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EXCLUSIVE
INDIA WILL NEED TO FRONT-LOAD RATE HIKES, TWO MPC MEMBERS SAY
The sharp surge in inflation in India will require front-loading of interest
rate increases, two members of the central bank's Monetary Policy Committee
(MPC) said in minutes of its May 4 meeting released on Wednesday.
* Reuters
* May 19, 2022, 08:00 IST
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MUMBAI: The sharp surge in inflation in India will require front-loading of
interest rate increases, two members of the central bank's Monetary Policy
Committee (MPC) said in minutes of its May 4 meeting released on Wednesday.
The Reserve Bank of India raised the repo rate, the rate at which it lends to
banks, by 40 basis points to 4.40%, at the unscheduled meeting two weeks ago,
marking its first change in the rate in two years and its first rate hike in
nearly four years.
"Since April, inflation risks have become more pronounced both in terms of
magnitude and in terms of persistence," wrote Jayant Varma, an external member
of the MPC.
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"It appears to me that more than 100 basis points of rate increases needs to be
carried out very soon," he added.
All six MPC members have a vote each and the governor has a veto in the event of
a tie.
Consumer price index-based inflation rose more than expected to 7.79% in April
year-on-year, remaining above the RBI's tolerance band of 6% for a fourth month
in a row.
Annual wholesale price inflation, a proxy for producers' prices, climbed to
15.08% in April, remaining in double-digits for the 13th month in a row.
"In view of a reasonable recovery and the sharp rise in inflation, which will
also raise inflation projections, frontloading of rate hikes is required to
prevent the real rate becoming too negative," Ashima Goyal, another external MPC
member, said in the minutes.
"Government supply-side action can also reduce future rate rises, output
sacrifice and borrowing costs," she added.
A large part of inflation in India is being driven by supply side pressures
notably due to the surge in global commodity prices, particularly oil.
India imports more than 80% of its oil requirements and high global crude prices
have been pushing up the country's trade and current account deficit and also
fuelling imported inflation.
"Geopolitical spillovers have thrust upon us a surge in the momentum of
inflation we can ill afford. As long as the geopolitical crisis and retaliatory
actions persist, so will inflation," deputy governor Michael Patra said in the
minutes.
Globally, stagflation could be transitioning from a risk scenario to a baseline
scenario, Patra warned.
"Minutes of RBI's off-cycle policy meeting highlighted members shifting their
priority from growth to inflation," said Sanjay Pawar, fund manager – fixed
income at LIC Mutual Fund Asset Management Ltd.
"We see further rate hikes by RBI in upcoming policies as near term inflation
prints are expected to be above RBI's upper tolerance band."
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EXCLUSIVE
RATING AGENCIES IN A LIMBO OVER RBI’S NEW GUIDANCE ON LOANS
Even for apparently more enforceable support such as corporate guarantees (as
distinct from letter of comfort), RBI said such structures can be used to
enhance rating only if there is a strict timeline on invocation of guarantee by
lenders.
* Sugata Ghosh
&
* Sangita Mehta
* ET Bureau
Click Here to Read This Story
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Credit rating agencies have sought the intervention of their primary regulator,
Sebi, in the wake of new directions from the Reserve Bank of India (RBI) and the
contradictions that have surfaced in the views of the two financial market
watchdogs. The central bank has said ratings given on loans to a company cannot
be notched up on the basis of "diluted and non-prudent support structures" such
as letter of comfort, letter of support or undertaking, and other covers like
pledge of shares.
Such support from the parent or promoters enables companies to reduce the cost
of borrowings - as higher the rating, lower the interest charge on debt.
Even for apparently more enforceable support such as corporate guarantees (as
distinct from letter of comfort), RBI said such structures can be used to
enhance rating only if there is a strict timeline on invocation of guarantee by
lenders.
"RBI's instructions relate to ratings on loans from banks," said a senior
banker. "But according to Sebi's existing directive, all these supports can be
used to uplift rating for non-convertible debentures as long as the standalone
rating (without support) is simultaneously disclosed."
Several Structures Listed in Guidance
"But thanks to the RBI's guidance, there would be situations where the same
issuer has a higher rating for non-convertible debentures (NCDs) and a lower one
on loan," said the senior banker. "So, RBI and Sebi should sort this out to
avoid confusion in the market."
