Buying, Selling US Dollars? RBI Plans to Cut Charges Substantially via Spot Trading Platform
The Reserve Bank of India (RBI) is working on an electronic spot trading platform for retail customers who need to buy or sell foreign currency like the US dollar.
 
RBI is now open to allow retail customers to exchange any amount on this platform being developed by Clearing Corp of India (CCIL), says a news report. 
 
The report from Business Standard, quoting Foreign Exchange Dealers’ Association of India, says customer registration will start on 1st July and trading will start on 5 August 2019.
 
“The RBI and CCIL want to ensure there is enough customer onboarding for effective trading and so, registration will start a month in advance. The amount can be anything the RBI decides. The CCIL can settle transaction of even one rupee,” "the report says quoting a source. 
 
Currently, the clearing corporation operates an interbank USD/Indian Rupee spot trading platform named FX-CLEAR. The same platform can be modified to allow retail customers of the member banks. This retail market platform will be separate from the one used for interbank market. 
 
At present, a retail customer has to pay commission while buying or selling foreign currencies at the bank. For buying, the customer has to pay 2% premium, while for selling the banks charge 2% of the amount as discount. In both cases, the customer has to bear the cost of exchanging foreign currency (forex). In addition, if the customer use credit card for forex exchange, she is charges an additional 3% charge. 
 
RBI's new initiative is a fallout of its discussion paper issued in October 2017. In the paper, RBI had proposed a mechanism for improving pricing outcome for retail user. Under this mechanism, client pricing is directly determined in the market by providing customers with access to an inter-bank electronic trading platform where bid and offers from clients and authorised dealer banks can be matched anonymously and automatically.
 
"This is likely to provide transparency while enhancing competition leading to better pricing for all types of customers, without differentiating them on the basis of order size. Direct execution by the customer is likely to bring down the cost of transactions as there is no market risk to the customer’s bank apart from settling the inter-bank trade through the CCIL settlement system. Banks may charge their customers a fee towards processing expenses. Banks will be required to publicly declare such fees," RBI had said in the discussion paper.
 
The central bank feels that direct execution by the customer would help bringing down the cost of transactions as there is no market risk to the customer’s bank apart from settling the inter-bank trade through the CCIL settlement system. Banks may charge their customers a fee towards processing expenses, it says adding banks will be required to publicly declare such fees.
 
How will the forex exchange trading platform work?
 
1. The customer registers for the forex trading platform facility on a specified portal and will share permanent account number and bank account details. The customer’s bank will set up the limit for forex trading, and share it with CCIL, which in turn will send login details to the customer. 
 
2. The retail customer will access the platform through her authorised dealer bank and place bid (buy)/offer (sell). The system will display interbank rates prevailing at the time. However, since the retail orders would be processed in a lot of $500,000, the interbank rate for the currency may be different from what is displayed while placing the order.
 
3. Customer can directly execute the trade up to the limit by placing bid/offer quotes. Trades will be executed by anonymous order matching on price-time priority.
 
4. Buy orders on the retail platform will be matched against sell orders therein and vice versa. The system will have a functionality to aggregate customer orders at the same rate up to the minimum lot size of the interbank market (currently $5,00,000) and match it with the orders in the interbank market. This will ensure that prices in both the markets are in line.
 
5. Each matched trade of the customer would result in two transactions i.e. one between the customer and its bank and another between the customer’s bank and the counterparty bank except in cases where the customer orders are executed between the customer and customer’s bank. The interbank deal (between the customer’s bank and the counterparty bank) will be settled as per the current CCIL settlement process while the customer deal will be settled bilaterally between the bank and customer.
 
6. Once the trade is completed, a ticket showing interbank rate, mark-up and the net rate will be generated. The customer can opt for same day delivery (cash), next day deliver or spot delivery (trading+2 days or T2).
 
7. In case of same day delivery, the customer can visit her bank and take delivery or deposit the foreign currency, she has traded through the platform. 
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COMMENTS

Arjun Rodrigues

3 weeks ago

This would mean that the forex conversion rate on credit cards will come down, forex dealers will get less as more will go to banks.

Housing Finance Sector Continues To Face Multiple Headwinds: Report
Housing finance companies (HFCs) have slowed down their loan disbursements which can have a spill-over impact on retail home loan borrowers and property developers, says a research note.
 
According to the report from India Ratings and Research (Ind-Ra), over the years, funding to developers has been significantly tightened. “If the tightening continues, there could be a material impact on construction progress, thereby putting asset quality pressure on HFCs in the medium term. Moreover, there could be a double whammy if HFCs have dual exposure to developers and home loan borrowers with common exposure to underlying projects,” it added.
 
Multiple Challenged Faced by HFCs Are Still There 
 
 
Ind-Ra says, “The housing finance sector has been facing challenges, which have led to a contraction in spreads, a rise in funding cost and an increased spotlight on their asset-liability mismatches. Such mismatches have resulted in constrained financing from both market-based sources, commercial papers and non-convertible debentures (CPs and NCDs) and banks for many players.”
 
