Covid resurgence will force RBI to keep the monetary tap open, bond market shows, BFSI News, ET BFSI

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NEW DELHI: Central banks around the world sure have their work cut out. Just when monetary authorities were preparing the ground for a reversal of ultra-loose policies adopted in response to the coronavirus crisis, the virus, it seems, has taken new and potentially more dangerous avatars.

From bracing for interest rates in major economies to head northward sooner than later, global bond markets on Thursday took a 360-degree turn.

With a new and possibly even more deadly variant of the coronavirus being detected in South Africa, Botswana and Hong Kong, a fresh outbreak of the disease may well be on the cards. When this is coupled with a recent resurgence of Covid-19 in Europe — which has been accompanied by attendant restrictions on activity — the risk to global growth has intensified significantly.

The price action in global bond markets on Thursday showed this. Instead of getting ready for imminent policy normalisation, the bond markets seemed to be expressing the view that monetary accommodation would stay for a while longer. Yields on 10-year US Treasury papers nosedived a whopping 12 basis points on Thursday and were last at 1.51 per cent.

Clearly, investors are betting on the helping hand of central bank interventions to return.

THE INDIAN STORY
Indian sovereign bonds on Thursday enjoyed their best day in three-and-a-half weeks, with yield on the 10-year benchmark 6.10 per cent 2031 paper dropping four basis points.

Prior to the detection of the fresh variant in South Africa, a strong view in the market was that the Reserve Bank of India would start the process of raising interest rates at its next policy statement, on December 8, by raising the reverse repo rate and, therefore, narrowing the width of the liquidity adjustment facility corridor.

The central bank has already paved the way for the step as the quantum of funds withdrawn and the cutoff rates set at variable rate reverse repo operations has pushed rates on money market instruments closer to the repo rate of 4 per cent rather than the reverse repo rate of 3.35 per cent.

However, even as money markets may have aligned to the new expectation of the reverse repo rate, the act of raising it would itself have significant implications – namely that the ultra-loose accommodation is now well and truly going to be reversed. Because one would hardly expect the central bank to reverse its stance once it has officially started the process of lifting interest rates.

Now, however, market players are betting that there is a strong possibility that Governor Shaktikanta Das will keep all rates on hold and say that the central bank wishes to obtain more clarity on the global situation (and the spillovers for India) before raising any benchmark rates.

For India, another salutary impact of the new risk to global growth is a decline in international crude oil prices. Even as the government has reduced excise duty on petroleum products, the extent of the rise in oil prices over the last couple of months had emerged as a significant risk to domestic inflation, while worsening the outlook on the trade deficit.

Crude oil futures on the New York Mercantile Exchange slumped 3 per cent on Thursday, while Brent crude, the global benchmark, shed 2.2 per cent.

“The market’s view is changing; that is clearly perceptible from today’s move,” ICICI Securities Primary Dealership’s head of trading and executive vice-president Naveen Singh said. “There was almost a consensus that the reverse repo will be hiked, especially as market rates have aligned to a higher rate. But now there is a view that the RBI will maintain the status quo and wait for more details about whatever is happening in Africa and Europe. Because they cannot hike and then cut again if Covid were to worsen.”

While the yield on the 10-year benchmark bond may face hurdles when it comes to falling below the psychologically significant 6.30 per cent mark, for now, traders do not see it revisiting the 6.40 per cent mark, where it was hovering around a couple of weeks ago.

Hardening inflation can take a backseat for now, bond traders seem to be saying. The spotlight has once again squarely turned on protecting economic growth from what seems to be a hydra-like disease – two new heads sprout whenever one is severed.



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Upcoming Bonus Share Issues In December 2021

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1. NCL Research & Financial Services :

In its October 11, 2021 board meet, the members approved issuance of Bonus Equity Shares of Rs. 1/- each in the ratio of 1:1 (i.e. bonus issue of 1 share for every 1 share held by members as on record date. The ex-bonus date for the announced bonus is December 2, 2021, while the record date is December 3, 2021.

Earlier the company in the year 2014 announced bonus share issuance in the ratio of 4:1.

For the September ended quarter, the company’s revenue from operations declined q-o-q to Rs. 32.27 lakhs, while other income was at Rs. 8.5 lakh. Total expenses at the firm declined to Rs. 24.92 lakh. Consequently profit for the period surged to Rs. 11.72 lakhs.