RBI's April 22 guidance note to rating agencies also restrains them from
deriving comfort from obligor-co-obligor structures. These are common
arrangements by infrastructure companies where multiple special purpose vehicles
(SPVs) - housing separate projects - pool their cashflow to create a mechanism
where funds of one SPV can be used to service the debt if another vehicle facing
a cash crunch finds it difficult to repay the loan.
"While such structures have become popular in infra and sectors like renewables,
they are still untested for delinquency. So, RBI is probably sceptical because
it is unsure how it would work when there is default, particularly if more than
one SPV has problems and the total cash flow is inadequate," said an industry
person.
Many structured loans improved their ratings through shares pledged by promoters
with at least a cover of 2x, that is, value of shares pledged is twice the
amount lent. Along with this, there is an arrangement where more stocks have to
be chipped in if there is a dip in the stock price and the cover shrinks to
1.5x.
"But there have been cases where promoters were not able to replenish the cover
and top up stocks. Even mutual funds had invested in such instruments, backed by
stocks from promoters. RBI's concern may stem from such experiences and stock
price volatility," said an analyst.
Different Rules
Another question crops up. Even if rating agencies use these supports (on which
RBI has put question marks) to give higher ratings to NCDs (the market for which
is regulated by Sebi), will banks (regulated by RBI) invest in such debt
instruments?
While the RBI directive endorsed the use of corporate guarantees for 'credit
enhancement' (CE) - the parlance for rating improvement - it has laid down that
banks have to formally agree to a timeframe within which they would invoke a
guarantee following a loan default, while the corporate guarantor has to commit
to a deadline to pay up once the invocation by lenders happens.
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EXCLUSIVE
WAITING TILL JUNE MEANT LOSING TIME WHEN WAR RELATED INFLATION PRESSURES
ACCENTUATED: RBI GOVERNOR SHAKTIKANTA DAS
Justifying the timing of RBI's rate action, the governor said that the war in
Europe is now expected to last much longer than earlier anticipated. The April
inflation was expected to be further elevated which came at a eight year high of
7.79 percent, way above the target band of 2-6 percent."
* Gayatri Nayak
* ET Bureau
Click Here to Read This Story
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Even as the recent sharp surge in inflation is due to supply side factors,
mostly war related that are beyond central bank's control, the Reserve Bank's
MPC still chose to raise policy rates by 40 bps to 4.4 per cent in early May
outside of schedule as a rate action was crucial to manage inflation
expectations as inflation is getting more generalised, the latest MPC minutes
indicate.
The MPC unanimously chose price stability over growth as it sees India's
macroeconomic fundamentals intact barring food and fuel inflation. Inflation
risks have accentuated since the MPC's April statement and the growth concerns
have receded.
Improving contact-intensive services amidst revival in urban demand is driving
personal consumption. The outlook for agriculture remains positive in the wake
of normal southwest monsoon forecast for 2022, which would support rural
consumption.
"The rebound in domestic economic activity is gradually getting generalised"
said governor Shaktikanta Das in his minutes released on Wednesday. "The
worsening outlook of inflation warrants timely action to forestall second round
effects which could lead to unanchoring of inflation expectations. Heightened
uncertainty and volatile financial markets could also add to such unhinging of
expectations. Accordingly, decisive and measured monetary policy response is
necessary to avoid any unintended shocks to the economy"
A higher inflation print also adds to the risk of negative real rate. "In view
of a reasonable recovery and the sharp rise in inflation, frontloading of rate
hikes is required to prevent the real rate becoming too negative" said Ashima
Goyal, professor at Indira Gandhi Institute of Development Research. "Among
risks from negative real interest rates include households buying gold thus
aggravating the current account deficit and hurting financial intermediation".
Justifying the timing of RBI's rate action, the governor said that the war in
Europe is now expected to last much longer than earlier anticipated. The April
inflation was expected to be further elevated which came at a eight year high of
7.79 percent, way above the target band of 2-6 percent." Hence it was necessary
to act through an off-cycle policy meeting. Waiting for one month till the June
MPC would mean losing that much time while war related inflationary pressures
accentuated. Further, it may necessitate a much stronger action in the June MPC
which is avoidable"
External member Jayanth Varma, professor at IIM, Ahmedabad, hinted at sharper
rate hikes soon saying that there is a lot of catching up to do as the MPC
prioritised economic recovery at the height of the pandemic until early 2021.
and delayed normalisation. " It appears to me that more than 100 basis points of
rate increases needs to be carried out very soon" Varma said.