Rising Funding Cost of HFCs Shifts Competitive Benefit to Banks 
 
According to Ind-Ra, systemic rise in market borrowings rate has affected the housing loan business. The borrowing cost for some large HFCs could be upwards of banks’ marginal cost of funds-based lending rate (MCLR), it says, adding, “This has led to the shrinking of margins in mid-to-large ticket housing loans, where banks are highly competitive. Furthermore, the ongoing challenges in the real estate and small and medium enterprise segments (MSME) and loan against property customers may lead to HFCs reassessing loan growth plans, thereby putting pressure on their margins.” 
 
During FY16-17 to first half of FY18-19, to mitigate the margin risk, many HFC players expanded their non-housing books at a significantly higher rate than their pure housing loan books. The increase in the proportion of non-housing loan book could lead to asset quality pressure amid the current slowdown in disbursement to developers, the ratings agency added.
 
 
During the third quarter of FY18-19, housing loan growth moderated to 14.0% on a year-on-year (y-o-y) basis and to 3.5% on a quarter-on-quarter (q-o-q) basis. The segment has witnessed moderation in growth from the historical compounded annual growth rate (CAGR) of 19.0% for the past five years. Incrementally, Ind-Ra says, risk perception has increased for low-rated HFC lenders, based on the duration of their asset book and funding profiles.
 
Accentuated Impact of Duration Mismatch
 
According to the rating agency, funding access for HFCs has been constricted, as risk aversion increases among lenders in the wake of rising concerns over asset quality and asset-liability tenor. Many HFCs had increased short-term funding to reduce funding cost, supported by benign liquidity conditions. During tight liquidity conditions, the varied nature of lending and funding duration could lead to a mismatch in the asset-liability tenor. 
 
“HFCs lend for a long duration but their funding duration remains three-four years, leading to asset liability gaps. The management of such gaps could become even more challenging, if funding includes a sizeable amount of short-term borrowings with low tenors (CPs); this can accentuate refinancing challenges. The mismatch has come to the fore after September 2018 as liquidity and market borrowing got tighter to mobilise, along with the reluctance of banks to increase exposure to the housing finance industry,” it added.
 
While assessing the liquidity strength of HFCs, Ind-Ra says it considers on-book liquidity, asset-liability tenor on a contractual basis, committed unutilised bank lines and granularity of assets (largely inflows). It says, “Behavioural asset-liability management, which factors in prepayments, residual asset tenor and liability on a contractual basis, may create the optical illusion of matched asset-liability tenors, which is vulnerable during stress periods as prepayments may not flow and residual tenor would expand.”
 
 
Disbursement Slowdown To Lead to Dual Impact on Borrowers and Builders
 
Loan disbursement in the four quarters ended September 2018 averaged Rs25,000 crore per month for large six HFCs players based on the preceding four-quarter average. However, following September 2018, per month average disbursement fell to Rs13,500 crore as a few large HFCs faced serious challenges.
 
As per Ind-Ra, the current liquidity tightness in the housing finance sector has led to a large number of non-bank entities, HFCs and non-banking finance companies (NBFCs) curtailing loan disbursements, thereby creating a significant funding crunch in the sector. “Tight funding in the housing finance industry has not only impacted fresh loan disbursement, but also loans where disbursements are linked to construction, thereby impacting a large number of home buyers who could face challenges to service their commitments to property developers,” it added.
 
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Chanda Kochhar Money Trail-V: Videocon's Dhoot complicit in Rs 64 cr payout to Kochhar
Twice over the course of the ongoing all-encompassing multi-disciplinary Chanda Kochhar-Videocon Industries probe has chairman Venugopal Dhoot accepted complicity in the dirty deal.
 
Dhoot reported to the CBI vide letter dated 25.4.2018 that "With reference to the captioned preliminary enquiry, I hereby submit that in my capacity as CMD of Videocon Industries, I have been entrusted with substantial powers of management inter alia including the authority to make investments/extend loans, advances etc, accordingly, Rs 64 crore given by the company to Supreme Energy Pvt Ltd is within the powers entrusted upon me." 
 
This was disclosed by Dhoot during the inspection of Videocon during his statement under oath and through letter dated 15/11/2018. On 12.6.2018 a missive sent by VIL to SEBI states: "This was a decision in terms of authority as the matter is very old, we are checking whether there was any contract to this effect. Further in the next para, it is stated that no approval of audit committee was taken on the date of advance as there was omission on the part of Venugopal Dhoot to disclose the interest in the entity."
 
Slam dunk and an airtight case where the investigators have probable cause and clear collusion between Videocon's Dhoot and Kochhars.
 
The probe agencies have compiled the exact manner of flow of funds and the present status thereof in Videocon Group. Here is the anatomy of the collusive fraud: 
 
* Videocon Iindustries Ltd (VIL) paid Rs 64 crores purportedly as "advance" to Supreme on 8/09/2009.
 
* VIL then assigned this advance/receivable from Supreme to its Group company IRCL on 05/07/2011. 
 
