Tag: Governor

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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RBI governor to banks, BFSI News, ET BFSI

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RBI governor Shaktikanta Das on Tuesday asked lenders to proactively identify loans to firms that have turned non-viable but not yet recognised as a non-performing asset (NPA) due to the special dispensation during Covid. The governor also asked banks to review the usability of capital for absorbing losses during a crisis.

Pointing out that numerous high-frequency indicators are showing that economic recovery is taking hold, Das said that there have been several resolution frameworks announced in the wake of the pandemic. “As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” said Das.

Speaking at an economic conclave organised by the State Bank of India, Das noted that banks have weathered the Covid shock better than expected and, according to early trends, their bad loans and capital position has improved in September 2021 from their levels in June 2021. He said that the profitability metrics of banks were highest in several years. However, the improved parameters partly reflect regulatory relief provided to banks during Covid as well as fiscal guarantees and financial support given by the government, he said.

“Certain concerns have re-emerged from the crisis which warrant our attention. Most importantly, we are faced with the question of capital and provisioning buffers of banks, their adequacy and resultant usability during a crisis,” said Das. He urged banks to focus and further improve their capital management processes to envisage the capacity for loss absorption as an ongoing responsibility of the lending institutions.

In his speech, the governor also cautioned banks on the “technological invasion” that they face. “A word of caution is in order: Globally, the ‘phygital’ revolution has played out into several collaborative models between banks, NBFCs and fintech players such as incubation, capital investment, co-creation, distribution and integration… it must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised,” Das said.



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Need to improve quality, depth of audit: RBI Governor Shaktikanta Das

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Undesirable practices and structures, including incorrect assumptions in determining provisioning requirement for financial assets, diversion of funds and/or transfer of profits to connected parties, and real transactions getting camouflaged beneath various layers of IT solutions, should draw the attention of the auditors, according to Reserve Bank of India Governor Shaktikanta Das.

“One of the important roles of audit is to check the so called smart accounting practices, if any, followed by management to overstate profits or understate expenses / liabilities,” Das said in his address at the National Academy of Audit and Accounts (NAAA), Shimla.

Referring to Ind-AS (Indian Accounting Standards), which has been implemented for all listed companies (other than banks) in India, including NBFCs having net worth of more than ₹250 crore, the Governor observed that within Ind-AS, Ind-AS 109 with Expected Credit Loss (ECL) approach allows the management to exercise discretion and judgment in determining the provisioning requirement for their financial assets.

Das said: “Such flexibility and forward-looking nature of assessment, however, poses the ‘model risk’,that is, the model may rely on incorrect assumptions and may be far from representing the real-life scenarios. “This has been observed in several cases. Hence, auditors are expected to test the models used by the entities, challenge the management and validate the model outputs.”

Diversion of funds

The Governor said of late, several instances of related party transactions, without following ‘arms-length’ principle and established transfer pricing mechanism, have been observed.

“There have been instances of diversion of funds and/or transfer of profits to connected parties through various means – intra-group loans on favourable terms, over or under invoicing of transactions, asset transfers without fair valuation, etc,” he said.

Das emphasised that auditors need to identify and thoroughly scrutinise related or connected party transactions to ensure that there is no undue transfer of income or assets.

‘See-through’ IT layers

The Governor also flagged cases of manipulation and misstatement of the true nature of financial statements by employing opaque technological means (IT black boxes).

“Real transactions are camouflaged beneath various layers of IT solutions by a few entities. As such, auditors need to be technologically savvy and be able to ‘see-through’ the layers of information technology to detect the real nature of hidden transactions,” he said.

Das said since RBI, as the supervisor of the financial system, relies and leverages on the work done by auditors, the audit professionals are being sensitised through various fora to improve the quality of their reporting

He highlighted that:“We are constantly engaged with individual auditors, audit firms and the Institute of Chartered Accountants of India (ICAI) to improve the quality and depth of audit. A lot of work has been done in this area, but lot more needs to be done.”

Good governance

The Governor said the management has the responsibility for demonstrating, through its actions, the importance of ethical conduct.

While this is relevant for all businesses, it is even more important for financial institutions which hold public trust and depositors’ money in fiduciary capacity.

Das felt that financial sector entities, the audit community and the financial sector regulators and supervisors have to work together and take proactive steps to ensure good governance and ethical practices to build a strong and resilient financial sector.

Tech adoption

The Governor stressed that the auditing profession cannot afford to lag in adoption of technology. “Adopting technology tools such as computer-assisted audit tools and techniques (CAATTs) through constant upgradation and integration of new technologies will bring in a lot of efficiency in audits.

“In parallel, it has to be kept in mind that adoption of such technology tools for auditing cannot replace professional judgment,” he said.

A holistic approach is required while integrating technology tools in audit. The Governor said:“The profile of tomorrow’s auditor will be that of a critical, yet constructive challenger, with a clear focus on public interest and quality audits. There is a need to be even more professional, qualified, impartial, value-driven, ethical and display awareness and foresight.”

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Sri Lanka appoints its junior minister of capital markets to head country’s Central Bank, BFSI News, ET BFSI

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Sri Lankan President Gotabhaya Rajapaksa on Tuesday appointed Ajith Nivard Cabraal, the sitting junior minister overseeing capital markets, to head the island nation’s Central Bank, amidst a severe foreign exchange crisis that the country is facing. This will be Cabraal’s second term as the Governor of the Central Bank as he has previously served a stint as the head of the institution from July 1, 2006 until his resignation on January 9, 2015. Since August last year he was the Money and Capital Markets State Minister.

“President Gotabaya Rajapaksa has appointed Ajith Nivard Cabraal to head the island’s Central Bank with effect from September 15,” according to an official statement.