The configurations that exist today – hardening US yields; ever strengthening US
dollar; equity sell-offs; emerging currency depreciations and capital outflows;
rising debt distress – are reminiscent of 1993-1994 after which followed a
cascade of emerging market crises. "At least, all the symptoms of a generalised
financial deleveraging are in place" said deputy governor MD Patra.
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EXCLUSIVE
RBI'S CRITICISM FOR "DELAYED" RATE HIKE UNFAIR, SAYS D SUBBARAO
The criticism that the Reserve Bank of India was behind the curve in hiking
interest rate to tame rising inflation is unfair, former RBI Governor D Subbarao
said on Wednesday and asserted that it is difficult for any central bank to
anticipate the future more accurately.
* PTI
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The criticism that the Reserve Bank of India was behind the curve in hiking
interest rate to tame rising inflation is unfair, former RBI Governor D Subbarao
said on Wednesday and asserted that it is difficult for any central bank to
anticipate the future more accurately.
Earlier this month, Monetary Policy Committee (MPC), the central bank's
rate-setting panel, surprised the markets with a 40 basis points hike in repo
rate in an off-cycle policy meeting. It was also the first rate hike after
August 2018, amid spiralling inflation.
Subbarao further said given that monetary policy acts with a lag, this rate
hike, by itself, is unlikely to bring inflation down in a hurry.
"I saw that the hurried action to tighten monetary conditions through an
off-cycle MPC meeting raised several questions," he told PTI in an interview.
Subbarao was responding to a question why RBI did not raise interest rate much
earlier despite rising inflation.
"Was the RBI sleeping at the wheel even as inflation was soaring? Did it go
overboard in prioritizing growth over inflation? Won't the delayed action cost
heavily in macroeconomic terms? Will this scrambling hurt RBI's credibility?
"I believe that this criticism is unfair," he said.
Retail inflation surged to an eight-year high of 7.79 per cent in April this
year while inflation galloped for the seventh straight month. RBI has been
mandated by the government to ensure that inflation remains at 4 per cent with a
margin of 2 per cent on either side.
While pointing out that the RBI, like other central banks around the world, had
to act under astonishing uncertainty brought on by rapidly unfolding
geopolitical developments, Subbarao said in early April when the last scheduled
MPC meeting took place, the war in Ukraine had been on for weeks, but even
seasoned military experts and experienced diplomats were wrong in predicting its
course.
"It's unfair to expect central banks to anticipate the future more accurately,"
Subbarao asserted.
The former RBI Governor noted that the inflation trajectory going forward will
depend on the pace and quantum of policy tightening over the next few cycles.
"With credit growth currently only around 9-10 per cent, the recent repo rate
hike is unlikely to transmit very strongly," he said, adding that nevertheless,
the rate action by RBI will help subdue inflation indirectly - by ensuring that
inflation expectations don't get unhinged.
To a question if inflation stays above the RBI's target band, the central bank
may have to explain why it is unable to bring it down, he opined that the RBI
may face that prospect by September.
"Should that contingency arise, the RBI must see that as an opportunity to
explain the challenges of policy navigation in extraordinarily uncertain times,"
Subbarao suggested.
According to its inflation targeting mandate, if average inflation rules above
the target band for three consecutive quarters, the RBI is enjoined to write a
letter to the government explaining the reasons for failure to deliver inflation
within the target band and the remedial action taken to get back on target.
Referring to some economists talking about a risk of stagflation, he said the
fear that India is headed towards stagflation - an eerie combination of high
inflation, surging unemployment and low growth - is exaggerated.
" For an economy slated to grow around 7 per cent over the medium term, any fear
of stagflation is misplaced," he said,adding, unlike most large economies in the
world which are demand-constrained, India is structurally supply-constrained and
that huge demand potential itself is a safety valve for India against
stagflation.
When asked if the rising interest rate will hurt growth, he said that it is only
over the last few months that India has seen incipient signs of revival of
private consumption and private investment.
