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Crypto Bill should look at capping foreign currency exposure, registering authorised dealers: IndiaTech

November 27, 2021 root Banking & Finance

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Amidst several ongoing discussions on the draft cryptocurrency Bill, industry body IndiaTech on Friday said the Bill might seek to cap foreign currency exposure an investor can have annually while buying crypto assets.

The Bill is also expected to define and register authorised dealers or exchanges in a regulated manned.

Following the meeting of the RBI and cryptocurrency industry stakeholders earlier this month, IndiaTech had made several suggestions to the central bank, most of which have been kept confidential, apart from a white paper asking for stricter Know Your Customer (KYC) rules to be followed by the Indian crypto exchanges.

Also read: Cryptocurrency firms say no plan B as of now

Rameesh Kailasam, CEO, IndiaTech.Org, told BusinessLine: “The draft crypto Bill should ideally also cover aspects as to how much of foreign currency exposure one can have for buying crypto in an year.

“Also, what type of crypto, from whom you can buy and where such authorised dealer equivalents should be registered. Reporting mechanisms and authority for suspicious transaction reporting by exchanges would also be necessary.”

Also read: A sudden and complete ban on crypto trading unlikely: Experts

At present, the thriving crypto industry in India which already has two unicorns, has been self-regulating and operating in a grey area with nearly no rules to monitor them. This has left many retail investors clueless when there are platform crashes, loss of money and technical glitches during high volume of transactions.

Coupled with this, RBI’s regular warnings to the banks to avoid servicing cryptocurrency exchanges has only left the exchanges more troubled.

Meanwhile, RBI governor Shaktikanta Das has been reiterating his views on not allowing cryptocurrency in the country, calling it a major concern to macro-economic and financial stability of the country.

Changing bank accounts

Some of the retail investors, BusinessLine spoke to, said the exchanges even have to keep changing bank accounts at regular intervals to keep business running, about which they update them over emails.

An industry insider said: “Stability in this sector will only come through regulation. Sudden withdrawal of banks from providing services to the exchanges based on RBI’s notices and recommendations leave exchanges with no choice but to keep changing bank accounts to service the investors.”

Protecting smaller investors

The major focus of The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will be to protect the interest of small-time investors with limited resources while improving the health of the overall ecosystem.

A few steps towards the same would be to have a centralised filtering mechanism for cryptocurrencies and allowing only a few that are reliable and eligible for the Indian market, IndiaTech recommended. The bill might even specify limits of exposure to cryptocurrencies in an investor’s portfolio mix.

“There needs to be a filtration mechanism formulated on what crypto assets, tokens etc. will be allowed to be traded in India. It is important that a mechanism should ideally be formulated on what kind of cryptocurrencies will be eligible for trade in India,” Kailasam said.

He said that out of over 10,000 cryptocurrencies, there are only 150-200 cryptos that are allowed to be traded at present, as Indian crypto exchanges already follow a similar filtration process.

Kailasam emphasised that investor education is fundamental and dos and don’ts for customers must be clearly brought out as this sector also requires huge amount of customer diligence.

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ED serves notices for Euro Cup betting, games, misuse of cards, BFSI News, ET BFSI

July 2, 2021 root Personal Finance

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The Enforcement Directorate (ED) has shot hundreds of notices in the past one month to individuals for using international credit and debit cards to bet on Euro Cup matches, remitting funds for real money games (RMG) to offshore platforms, and not surrendering pre-loaded forex cards which are often preferred during foreign tours.

Also, several non-resident Indians (NRIs) have received notices for their transactions during the last one year while having overstayed in India in 2020-21 due to Covid-19. The law enforcement agency, which issued the notices under the Foreign Exchange Management Act (FEMA), is also questioning inflow and outflow of money for crossborder trades in Bitcoin and other cryptocurrencies on overseas crypto exchanges.

According to two persons aware of the ED action, the number of notices may have touched 1,000 in the past two months. “Most of the individuals who have come under attention are from Mumbai, Delhi, Pune, and Bengaluru,” said an ED official.

“Many have used international cards to place football bets with sites, which though legitimate services in those countries, may be considered a violation under FEMA. The re-use of preloaded forex cards is mostly out of carelessness, and may not be a conscious violation,” said another person.

Technically, under the regulations, a preloaded card can be used only by a person to whom the card has been issued. Also, a traveller is expected to return the card to the issuing bank. Many, however, let friends, family members and colleagues travelling abroad use their cards if there is unspent money.

“The real money gaming transactions have attracted the agency’s attention with the receipt of funds in several savings bank accounts… banks these days are quick to flag these off in their suspicious transaction report,” said a FEMA consultant.

While use of foreign exchange for online betting and gambling is construed as violation of foreign currency rules, as far as cryptos go, there is some division of opinion in the legal fraternity, with some under the impression that funds can be remitted under the Reserve Bank of India’s liberalised remittance scheme for buying digital assets abroad.

“But it’s unfortunate if NRIs are pulled up for FEMA violation because they could not fly out of India within the required period. Since they were stuck, there have been a higher number of transactions in their accounts during their stay here. This may have drawn ED’s notice,” said one of the sources.