On Monday, Cabraal resigned from his position in order to assume the new post, which was left vacant by the resignation of current governor, Prof. WD Lakshman, with effect from September 14, the Colombo Page reported.

The appointment order pertaining to Cabraal has prompted protest by the Opposition leaders, saying that he has serious allegations of fraudulent transactions and also his new posting is a conflict of interest as he is a ruling party politician.

In a statement, the Opposition’s economic spokesman Eran Wickremaratne said that the integrity of the country as well as the Central Bank must be protected by ensuring that a fit and proper person was appointed as the Governor, and “Mr. Cabraal, with multiple allegations of fraudulent transactions and conflicts of interest, does not prove to be fit and proper”.

Opposition maintains Cabraal’s appointment would compromise the neutrality and the independence of the Central Bank.

Lakshman, the previous Central Bank chief, told reporters he was being pressured to resign three months ahead of his planned retirement.

He was also a Rajapaksa appointee in November 2019.

Lakshman’s tenure as the Central Bank head was a bumpy ride. Rajapaksa once summoned the entire Central Bank hierarchy to take them to task over inefficient handling of the economy.

The Central Bank was accused of printing money on a large scale to tide over economic woes during Lakshman’s stewardship.

“So the governor (Lakshman) is retiring after destroying Sri Lanka currency by printing 1.2 trillion to please his political masters,” Harsha de Silva, another opposition legislator, tweeted.

Sri Lanka is facing a severe foreign exchange crisis as the island nation, which heavily depends on tourism and tea exports, was battered by the coronavirus pandemic.

Finance minister Basil Rajapaksa has said that state coffers also suffered huge revenue losses due to the COVID-19 outbreak. PTI CORR RUP RUP RUP



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Why PMJDY must be scaled up to next level

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The Pradhan Mantri Jan Dhan Yojana (PMJDY) should be scaled up to the next level to provide access to formal credit and push digital transactions further, according to experts.

Launched under the National Mission for Financial Inclusion in August 2014, the Jan Dhan scheme has now been labelled as the largest financial inclusion scheme in the world, with over 42.3 crore no-frills accounts (beneficiaries) and a total balance of ₹1,44,169 crore as on May 12.

Of the total beneficiaries, about 28 crore are from rural- and semi-urban areas and over 50 per cent are women.

The flagship scheme of the Centre has resulted in almost every household having access to formal banking services, along with a platform for availing low-value credit, insurance and pension schemes, and a delivery channel in emergency situations such as the Covid-19 pandemic.

Notwithstanding these gains, it is the need of the hour to scale up the scheme to the next level to reap complete benefits of financial inclusion and digital advantages achieved so far.

Digital push

“With Aadhaar and minimal documents, the digital identity is established for the creation of Jan Dhan accounts,” D Janakiram, Director, Institute for Development and Research in Banking Technology (IDRBT), an arm of the RBI, told BusinessLine. Once the bank account is linked to the UPI (unified payment interface), this enables mobile payments with a number of third-party apps, including Google Pay.

“The sheer convenience of cashless payments using mobile phones has enabled a large number of people to adopt digital payments during the pandemic. UPI has witnessed manyfold increase in terms of the number of transactions in recent times, touching a few billion transactions per month,” said Janakiram.

First objective

According to Janakiram, the Jan Dhan scheme has achieved the first objective of creating digital identity, but there is a need to scale up the digital infrastructure to reduce costs per transaction. At the moment, the number of ATM withdrawals for these accounts is kept at four in a month, which leads to heavy cash withdrawals and cash transactions. “If there is no limit for ATM withdrawals in a month (which can happen only when costs per transaction reduce drastically, which will need technology adoption, including cloud adoption), speculative cash withdrawals will reduce,” he observed.

“The economy also needs to move from financial inclusion to financial empowerment, which means we need to transform Jan Dhan accounts into Jan Dhan Vriddhi accounts with access to credit and digital infrastructure to monitor and model risk,” Janakiram added.

Credit access

A research study undertaken by Prasanna Tantri, Executive Director, Centre for Analytical Finance, Indian School of Business, also underscores the need to take the scheme to the next level.

“My research has shown that the programme has made a significant positive difference to the economic lives of the poor. The movement of account balances during the pandemic shows that poor households have used these balances during difficult times. In the next stage, the government should focus on improving access to formal credit to the poor,” said Tantri.

As per the structure of the scheme, PMJDY beneficiaries in the age group of 18-65 are eligible for an OverDraft (OD) of ₹10,000.

However, no information is available about the status of overdrafts. The government also announced a group loan scheme for PMJDY beneficiaries a couple of years ago.

“I am not sure about the status of those loans. Instead of focussing on newer plans to push credit, the government will do well to make sure that the information about PMJDY accounts is made available to credit bureaus and, more importantly, to the emerging fintechs,” said Tantri.

There is rich information in the transaction pattern, the nature of the transactions, the quantum of balance, the sources of funding, and the timing of transactions, which will enable the development of a credit score for PMJDY account holders.

The government may take the initiative in this regard by asking credit bureaus to work on it. Once a score is developed, formal private credit is likely to follow, said Tantri, adding that the 44 crore PMJDY beneficiaries could serve as an attractive market for fintechs.

Financial education

The government can also think of a financial education programme for PMJDY beneficiaries. It appears there is a permanent component of savings in savings accounts. The savers can earn more by converting some of the balances into fixed deposits.

According to RBI Governor Shaktikantha Das, financial inclusion in the country is poised to grow exponentially, with digital-savvy millennials joining the workforce, social media blurring the urban-rural divide, and technology shaping the policy interventions. Going forward, there needs to be greater focus on penetration of sustainable credit, investment, insurance and pension products by addressing demand-side constraints with enhanced customer protection, said Das in a speech in December 2020.

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