Incorporated in the year 1985, the company is engaged in the trading of textile products in addition to investing in shares and securities.

The scrip last traded at a price of Rs. 6.57 per share on the BSE. NCL Research is not traded over the NSE.

2.Apollo Pipes:

2.Apollo Pipes:

The plastics sector company on October 22 announced bonus share issuance in the ratio of 2:1. The stock will turn ex-bonus on December 2, 2021 and its record date is December 4, 2021

For the just concluded September quarter of Fy 22, the company’s total income increased to Rs. 208.28 crore as against Rs. 125.23 crore reported in the same quarter a year ago. Also, the company’s net profit recorded an YoY surge and came in at Rs. 14.05 crore.

This is a small cap leading PVC pipe manufacturer in the country. The company’s offerings range across bath fitting, agriculture system, borewell system, plumbing, water storage etc.

The stock in the last 1-year has provided returns of 168%, while its YTD return have also been at a decent 146 percent. Mutual funds have increased their holding in the scrip in the September 2021 quarter to 9.06 percent. Likewise, DIIs have also been continuously raising their stake in the firm.

3. Indian Energy Exchange:

3. Indian Energy Exchange:

On October 21, the company’s board announced a bonus issue in the proportion of 2:1, which was subject to shareholders’ approval. Likewise, the company has obtained shareholders’ consent for the issuance of bonus shares and fixed December as the record date for determining the eligibility of shareholders who will be eiligible to receive the said bonus shares. The stock’s ex-bonus date is December 3, 2021.

In the September ended qtr., the company logged a 69% YoY increase in standalone net profit to Rs. 78 crore as against Rs. 46 crore in the same quarter during a year ago period. Last on the equities meltdown seen on Novermber 26, the scrip of IEX settled at Rs. 752.9, down over 3 percent. Nevertheless, on a year to date basis and 1-year basis it gave return of 230% and 254%, respectively.

Both the number and % holding in the scrip by mutual funds as well as FII/FPIs has been increased in the September quarter.

INDIAN ENERGY EXCHANGE (IEX) is the country’s first and top electricity exchange. It is a transparent, neutral, demutualised, nationwide, automated, online electricity trading platform.The company facilitates efficient price discovery and price risk management for participants of the energy market.

4. Panchsheel Organics:

4. Panchsheel Organics:

The pharma sector company on October 16 announced bonus share issuance in the ratio of 1:1. The ex-bonus date for the same is December 6, 2021. Via an exchange filing, the company informed about the revised record date to be as December 7 from the earlier December 3. The filing said ” the Company has revised the Record Date from December 3, 2021 to December 7, 2021 for the purpose of ascertaining the eligibility of the shareholders entitled for issuance of Bonus Equity Shares of the Company in the proportion of 1:1 i.e. 1 (One) Equity Share of Rs. 10/- each for every 1 (One) Equity Share of Rs. 10/- each, subject to approval of the Members on the issuance of Bonus Shares which will be sought at the ensuing Extra-ordinary General Meeting of the Members of the Company to be held on November 29, 2021″.

Panchsheel Organics an ISO 9001 : 2008 CERTIFIED, GMP approved public listed company (with listing on BSE) are manufacturers and exporters of Active Pharma Ingredients(APIs), Intermediates & Finished Formulations (both Human & Veterinary) having a wide experience of more than three decades in the healthcare field.

Disclaimer:

Disclaimer:

Disclaimer: Notably, the stocks listed are just to given an idea on the likely companies’ that will be issuing bonus shares in the near future and is not a recommendation to buy in these shares listed.

GoodReturns.in



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Tax Query: How to get TDS certificate from mutual funds?

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I have a few doubts with respect to my ITR for FY 2020-21 i.e. current AY 2021-22. I have invested ₹20,000 in Templeton India Equity Income Fund in 2006 under NFO. Since then periodical dividends declared under the scheme are getting credited to my savings a/c through ECS regularly and are accounted for in my ITR returns of the respective financial years. Since the Finance Act 2020 is modified and the dividends are now taxable in the hands of investors, the mutual fund has deducted TDS and paid the balance of the dividend to my savings account. Since I have not received Form 16 A for the TDS made by the mutual fund, I have sent a mail to the RTA of the MF. Initially, they have asked for a self-attested copy of my PAN card which I have provided to them. Now the RTA has replied that my PAN was not registered in FY2020-21 with them and was registered subsequently and hence, they are unable to fetch the TDS certificate for the FY2020-21. Since, the TDS was deducted on the dividend amount paid to me, kindly inform me how I can obtain TDS certificate and show them in my returns.