"Those growth impulses will hit speed bumps because of the rate action, and to
that extent some compromise on growth is inevitable. But that is only in the
short term. In the medium term, price stability aids sustainable growth," he
argued.
On rupee falling to all-time lows against the dollar in recent days, Subbarao
said in fact, RBI might be comfortable with some rupee depreciation to bring the
real effective exchange rate (REER) into parity and maintain the competitiveness
of India's export.
On the other hand, he noted that rupee depreciation exacerbates inflation
pressures by raising the rupee cost of imports.
"In my view, we should be agnostic about the level of the exchange rate and only
engineer the trajectory of the exchange rate path to prevent undue volatility,"
he opined.
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EXCLUSIVE
FOREX KITTY WILL COVER 10 MONTHS’ IMPORTS: RBI
The report, released by the RBI on Tuesday, said that the global growth outlook
was grim as geopolitical tensions lingered, and commodity prices remained
elevated, even as withdrawal of monetary accommodation gathers speed worldwide.
* TNN
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Mumbai: The Reserve Bank of India (RBI) has said in its ‘State of the economy’
report that forex reserves of $596 billion, as on May 6 this year, were
equivalent to about 10 months of projected imports for FY23. The central bank
also released data showing it sold $20 billion of its reserves in March 2022.
The report, released by the RBI on Tuesday, said that the global growth outlook
was grim as geopolitical tensions lingered, and commodity prices remained
elevated, even as withdrawal of monetary accommodation gathers speed worldwide.
“Emerging economies face risks of capital outflows and higher commodity prices
feeding into inflation prints. Meanwhile, the pandemic impinges on near-term
economic prospects,” the RBI said in its report.
Since the RBI announced its policy in April this year, inflation risks have
become more accentuated in recent months. The increase in international
commodity prices also imparts net terms of trade shock that is widening the
trade and current account deficits.
“To achieve a higher growth path on a sustainable basis, private investment
needs to be encouraged through higher capital expenditure by the government,
which crowds in private investment,” the report said. It added that improving
infrastructure, ensuring low and stable inflation and maintaining macroeconomic
stability is critical for reviving animal spirits and spurring growth.
The RBI, which had maintained a status quo position in its April policy, said
that inflation pressures became increasingly generalised across commodity groups
in the April 2022 print of the consumer price index (CPI), resulting in a sharp
spike in headline inflation to 7.8% — well above the upper tolerance band.
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EXCLUSIVE
LOW, STABLE INFLATION CRITICAL FOR SPURRING GROWTH: RBI ARTICLE
"India faces challenges in building from the scars of the pandemic through
larger investments in health and productivity of the human capital," the article
said.
* PTI
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Improving infrastructure, ensuring low and stable inflation, and maintaining
macroeconomic stability are critical for reviving animal spirits and spurring
growth, according to an article published in the RBI Bulletin on Tuesday. The
article titled 'State of the Economy' notes that the Indian economy consolidated
its recovery, with most constituents surpassing pre-pandemic levels of activity.
Heightened global risks stemming from weakening growth, elevated inflation,
supply disruptions on account of geopolitical spillovers and financial market
volatility stemming from synchronised monetary tightening pose near-term
challenges.
"India faces challenges in building from the scars of the pandemic through
larger investments in health and productivity of the human capital," the article
said.
The central bank, however, said the views expressed in the article are those of
the authors and do not necessarily represent the views of the Reserve Bank of
India (RBI).
Further, it said that with an acceleration in the pace of digitalisation, the
footprint of the unicorn ecosystem in India is expanding, reflecting a rapidly
changing economy.
"In order to achieve a higher growth path on a sustainable basis, private
investment needs to be encouraged through higher capital expenditure by the
government which crowds in private investment," it said.
The global growth outlook appears grim as geopolitical tensions linger,
commodity prices remain elevated and withdrawal of monetary accommodation
gathers speed, the article noted.
According to the article, emerging economies face risks of capital outflows and
higher commodity prices feeding into inflation prints while the pandemic
continues to impinge on near-term economic prospects.
Also Read:
RBI, GOVERNMENT ACTIONS CAN REDUCE DURATION OF HIGH INFLATION: FINMIN
India was relatively better placed than other nations to weather the storm
associated with monetary tightening in advanced economies, the ongoing
geopolitical conflict, lockdowns in parts of China and supply-side disruptions,
it added.
