of the stake held by the company in EGIBL to Arthur J Gallagher and Company (AJG) on October 18, 2021, Edelweiss Group said in a stock exchange filing.
“Consequently, AJG now owns 91 per cent of EGIBL, as a result of which EGIBL has ceased to be the subsidiary of the company,” it further said.
Gallagher and Edelweiss had announced the transaction in July 2021 under which Gallagher, which previously held 30 per cent stake in the business, bought out the 70 per cent stake of Edelweiss Group in the company.
“The business will transition to the Gallagher brand in the coming months,” Edelweiss Group said in a statement, adding that it will will focus on growing its life and non-life insurance businesses, which have been among the fastest-growing in the industry.
Rashesh Shah, Chairman, Edelweiss Group said, “This move brings to us the flexibility to reallocate capital, which post this transaction and the strategic partnership in our Wealth Business, is ample. We now have adequate capital and a stronger balance sheet and look forward to scaling up our fast-growing life and non-life insurance businesses, as India turns a corner post the Covid pandemic.”
Digital payments company PhonePe has reported a revenue of ₹690 crore in FY 21, which is about an 85.5 per cent jump from ₹372 crore revenue reported in FY20, according to the company’s recent regulatory filings.
Majority of the company’s revenue has come from payments and allied services. PhonePe claims to have a 45 per cent market share in digital payments, and a 300 million user base.
Further, the company’s net loss during the period stood at ₹1,727 crore as compared to ₹1,771 crore in FY20. A major part of the company’s cost this year was on employee benefits.
Excluding the ESOPs allocated by the company in FY21, PhonePe’s costs during this period stood at ₹884.4 crore, which is about 44 per cent less than costs incurred last year.
Reduced expenses
The company reduced various costs during this period, including the marketing and promotional expenses which stood at ₹535 crore in FY 21, as compared to ₹1,016 crore in FY 20, about 47 per cent drop in these costs. Further, costs like payment processing fee and customer support also were brought down by 28 per cent and about 34 percent respectively.
PhonePe is digital payments platform with over 300 million registered users. Using PhonePe, users can send and receive money, recharge mobile, DTH, data cards, pay at stores, make utility payments, buy gold and make investments.
PhonePe forayed into financial services in 2017 with the launch of gold category, providing users with an option to buy 24-karat gold securely on its platform. PhonePe has since launched several mutual funds and insurance products like tax-saving funds, liquid funds, international travel insurance, life insurance, and insurance for the Covid-19 pandemic among others. PhonePe is also accepted at 20+ million merchant outlets across India.
The most frequent use-cases on the PhonePe app are said to be digital money transfers, bill payments or recharge, and offline transactions at stores through PhonePe. In an earlier conversation with BusinessLine, PhonePe co-founder and CTO Rahul Chari said going forward, PhonePe will be focusing more on the financial services space and collaborating more with the BFSI sector across insurance, investments, and lending. In the past few months, PhonePe has got its insurance broking license and an in-principle approval to operate as an account aggregator.
It had also launched ClickPay for its customers in association with NPCI Bharat BillPay Ltd.(NBBL), which is a payment link that enables customers to make recurring online bill payments(electricity, water, gas, loan, etc) and removes the need to remember tedious account details associated with each biller/service.
SBI General Insurance is expecting close to 20 per cent growth in business in FY22 backed by a steady demand for health insurance products and an improvement in motor insurance starting third quarter of this fiscal.
In the first half (April-September), the non-life insurer had witnessed 14 per cent growth in gross direct premium underwritten to ₹4,129 crore, as compared with ₹3,620 crore in the same period last year, as per data available on the IRDAI website.
According to Prakash Chandra Kandpal, MD & CEO, SBI General, the non-life industry has come back to the pre-Covid level and has clocked a growth of around 13 per cent in the first half of this fiscal. “The industry is estimated to grow by around 15 per cent during the current fiscal driven mainly by health and motor. Though there may be some challenge for motor due to chip issue, Q3 should be good for motor insurance. We (at SBI General) expect to grow by around 20 per cent. The key areas of focus for us will be health, motor, SME and rural,” Kandpal told BusinessLine.
The second half of the fiscal is usually considered to be busy season and with the economy opening and with vaccination gaining pace, the insurer is hopeful of clocking a good growth.