I also request you to kindly inform me how to show them in the current ITR in the absence of Form 16A.

Further, I am a retired pensioner and an amount of ₹15 lakh is invested in PMVVY Scheme and am receiving quarterly amount. Please clarify under what head should the amount be shown. Apart from my pension, during the year I have incomes including interest on bank deposits, dividend income from shares and MFs, interest income from NCDs, sovereign gold bonds, savings bank A/c, infra bonds, interest on NHAI tax-free bonds and short term & long-term capital gains. I have one self-occupied house property. My total income during the year is less than ₹50 lakh and I do not have any agriculture income. In the light of the above, I request you to kindly inform me which ITR return I have to file?

Rama Krishna

Dividend shall be taxable under the head ‘Income From Other Sources’ (IFOS) as per the Act. If your PAN is available with brokerage company/fund manager, the taxes deducted would be reported in your Form 26AS based on which the TDS credit can be claimed in the tax return. Where the company has not deposited the TDS/filed the TDS return, due to absence of your PAN details, you are required to complete the KYC formalities and provide the scanned copy of PAN to enable them to do the needful.

Pension income earned from Prime Minister Vaya Vandana Yojana Scheme (PMVVY) of LIC of India is fully taxable and shall be reported under the head IFOS. Please be informed that bank interest, dividend income from shares/mutual funds, interest income from infrastructure bonds, NCDs and sovereign gold bonds shall be taxable under the head IFOS. Short term capital gain/long term capital gain on sale of shares needs to be reported under the head capital gains.

Considering your income pattern, you are required to file ITR 2 for the FY 2020-21.

In the issue dated September 5, 2021, you have mentioned that if money is gifted to relatives, any interest earned out of that will be taxed in the hands of the recipient only. In a similar manner If shares allotted in an IPO are gifted to spouse, and if they are sold within a period of one year, will the short term capital gain be taxed in the hands of the recipient of the gift? If yes, what sort of record should be kept?

Niranjan

Your spouse is not required to pay any tax on receiving shares from you as a gift. However, Section 64(1)(iv) of the Act provides for clubbing of income in the hands of the transferor when assets are transferred for inadequate consideration. Providing gifts to your spouse would amount to transfer for inadequate consideration. Accordingly, any gains arising from sale of such shares is taxable in your hands. Besides documentation evidencing cost of acquisition of shares, sale consideration, selling expenses, etc., and documentation related to gift (like gift deed) needs to be kept on record.

The writer is Partner, Deloitte India

Send your queries to taxtalk@thehindu.co.in

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5 ways digital lending apps can become safer for you

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Lately, the digital lending platforms have gained traction as they provide easy access to the credit online and have come handy in hard times, especially after the outbreak of Covid, for those looking for instant loans. But there also have been increasing number of complaints by consumers against these platforms over mis-selling, breach of data privacy, and illegal conduct.

To protect the customers from widespread unethical practices, the Reserve Bank of India (RBI) has come out with the ‘Report of the Working Group on Digital Lending including Lending through Online Platforms and Mobile Apps’. The report contains recommendations and suggestions from both RBI and the government such as setting up of Self-Regulatory Organisation to oversee the functions of the players in the industry and to standardise certain operations. It is open for comments from public until December 31, 2021 through email.

We look at the five key areas which makes customers of digital lending apps vulnerable and how the report seek to ensure more protection for borrowers on these fronts.

Unauthorised lending apps

If you happen to opt for unauthorised digital lending apps, you may have to deal with unreasonable terms and conditions of the loan.

To have some accountability, currently, to be a digital lender, one has to be associated with a bank or a non-banking financial company or abide by the money-lending laws in the respective State in which the services are provided. But the report goes a few steps further.