See More Details
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EXCLUSIVE
GOVT LOOKING AT NEW SELECTION BODY FOR PSU FINANCIAL ENTITIES
This comes after the selection of executives by BBB for various other
institutions was challenged before the courts.
* Dheeraj Tiwari
* ET Bureau
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The government is looking to set up a new body, Financial Institution Bureau,
for the selection of key executives in state-owned insurance companies and other
state-run financial institutions, and guide them to make business and human
resource (HR) strategies.
"The government is actively considering setting up of a new institution on the
lines of Banks Board Bureau (BBB) to avoid any legal issues going forward," a
government official, privy to the development, told ET.
This comes after the selection of executives by BBB for various other
institutions was challenged before the courts.
Another official said the proposed body can be an umbrella body, with BBB as its
part. "It's being discussed at the highest level," he added.
BBB's mandate could be restricted to selecting candidates in state-run banks.
The names are yet to be finalised but former Life Insurance Corporation managing
director Usha Sangwan and former New India Assurance chairman Atul Sahai could
be part of the new structure, officials said.
Last year, the Delhi High Court had said BBB cannot select general managers and
directors of public sector general insurers as it was not a competent body. "The
appointments made pursuant to the impugned selections of general manager and
directors of PSICs (public sector insurance companies) are liable to be set
aside. It is ordered accordingly," it had said.
This led to the government transferring Madhulika Bhaskar, then general manager
of General Insurance Corporation (GIC Re), to New India Assurance as acting
chairman.
"This new institution will have members from both insurance companies and other
requisite fields," said the first official quoted above, adding that this will
clear the way for all future appointments.
Separately, the government may bring in new people to the BBB to succeed members
whose terms ended last month. Set up in 2016, BBB, with the former comptroller
and auditor general (CAG) Vinod Rai as its chairman, was to make recommendations
for the appointment of whole-time directors as well as non-executive chairmen of
public sector banks. It was further entrusted to engage with the board of
directors of all the PSBs to formulate appropriate strategies for their growth
and development.
Since April 2018, BBB has been headed by B P Sharma, former secretary in the
Department of Personnel and Training. The other part-time members are Vedika
Bhandarkar, former MD of Credit Suisse, P Pradeep Kumar, former MD of State Bank
of India, and Pradip Shah, founder MD of rating agency Crisil.
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EXCLUSIVE
WAS PRESSURISED TO TAKE UP RBI BOARD POSITION: S GURUMURTHY
Chartered Accountant and Editor of Tamil political magazine 'Thuglak' S.
Gurumurthy said he was pressurised to take up the board position in the Reserve
Bank of India (RBI).
* IANS
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Chennai, Chartered Accountant and Editor of Tamil political magazine 'Thuglak'
S. Gurumurthy said he was pressurised to take up the board position in the
Reserve Bank of India (RBI).
Gurumurthy told this in an email to the All India Bank Employees Association
(AIBEA) General Secretary C.H. Venkatachalam and also dared the latter to share
the mail with the Union members.
As a post script in his email, Gurumurthy told Venkatachalam: "You all think
that me being in the RBI Board is a big thing. I was pressurised to take up that
position as there were not many to put a counter view in the RBI Board."
"I did not need it nor did I seek it. For decades I had never taken any position
in or from the government. Nor will I ever."
"Me, in the RBI Board, was criticised by the Financial media in the West, and I
am happy you a communist share their views now," Gurumurthy added.
Continuing further. Gurumurthy said he had never allowed anyone in any public
fora to state that he is on the RBI Board in the introductory remarks.
"You have expressed grave concern about me being on the RBI Board. You may not
know that if I am not on the RBI Board it makes very little difference to me,"
Gurumurthy said.
Gurumurthy wrote to Venkatachalam in response to the latter's message in social
media condemning him for his comments at Thuglak magazine's annual function
about the public sector bankers.
Speaking at the Thuglak magazine's annual function, Gurumurthy had said the
public sector banks are losing talented officials to the private sector owing to
poor pay and lack of freedom.
"Only scums and filth are remaining with public sector banks and with them, the
country has to compete globally in the financial sector," he had said.