Motor insurance accounts for nearly 25 per cent of SBI General’s total business; crop around 25-30 per cent; health close to 20 per cent; fire 15 per cent and others account for remaining 10-12 per cent.
Growing demand
Health insurance, which had been witnessing traction on the back of government initiatives such as Ayushman Bharat, came to the fore due to Covid related hospitalisation and the rise in medical cost. With the kind of effort given by the government in creating medical infrastructure in the country, the total health insurance industry is expected to double in the next three-to-four years.
“After the second wave we saw an increased interest in both retail as well as group health cover. Companies doubled the coverage for their employees. We are seeing a 40-50 per cent growth in health insurance industry portfolio and this trend is expected to continue moving forward as the uninsured population in India is still high,” he said.
This apart, a majority of the people who have health insurance, are not “adequately covered”. Most consumers in India have an average health cover of ₹ 3-5 lakh. However, the recent spike in hospitalisation and the increased medical cost is pushing more and more people to go in for a higher cover.
‘Claims spike’
On the claims side, the non-life insurers had witnessed a sudden spike in claims in Q1 of this fiscal due to the second wave. However, with the increase in vaccination and with people becoming more aware and paying more attention to health and fitness, the claims could be more manageable for insurers.
“The spike in claims was mainly because of the non-standardised protocol being followed by the medical industry. Moving forward we may see that the number of claims may increase but the average claims might be lower,” he said.
The past year or so has seen decentralised cryptocurrency slowly becoming part of the mainstream narrative. On the seamy side, the digital currency has also provided an avenue for online criminal activities involving tax evasion and other kinds of serious frauds.
In the past six months, between April-September 2021, the top three cryptocurrency exchanges – WazirX, CoinSwitch Kuber and CoinDCX – have blocked over two lakh accounts citing malicious activities.
Malicious activities
CoinSwitch Kuber alone has suspended 180,000 accounts in the past six months, while it is currently monitoring the daily activities of around 200,000 accounts that can possibly be malicious, Sharan Nair, CBO, CoinSwitch Kuber, told BusinessLine.
WazirX has blocked 14,469 accounts after receiving requests from Indian and foreign law enforcement agencies. Foreign law enforcement agencies raised 38 requests. These came from countries including the US, UK, France, Austria, Switzerland and Germany. But over 90 per cent of the accounts were blocked after complaints from other users and the company’s internal tracking mechanism.
Nischal Shetty, Founder, WazirX, told BusinessLine, “WazirX is part of Blockchain and Crypto assets Council (BACC) along with other crypto exchanges. Our exchange is able to trace all users on the platform with official identity information. We already have a robust KYC and AML enabled policy that we follow to self-regulate in the absence of regulatory guidelines. All the necessary information to track malicious activities that are “facilitated” by blockchains are publicly available.”
He added, “Additionally, WazirX has collaborated with TRM Labs, a cryptocurrency compliance platform, for transaction monitoring and investigation, wallet screening and risk management. It has helped bolster the security of the platform and scale compliance initiatives.”
Notice to WazirX
WazirX was recently issued a show-cause notice by Enforcement Directorate for alleged violation of the Foreign Exchange Management Act on transactions involving crypto-currencies worth ₹2,790 crore. The ED then said it has initiated a probe on the basis of its ongoing money-laundering investigation into Chinese-owned illegal betting applications.
According to Nair, the pandora’s box opens when one is able to send cryptocurrency outside the exchange. “The biggest problem the regulators have is with people buying bitcoins on one platform and sending it to unknown addresses. Nobody is able to track who these addresses belong to and what is the intent of these addresses. Even the crypto exchanges won’t be able to track it,” Nair said.
To curb this issue, CoinSwitch Kuber doesn’t let its users withdraw or move their funds in cryptocurrency. To withdraw their money, they have to first sell the crypto asset on the exchange and get their money deposited directly into their bank accounts in INR.
Lack of regulation
Policy experts said that though the exchanges are themselves blocking suspicious accounts, the real issue is the lack of regulation.
“The crypto world is largely unregulated. While the Reserve Bank of India has already expressed its reservation in allowing cryptocurrency, the government is yet to announce its stance on the issue,” said an industry expert.
Financial Express is now on Telegram.