According to current rules, NRIs staying for 182 days or more have to pay tax on their global income, while NRIs spending 120 days or more (but less than 182 days) have to pay tax on the total income, other than the income from foreign sources, as long as such earnings exceed Rs 15 lakh.

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Leave a comment Betting, Enforcement Directorate, Euro Cup matches, football bets, foreign currency, Foreign Exchange Management Act, non resident indians, Real Money Games

Federal Bank board approves Rs 916 crore fund raise from IFC, BFSI News, ET BFSI

June 17, 2021 root Banking & Finance

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NEW DELHI: Private sector Federal Bank on Wednesday said its board has approved issuing equity shares to World Bank arm International Finance Corporation and associates for over Rs 916.25 crore.

The decision was taken by the board of directors at its meeting held on June 16, 2021, the bank said.

The board also decided to raise up to Rs 4,000 crore by issuing equity shares or other instruments through various modes and Rs 8,000 crore by issuance of debt securities in Indian or foreign currency.

Equity shares up to 104,846,394 at a price of Rs 87.39 each aggregating to approximately Rs 916.25 crore are proposed to be allotted to IFC, IFC Financial Institutions Growth Fund, LP (FIG) and IFC Emerging Asia Fund, LP (EAF), Federal Bank said in a regulatory filing.

Under this, the bank has proposed to issue 31,453,918 shares to IFC; 36,696,238 shares each to FIG and EAF. “There are three investors who are being issued equity shares pursuant to preferential allotment,” Federal Bank said.

Further, the bank said it will raise fund by way of issuance of equity capital up to an aggregate amount of Rs 4,000 crore or its equivalent amount in foreign currencies in one or more tranches through various modes including rights issue, private placement, qualified institutions placement, preferential issue or follow on public offer, GDR, ADR or foreign currency convertible bonds.

Also, the board accorded its approval to raise up to Rs 8,000 crore by issuing debt instruments through various modes including additional tier 1 bonds, tier 2 bonds, long term bonds, masala bonds, green bonds, NCDs.

These instruments are intended to be issued in the domestic or overseas market in one or more tranches on a private placement basis, the bank said.

The fund raise approval decisions by the board of the bank are subject to approval of shareholders of the bank in its forthcoming annual general meeting (AGM).

Bank’s ensuing AGM is scheduled on July 9, 2021 by way of video conference or other such means.

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PSU banks told to withdraw funds in overseas accounts fearing seizure by Carin, BFSI News, ET BFSI

May 7, 2021 root Banking & Finance

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The central government has asked public sector banks to withdraw funds from their foreign currency accounts abroad, as New Delhi fears Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute.

Earlier this week a guidance was sent to state-run banks to withdraw funds from their nostro accounts.

A nostro account refers to an account a bank holds overseas at another bank in the currency of that jurisdiction. Such accounts are used for international trade and to settle other foreign exchange transactions.

While the Indian government has filed an appeal, the London-listed firm has started identifying Indian assets overseas, including bank accounts, that could be seized in the absence of a settlement, which Cairn says it is still pursuing.

The company has registered its claim against India in courts in the United States, Britain, France, the Netherlands, Singapore and Quebec, moves that could make it easier to seize assets and enforce the arbitration award.

The government was concerned courts abroad could order funds in their jurisdiction be remitted to Cairn.

Cairn said in February it was discussing several proposals with the government to find a solution.

India’s stand

Finance Minister Nirmala Sitharaman has earlier said that an international arbitration ruling on India’s sovereign right to taxation sets the wrong precedent, but said the government is looking at how best it can sort out the issue arising out of New Delhi being ordered to return $1.2 billion plus interest and cost to UK’s Cairn Energy Plc.

The government, which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague based tribunal’s ruling asking the government to return the value of shares expropriated and liquidated, tax refunds withheld and dividend seized to recover a wrongly levied retroactive tax demand.

“We don’t believe in retrospective taxation,” she had said. “However, when issues are taken at arbitration… which question India’s sovereign right to taxation, we are worried that it sets a wrong precedent.” The Indian government argues that tax levied by a sovereign power should not be subject to private arbitration. Cairn had previously said the award is binding and it can enforce it by seizing overseas Indian assets.

Sitharaman, however, added that the government is looking to sort out the issue.

“I want to see how we can best sort this out,” she said, without elaborating.

The award

Cairn was awarded damages of more than $1.2 billion-plus interest and costs in December in a long-drawn-out tussle with the Indian government over its retrospective tax claims.

The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006, it listed its Indian assets on the BSE.

Five years after that, the government passed a retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganisation tied to the flotation.

The state then expropriated and liquidated Cairn’s remaining shares in the Indian entity, seized dividends and withheld tax refunds to recover a part of the demand.

Cairn challenged the move before an arbitration tribunal in The Hague, which in December awarded it $1.2 billion (over Rs 8,800 crore) plus costs and interest, which totals USD 1.725 billion (Rs 12,600 crore) as of December 2020.

The company has since then been in talks with the finance ministry to get the government to pay the award.

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