Proposal: One, it suggests that digital lending should be limited to only those entities that are either regulated by the RBI or those registered under any other regulatory authority. Currently, there are some digital lending apps which are carrying out the business as intermediaries between the customer and the financial institution. Gaurav Jalan, Founder & CEO of mPokket and member at Fintech Association for Consumer Empowerment says there still exists an ambiguity on what kind of regulations that intermediaries will be subject to.

Bringing the whole digital lending space under regulatory framework is one of the significant changes that would take place if the report becomes actionable. Direct regulation will serve as an additional layer of monitoring that prevents apps from any unauthorised activities.

The working paper also suggests establishing an independent body – Digital India Trust Agency (DIGITA), which will verify the digital lending apps before they are made public. Not just that, the report also recommends setting up of a Self-Regulatory Organisation (SRO), an industry association which will lay down a code of conduct and provide a mechanism for grievance redressal of customers.

High and hidden costs

Digital lending apps generally charge higher interest rates than conventional banks and NBFCs. This is partly due to the additional risk these players take by serving users who may not have a proper credit history.

In addition to interest rate, there could be processing fee and other costs. Credible money-lending apps disclose most of these details transparently in the ‘About the app’ space in the app store and also mention them in the loan agreement. But many others don’t.

Proposal: To hold the reins of those apps that don’t disclose transparently and mispresent the rates of interest, the paper recommends that each lender provide a key fact statement (KFS) in standardised format for all digital lending products.

Especially in case of short term consumer credits (STCC), the Central bank may establish standard definitions for the cost of digital STCC/ micro credit as Annual Percent Rate (APR). This would enable disclosure of all costs in a clear and understandable way.

Another important recommendation has been that a cooling off/ look-up period of certain days should be given to customers for exiting digitally obtained loans by paying proportionate interest cost without any penalty.

Breach of data privacy

Most of the digital apps seek access to your contacts, gallery and details of other apps in your mobile phone, on installation, to create a credit profile of the borrower. There have been cases that these players breached data privacy.

Proposal: The report recommends that the app collect only minimum required personal data from the borrower after indicating usage of each data/ access permission obtained. The borrower should be provided with an option to revoke consent granted to collect their personal data and if required, make the app delete/ forget the data.

The key point here is that the lenders should capture the economic profile of borrower and assess the consumer’s creditworthiness in an auditable way.

Further, it also talks about mandatory submission of information of loan transactions by digital lenders to Credit Information Companies (CICs) at a shorter interval compared to conventional reporting. This will ensure less dependence on alternate data for financial consumers as more of them would develop formal credit history for themselves.

Unacceptable recovery methods

There have been cases in the past of unacceptable and high-handed recovery methods by lenders.

According to the current RBI’s ‘Guidelines on Fair Practices Code for Lender’, in the matter of recovery of loans, the lenders should not resort to undue harassment such as persistently bothering the borrowers at odd hours and use of muscle power for recovery of loans.

Proposal: Despite this, on the back of rise in concerns over unethical recovery practices, the working paper suggests standardising the code of conduct for recovery, which has to be framed by the proposed SRO.

The SRO is expected to maintain ‘negative’ list of agencies that involved in unreasonable means of recovery and the lender has to make sure periodically that the collecting agency is not mentioned in the list.

Poor grievance redressal

As per the current guidelines, the loan agreement must clearly disclose the options available for the borrower to redress any grievance — be it customer care support, bank/NBFC’s support or the regulator’s redressal mechanism.

A lot of users complain about the poor customer care support in the user reviews for most of these money-lending apps. Once the RBI announced the RBI’s Sachet portal (https://tinyurl.com/rbiportal) for filing complaints, there has been tremendous increase in the number of complaints filed, says the report.

Proposal: The key recommendation in this aspect is that the digital lending apps should name a suitably competent nodal officer to deal with FinTech related issues with customers as well as regulators, SRO, law enforcement agencies, etc. The contact details of the nodal officer would be displayed on the website of the digital lending app.

Also, similar to Banking and NBFC ecosystem, it suggested defined timelines, escalation mechanism for any grievances.

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Key lessons for homebuyers from RERA judgments

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It has been over four years since the Real Estate (Regulation and Development) Act or RERA has been active. There continues to be new questions raised on the different aspects of the Act. For instance, recently the Supreme Court confirmed the retroactive applicability of the Act to projects that were underway when the Act was passed in 2016.