Gurumurthy also said that till the government has majority stakes in its banks,
it is not possible to encourage talented staff.
Reacting to that Venkatachalam said: "We strongly condemn his uncalled for
comments and demand his immediate apology. He is unfit to be on the Board of RBI
and the government should remove him from this important post."
Gurumurthy in his email to Venkatachalam said: "I would not have written if I
had not known you and you had not invited me for the AIBEA workshop. Your post
has started a campaign against me."
Stating that many campaigns were made against him earlier Gurumurthy said: "I
have never bothered about the campaigns against me by any, as I don't belong to
any party, nor seek or need anyone's courtesy, by the grace of the Divine I
believe in. So this is not to answer any campaign."
"I have always opposed and will continue to oppose privatisation as I believe
with all faults majority bank assets in India have to be in state hands. The
Indian economy will be ruined if the major part of the financial sector falls
into private hands with the expansion and contraction of the Rupee dependent on
the Dollar," Gurumurthy said.
"I resisted within RBI all efforts to pressure the government to privatise when
the previous RBI governors were in command," he added.
As regards his speech at the Thuglak magazine's function Gurumurthy said the UPA
government's policies of letting huge FII investments into the stock market led
to indigestible money in the system.
To lend that money the government brought down the customs tariffs to zero for
capital goods to attract the industrialists to borrow from banks.
Gurumurthy said the government persuaded the industry to go for huge expansions
in the hope that India would turn into a high growth export driven economy.
According to Gurumurthy, the huge recession that followed 2008-09 made the
investments of several lakhs of crore junk and the monies lent, NPA (non
performing asset) and which was also later accepted by former Governor of RBI
Raghuram Rajan.
"That is where the woes of the PSBs (public sector bank) started. Not a single
political party, including the BJP and CPI-M or the bank unions spoke the truth
about the source of the NPA trouble. The guilty finance ministry officials who
ran telbanking were mixed up with both the UPA and NDA governments, to suppress
the truth," Gurumurthy said.
Continuing further he said, the NPA issue, action against it by the Central
Bureau of Investigation (CBI), Central Vigilance Commission (CVC), the
prudential norms completely shook the bank officers.
"This gave a huge opportunity to the private banks and funds which had a heyday
because the best loan accounts shifted to them. They began giving high salaries
and attracting capable PSB officers," Gurumurthy said.
As a result, several capable officials left the PSBs and he had termed the
remaining officials as 'kazhisadai' meaning leftovers or those who could not
pass through the filter, remained inside.
"It is a fact and I stand by it," Gurumurthy said.
Referring to the decline in share of PSB loans in the total banking sector loans
Gurumurthy said: "At this rate the PSBs need not be privatised. They will get so
marginalised that they will handle only the government and municipal accounts
and all corporate accounts will be taken over by private banks. That we are not
having and not generating and training the needed talent in the PSBs to handle
60 per cent of national savings that gets into the PSB is indisputable. It is a
matter of concern for all -- government included," he said.
"If you are a responsible trade unionist you will be concerned, talk about this
and not play petty politics. I wrote this because you had invited me to talk to
AIBEA and you know our views converge on PSBs in many ways," Gurumurthy told
Venkatachalam and also asked whether he has the guts to circulate his mail to
AIBEA members.
"I will not make this public unless you do it. If you do it, have the courage to
publish it in full," Gurumurthy said.
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EXCLUSIVE
GERMANY MAKES CRYPTO GAINS TAX-FREE AFTER ONE YEAR EVEN IF THE COINS ARE USED
FOR STAKING AND LENDING
The Ministry of Finance announced on May 11 that it has published a letter on
the income taxation of cryptocurrency, confirming officially that the sale of
crypto assets is tax-free after 1 year even if the coins are used for staking
and lending. This is the first-ever initiative that will bring nationwide
uniform administrative law on the subject in Germany, bitcoin.com cited the
statement by the Ministry.
* TIMESOFINDIA.COM
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The German Ministry of Finance in coordination with the highest financial
authorities of the federal states took decision on whether the tax-free holding
period for crypto lending and staking should be a minimum of 10 years. The
Ministry of Finance announced on May 11 that it has published a letter on the
income taxation of cryptocurrency, confirming officially that the sale of crypto
assets is tax-free after 1 year even if the coins are used for staking and
lending. This is the first-ever initiative that will bring nationwide uniform
administrative law on the subject in Germany, bitcoin.com cited the statement by
the Ministry.