* Indian Refrigerator Company Ltd (IRCL) it turn assigned it to another group company, Real Cleantech Pvt Ltd (RCLP) on 05/08/2011. 
 
* The Present status of RCPL is "Struck off" in RoC Records as ROC struck this company under Section 248 being defaulting in fining AR and BS after 2014 even though the amount is still payable by Supreme to VIL Group. 
 
* In lieu of this Advance, Supreme Energy allotted OCDs worth Rs. 64 Crores to RCPL on 05.10.2011. 
 
* RCPL allotted 0% OCDs to IRCL on 31/03/2012. 
 
* RCPL and IRCL are both VIL Group Companies and still continue to be same, except the fact that RCLP is now struck off. 
 
* In view of RCLP being Struck Off Company, this receivable by RCPL/VIL Group from Supreme (or Kochhar Group of Companies) is highly nonexistent/doubtful. It is clear that Videocon Group had no serious intention to recover the funds.
 
Further, the flow of Rs 64 crore received from VIL by Supreme and further flow in Kochhar group is as under:
 
* Supreme Received Rs 64 crore from VIL on 08/09/2009 shown as unsecured loan as per BS as at 31.03.2010.
 
* On the same day, on 08/09/2009, Supreme transferred this amount to NuPower Renewables purportedly for subscription for allotment of Zero Coupon Fully Convertible debentures. 
 
* NuPower allotted such debentures to Supreme on 25.03.2010. 
 
* Such Debentures were converted to Equity on 19.03.2016 at a premium of Rs 1,156.50 per share to Supreme and allotted 548,650 equity shares aggregating to Rs 64 core. The premium was on the basis of a valuation report by PWC which is already under examination by Income Tax Department (details may be examined during inspection of NuPower).
 
* NuPower is in the business of Wind Power using such funds coupled with bank loans and from other entities too. The said wind power assets of NuPower were later hived off into three parts by way of Slump Sale to NuPower Wind Farms Limited (Under inspection) and Echanda Urja Private Limited (under inspection) and the third portion remains with NuPower. 
 
How Companies/corporate structures have changed hands and considerations involved: 
 
* Supreme was a company belonging to V.N. Dhoot as all the shares were held by Dhoot and his associates at the time of "advance" of Rs 64 crore of funds by VIL to Supreme.
 
* Dhoot transferred all his equity held in Supreme to Mahesh Punglia (his consultant CA) on 2.11.2010 at par (9990 equity shares of Rs 10 each at par) while Rs 64 crore was still receivable by VIL from Supreme and at present which is still receivable by RCPL (Videocon group Company) 
 
* In the meantime, Dhoot floated another company NuPower jointly with a Company, Pacific Capital Services Private Limited (a company owned by the relatives of Deepak Kochhar) as 50:50 venture. 
 
* NuPower became subsidiary of Supreme as result of sale of all 50% of his shares by Dhoot to Supreme at Par (24996 shares of Rs 10 each totaling to Rs 2,49,960) and Pacific sold to Supreme of its 22500 equity Shares of Rs 10 totaling to Rs 225000 at par). Rest of the shares held by pacific were sold to Deepak Kochhar at par. 
 
* Later, on 12.03.2012, NuPower further allotted 1897000 equity shares of Rs 10 each to Deepak Kochhar as managing trustee of Pinnacle Trust and 100000 equity shares of Rs 10 each Sunil Bhuta on conversion of warrants. Consequently, NuPower ceased to be subsidiary of Supreme and 97.66 % were held by Deepak Kochhar and his associates and only 2.32% with Supreme. 
 
* Puglia sold his entire share holding of 9990 equity of Rs 10 each in Supreme (which he had got at par from Dhoot to Deepak Kochhar in his capacity as the managing Trustee of Pinnacle Energy Trust on 29.09.2012 at par totaling to about Rs 10 lakh. On the same date, the remaining 10 shares held by Vasant Kakade (an associate of Dhoot) were transferred to Prem Rajani (an associate of Kochhar]. At this stage Dhoot, even indirectly, exited from the ownership of Supreme and it became a hundred percent company of Deepak Kochhar (through his trust) at par face value of Rs 10 per share even though at this stage also a sum of Rs 64 crore was due from Supreme to RCLP (Group company of Videocon).
 
* Thus, Deepak Kochhar owned and controlled both Supreme and NuPower even though at this stage also a sum of Rs 64 crore was due from Supreme to RCLP (Group Company of Videocon now struck off).
 
* Later, sums of about Rs 325 crore have flown in NuPower from Essar Group/Firstland Holding Limited between 2010 to 2012. 
 
* NuPower acquired Wind Powers from Shriram Group and also constructed its own wind power business by consolidated funds in its kitty (sum total of funds from Videocon, Firstland, DH Renewable, bank loans etc). 
 
* Later, this company under inspection namely NuPower Wind Farm Limited was incorporated by Deepak Kochhar. 
 
* The Wind Power Business of NuPower was sold by slump sale to the company under inspection and another part to NuPower Wind farms and third undertaking remains with NuPower. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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