As of November 2021, 70,848 projects have been registered and 78,793 complaints have been disposed, based on data from the Ministry of Housing and Urban Affairs. These cases have helped to shed light on the nuances of the Act.

Affirmed rights

There are a few judgments that have strengthened the rights of homebuyers. One example is the one involving Emaar MGF on the channels available to a buyer for remedy. The verdict clarified that consumers have the option to approach RERA as well as Consumer Protection forum and not limit to just one.

Another case, involving Arkanade Realty, relates to buyers’ rights on parking. The developer had delivered the house but the parking space was being sold to others. The ruling confirmed the requirement under RERA that the developer is obligated to provide parking space to all buyers in a project and that the land cannot be sold to outsiders.

Buyers can also take comfort to note that they can get compensation not just for delays in hand-over but also for shortages in carpet area. In a case handled by the Maharahstra RERA authority, a buyer filed that there was a shortfall of 69 sq. ft. in the 806 sq. ft. carpet area promised. The builder was directed to reduce the cost of the flat for the shortfall in area.

The Maharashtra RERA has also made it mandatory that a society or similar legal entity should be formed by the developer after 51 percent of the flats have been booked. This is a shift from the earlier practice of forming one after the project receives completion certificate. The benefit of this decision is that home buyers can oversee the work and seek regular updates from the developer.

Besides private builders, RERA also applies to construction projects undertaken by the Government. So homebuyers in these projects can also take advantage of the redressal available for delays or other issues. Also, landowners will be liable as a builder if they take a share of revenue from the sale of the project and would be answerable to buyers.

Another important issue that was lingering related to precedence of RERA in situations when there are different Central and State government laws. In a case regarding the state of West Bengal, the Supreme Court noted that the State can legislate in spaces which are left out by RERA but in areas where there are overlaps, RERA has an over-riding effect over any conflicting State laws.

Also read: ‘Real Estate Regulatory Authority can delegate its powers to hear complaints from homebuyers’

Few restrictions

There were also instances where the result was not favorable to buyers. One such is the judgment by National Company Law Appellate Tribunal (NCLAT) on the question of whether home buyers can be included under the ambit of financial creditor when the builder files for insolvency. While the buyers had already received an order for payment through RERA, the forum ruled that relief cannot be provided under the Insolvency and Bankruptcy Code to receive the amount awarded. On the question of whether redevelopment is covered, the Maharashtra RERA ruled in the negative. For these, the housing society members must approach a civil court.

Also, while a buyer can approach civil court and RERA, they cannot get double compensation. In a ruling, a plea for compensation and possession was dismissed because relief had already been granted by a civil court. The complainant was also charged INR 10,000, to cover the developer’s legal costs.

Lease transactions are also not in the purview of RERA as only allottees are covered and not lessees. In the case involving Lavasa’s project – which had been halted due to an order from the Ministry of Environment and Forests – the agreements were a 999-year lease and not of sale. The buyers were not deemed as allottees, but as lessees and hence cannot get relief for delays through RERA.

Some gaps

The question on whether a buyer can receive refund of their advance is still unclear. The Tamil Nadu RERA ruled that a buyer needs to approach the consumer forum for refund of the advance amount paid to book an apartment. However, the Maharashtra RERA ordered a refund when a buyer noted that there were discrepancies in the booking offer – such are regarding EMI payment terms. Given that the purview depends on the specific situation, buyers may keep their options open and approach both RERA and consumer forum for relief.

Also, data on follow-up to the verdict is a cause for concern – Karnataka RERA data from August 2021 showed that while 595 verdicts were delivered, only 14 cases had penalty amount paid. This is a mere ₹6.87 lakh paid out of ₹245.72 crore.

The author is an independent financial consultant

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How much life insurance cover does one need?

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Morgan Housel’s book ‘Psychology of Money’ does a great job of explaining the power of money – it can give you control over your own time. That in a nutshell is the function of life insurance. It enables financial continuity for your dependents and avoids a drain of your existing resources. So, it is quite irrefutable that adequate life cover is critical. Here, we revisit the factors that can help people determine how much life cover they need.

Most Indians continue to perceive life insurance as a savings vehicle and believe that the insurance benefit attached to such products is adequate. So, let’s clarify one thing – every earning individual with financial dependents must buy term insurance.