The decision is a result of the hearing that took place in 2021 where a large
number of crypto associations and stakeholders voiced concern over the tax-free
holding period of crypto lending and staking. The letter deals with and
addresses the following issues:
* The letter provides crypto businesses and individual taxpayers a legally
secure and simple applicable guidance on the income tax treatment of virtual
currencies and other tokens.
* It deals with various crypto issues, which are technically explained and
classified according to income tax law.
* Primarily, deals with staking, lending, hard forks, airdrops, the special
features of utility and security tokens under income tax law and tokens as
employee income.
* It also deals with the buying and selling of bitcoin or ether,
particularly block creation or mining in bitcoin.
* The Parliamentary State Secretary, Katja Hessel said that for private
individuals, the crypto gains from the sale of purchased Bitcoin and Ether
will be completely tax-free after a holding period of a year.
* The letter clarified that the 10-year period will not apply to virtual
currencies.
According to Koinly, a cryptocurrency tax calculator and portfolio tracker for
traders, in Germany cryptocurrencies are considered a private asset, because of
which it attracts an individual income tax rather than a capital gains tax. The
country only taxes crypto if it's sold within the same year it was bought.
For the latest crypto news and investment tips, follow our Cryptocurrency page.
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EXCLUSIVE
SC RULING ON NON-BANKS REMOVES KEY REGULATORY OVERHANG: CRISIL
“The ruling has effectively reaffirmed regulatory sanctity for NBFCs registered
with the RBI as a separate category of lenders, distinct from the traditional
moneylenders,” said Krishnan Sitaraman, Senior Director, CRISIL Ratings.
* Saloni Shukla
* ET Bureau
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The recent ruling by the Supreme Court that underscored the primacy of the
Reserve Bank of India, as the regulator of non-bank financing companies has
removed a key overhang on such shadow lenders especially in the matter of the
rate of interest they charge borrowers, domestic rating agency Crisil said.
“The ruling has effectively reaffirmed regulatory sanctity for NBFCs registered
with the RBI as a separate category of lenders, distinct from the traditional
moneylenders,” said Krishnan Sitaraman, Senior Director, CRISIL Ratings.
“While the Supreme Court has not specifically commented on the appropriateness
of interest rates being charged by NBFCs, it has implicitly stated that the RBI
has the jurisdiction and powers to look into the same and is already doing so
through the various Regulations, Master Circulars and Master Directions issued
by it.”
The ruling is specifically beneficial to gold loan NBFCs and other regulated
NBFCs, including NBFC-MFIs, where sensitivity over interest rates is higher,
Sitharaman added.
Crisil also said that despite the ruling, NBFCs need to be cautious about the
interest rates they charge borrowers, and anything deemed usurious has the
potential to be subjected to supervisory scrutiny by the RBI.
The Supreme Court recently put to rest the uncertainty around the applicability
of state legislations on non-banking financial companies, by emphasising the
primacy of TBI as the supervisor of NBFCs in India.
The legislatures of Kerala and Gujarat had sought to bring NBFCs under the ambit
of their respective legislations (the Kerala Money Lenders Act, 1958 and the
Gujarat Money-Lenders Act, 2011) to regulate the interest rate charged by
moneylenders and protect borrowers.
The Supreme Court held that state enactments have no application to NBFCs
registered under the RBI Act, and that the law is clear about the central bank
having a supervisory role to oversee the functioning of NBFCs from the time of
their birth till the time of their commercial death.
The Supreme Court also said, that while the RBI may not be controlling the rate
of interest charged by NBFCs on loans advanced by them, it does have the power
to step in to determine policy and issue directions.
It apex court had also observed that while the RBI generally leaves it to the
market forces to determine the rate of interest, states cannot take advantage of
this to step in and prescribe limits.
“Chapter III B of RBI Act is a complete code in itself,” said Raman Agarwal,
spokesperson for FIDC - an NBFC industry body. “There is a clear conflict
between RBI Act and the state has no power to regulate moneylending business of
NBFCs.”
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