Take for example Arun, a 35-year-old married person with one kid and a second one on the way. He is looking to buy a term insurance and decides to rely on the general thumb rule – a life cover must be 10 times your annual income. Considering Arun earns ₹10 lakh per annum, the thumb rule would suggest his ideal life cover is ₹1 crore.

While this is a good thumb rule to determine the minimum cover required, an individual often needs more than 10 times his / her income. In other words, it is highly likely that Arun is inadequately covered. So, how can he determine his multiplier?

The DIME method is a holistic tool for assessing one’s current state of finances and future needs. So, here’s what Arun needs to know:

Debt: Your liabilities survive you and therefore provisioning for recurring debt is very important. Let’s assume Arun has an outstanding student debt of ₹2 lakh.

Income: Consider the number of years you want to provide an income replacement for your family and multiply your current income by that number. Assuming Arun wants to create income replacement for 5 years, he will need a corpus of at least ₹50 lakh.

Mortgage: The next step is accounting for a home loan, which can derail your family’s monetary stability in your absence. Let’s assume, Arun has an outstanding home loan of ₹50 lakh.

Education Expense: Considering Arun is a father, he will need to create a financial corpus to support his daughter until she turns 25 years of age (typically when kids start earning). With education cost constantly on the rise, Arun will need an estimated ₹35 lakh until graduation of his child. With another baby on the way, he wants to make an additional provision of ₹50 lakh for the upbringing and education of his second child.

All these factors summed up show Arun’s future requirement, which is ₹1.87 crore. But there is one missing ingredient – it doesn’t account for his existing assets. Assuming he has assets worth ₹20 lakh in the form of fixed deposits and mutual funds, Arun’s final financial requirement is ₹1.67 crore. Assuming Arun passes away after 10 years, then at a 4 per cent inflation rate per annum, he will need a life cover of ₹2.47 crore (nearly 25 times his current annual income).

Personal finance advisors can support you in this process. One key factor to always remember is that life insurance is not a one-time purchase. You must review your protection requirements at regular intervals, especially as you progress through various life stages.

The writer is Chief Distribution Officer, Edelweiss Tokio Life Insurance

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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Is buying bonds on Wint Wealth an attractive proposition?

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Wint Wealth, an alternative debt asset platform for retail investors, recently launched ‘Wint Bricks Nov21’ – a senior secured bonds issue from U GROW Capital (Ugrow), a non-banking financial company.

The bonds are offering an attractive 10.50 per cent (XIRR) for a little over a two-year tenure. You can invest as little as ₹10,000 which is a small ticket size for bond investments. The return is particularly enticing when seen in the context of the falling interest rates on bank fixed deposits.

But the higher returns obviously come with commensurate risk. Do your homework before you take the plunge. Here, we highlight the key points about this bond issue.

What bonds are on offer

Co-founded in November 2019 by two financial services industry professionals, Wint Wealth (earlier GrowFix) is a fixed income investment platform for retail investors. Excluding the latest offering, Wint Bricks Nov21, the platform has so far offered seven bond issues totalling ₹100 crore.

The latest one, Wint Bricks Nov21 is a ₹50 crore senior secured bond issue from Ugrow, an NBFC focused on lending to small businesses (more details later). These bonds have been bought by Wint Wealth and other wholesale buyers (or warehousing partners, as they are called) from Ugrow in a primary issue and are now being made available for sale to retail investors on the Wint Wealth platform.

The bonds mature in 27 months and are offering a return (XIRR or extended internal rate of return) of 10.50 per cent. Investors will receive monthly interest on the bonds and will be repaid 33 per cent of their principal every 9 months (see table for details). That one doesn’t have to wait until maturity to receive the entire principal is a positive on the risk front.

Though, as part principal repayments are made, the monthly interest income is bound to go down.

Usually investment returns are indicated in the form of CAGR (compound annual growth rate). But, in case of investments involving multiple inflows / outflows (periodic interest and principal repayment in the case of the Ugrow bonds) at different times throughout the investment period, XIRR and not CAGR provides the correct return calculation.

The Ugrow bonds are ‘senior secured’ which essentially means that they are secured by way of collateral (assets) on which the bondholders have exclusive charge. In this case, the Rs. 50 crore issue has been collateralized by ₹62.5 crore worth of property loans. The bonds are rated A (Positive) by Acuite Ratings.

Any individual with a demat account can buy these bonds either on the Wint Wealth platform or directly through their brokerage account. Even when you invest via the platform, the order is still placed through the broker and executed on the exchange. Note that, there is a temporary halt in the sale of these bonds and these are expected to be available for sale from December 1. These bonds are listed on the BSE and the NSE. Investors are not charged for transactions on the platform.

While the returns are enticing and buying the bonds too appears easy, let these not be the deciding factors for investing in them.

Also read: Nuts and bolts of Retail Direct Gilt account

Multiple risks

While the bond issue is backed by adequate collateral, the issue has a relatively low credit rating of A from Acuite Ratings and calls for caution. The highest-rated safest bonds are assigned a AAA rating.

Ugrow is a relatively new NBFC specializing in SME lending that began loan disbursements only in January 2019. It had assets under management of only ₹1,933 crore as of September 2021. Sector-wise, light engineering and food processing alone account for 40 per cent of its loan book. While the company’s net NPA (non-performing assets) of 1.8 per cent appears low, this is likely reflecting the impact of loan restructuring (7.2 per cent of its portfolio) undertaken by it in the September 2021 quarter.

When it comes to the collateral, what matters is how liquid it is. In this case, the issue is backed by Ugrow’s property loans. As long as the majority of the borrowers keep servicing their loans, the collateral (property loans) can offer support in the event of any default on the bonds. But, if there were to be a spike in loan defaults, then even though the underlying property can be confiscated, liquidating it to pay off the bondholders can turn out to be a time-consuming process.

Also, while it may be easy to buy the Ugrow bonds now, selling them before maturity may not so, due to lack of sufficient buyers. So, one must be prepared to hold these bonds until maturity.

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

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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Cryptocurrency firms say no plan B as of now

Banking & Finance

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Most cryptocurrency companies in India are closely following developments around the proposed legislation on cyptocurrency but at present don’t have a plan B in case of a complete ban on trading.

“As an industry, we are in sync with the fact that INR is the only legal tender in India and crypto is an asset or utility which people buy and sell.

“If tabled in the Parliament, there will be discussions and deliberations around this bill. The process of crypto regulation is in the works, and we need to have faith in our lawmakers,” said Nischal Shetty, Founder, WazirX.

Regulation over prohibition

Gaurav Dahake, CEO and Co- founder, Bitbns, also expressed confidence that the government will embrace regulations instead of prohibitions.

“We are not putting in any efforts for any kind of alternate plans as we believe that all these speculations are initial hiccups before the whole cryptocurrency ecosystem gets regulated. Well-appraised regulations and a more defined framework will work better in favour of the economy than a ban,” he said.

Also see: 50,000 jobs at stake as govt brings laws to regulate cryptocurrencies

Experts said most cryptocurrency companies are incorporated overseas and will be able to continue operations abroad. However, a ban would lead to immediate losses and at least some would have to transfer operations abroad.

“Businesses in and around crypto assets may transfer their operations offshore but an immediate ban would definitely lead to some losses,” said Rashmi Deshpande, Partner, Khaitan & Co.

Blockchain: Part of Web 3.0

Many cryptocurrency companies also work on blockchain technology apart from trading.

“CrossTower is more than just a crypto platform. Crypto is a part of blockchain and blockchain is part of Web 3.0. We are focused on blockchain technology and innovation around Web 3.0, the next revolution in internet technology,” said Vikas Ahuja, CEO of CrossTower India.

Based in the US, CrossTower has users in the US, India, and other over 70 countries.

“When the Indian government is talking about banning certain cryptocurrencies, that doesn’t necessarily mean they’re banning this giant game of blockchain or interrupting the next level of innovation on digitising the trading world for the country.

“We believe they are trying to make it safe for consumers by providing safeguards, which is the best thing for crypto trading in India to grow smartly,” Ahuja said.

RBI’s digital currency

According to industry sources, many of these cryptocurrency companies had moved overseas after the 2018 restriction by the Reserve Bank of India.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, has been listed as part of the Government Legislative and Financial Business that will be taken up at the Winter Session of Parliament.

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

The Bill seeks to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.

The Bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

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