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Indian economy exhibited stronger pick up than expected: RBI Governor

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Shaktikanta-Das

The Indian economy has exhibited stronger pick up in momentum of recovery than expected, said Reserve Bank of India Governor Shaktikanta Das on Thursday.

Addressing the 4th Annual Day of Foreign Exchange Dealers’ Association of India (FEDAI), he cited that a multi-speed normalisation of activity in Q2FY21, after the country witnessed a sharp contraction in GDP by 23.9 per cent in Q1FY21.

“Even as the growth outlook has improved, downside risks to growth continue due to recent surge in infections in advanced economies and parts of India,” he said.

“We need to be watchful about the sustainability of demand after festivals and a possible reassessment of market expectations surrounding the vaccine.”

Besides, he said that monetary policy guidance in October emphasised the need to see through temporary inflation pressures and also maintain the accommodative stance at least during the current financial year and into the next financial year.

“A key source of resilience in recent months has been the comfortable external balance position of India supported by surplus current account balances over two consecutive quarters, resumption of portfolio capital inflows on the back of robust FDI inflows, and sustained build-up of foreign exchange reserves,” he said.

“The Government’s recent policy focus to enhance India’s participation in global value chains, including through production linked incentives for targeted sectors, can leverage on the strong external balance position of India.”

On the financial markets, he said conditions were benign at the start of the year but witnessed severe stress and dislocation as the Covid-19 pandemic unfolded.

“The Reserve Bank acted proactively and nimble-footedly to ease financial market conditions and mitigate risks with a slew of conventional and unconventional measures. Market participants responded with alacrity and together we have been able to ensure stable and resilient markets across all segments,” he said.

“The Reserve Bank remains committed to fostering orderly functioning of financial markets and will continue to evaluate incoming information having a bearing on the financial markets and act, as needed, to mitigate any downside risks.”

Furthermore, he cited that Reserve Bank has taken steps to usher in the next phase of reforms to accelerate the pace of financial markets’ liberalisation.

“The broad approach driving the recent regulatory initiatives is that any person with a need to access financial markets should be able to do so with ease at minimum cost. Principle-based regulations for interest rate derivatives and foreign exchange derivatives aim at achieving this broad objective,” he said.

“Users with limited or small hedging requirements have been allowed to enter into contracts equivalent of USD 10 million without the need to establish the existence of underlying exposures.”

In addition, Das said that as a major milestone towards opening up of markets, banks in India have been permitted to deal in the offshore rupee derivative markets.

“The measure is expected to reduce the segmentation between onshore and offshore markets, apart from reducing volatility and the cost of hedging. Banks have also been permitted to undertake foreign exchange transactions beyond the usual onshore market hours, thus fostering real time market activity,” Das said.

“In a complementary measure, exchanges and banking units in the GIFT City have been permitted to undertake Over the Counter (OTC) and exchange traded rupee derivatives.”

Business

India’s forex reserves rise by over $3 bn

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Reserve-Bank-of-India

India’s foreign exchange reserves rose by $3.074 billion during the week ended June 11.

According to the Reserve Bank of India’s (RBI) weekly statistical supplement, the reserves increased to $608.081 billion from $605.008 billion reported for the week ended June 4.

India’s forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs), and the country’s reserve position with the International Monetary Fund (IMF).

On a weekly basis, FCAs, the largest component of the forex reserves, edged higher by $2.567 billion to $563.457 billion.

Similarly, the value of the country’s gold reserves rose by $496 million to $38.101 billion.

However, the SDR value slipped by $1 million at $1.512 billion.

But, the country’s reserve position with the IMF inched higher by $11 million to $5.011 billion.

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BharatPe in talks to raise $250M led by Tiger Capital: Report

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BharatPe

Fintech major BharatPe, that hit a new high with 106 million monthly transactions in UPI in March this year, is reportedly raising nearly $250 million in its next funding round led by Tiger Global.

TechCrunch on Friday reported, citing sources, that the fresh funding will take the company’s valuation to about $2.5 billion.

When reached, the company declined to comment at the moment.

The financial services company last month raised Rs 50 crore in debt from Northern Arc Capital, one of the leading digital debt finance platforms. This was the sixth round of debt financing in 2021.

In January, the company had raised Rs 200 crore from three top debt companies in the country — Alteria Capital, InnoVen Capital and Trifecta Capital, having later raised additional capital from ICICI Bank and Axis Bank.

“We have considerably ramped up our lending business in the last year and have set an ambitious target of facilitating disbursals to the tune of $1 billion to more than 10 lakh merchants by the end of current fiscal (FY22),” Suhail Sameer, Group President, BharatPe, had said.

The fintech company has already facilitated disbursals of over Rs 1,600 crore to more than 2 lakh merchants since the launch of the lending vertical.

As per a recent report by ACI Worldwide and Global Data, India has outpaced the US and China to become the world’s biggest real-time digital payments market, driven by P2P as well as merchant payments.

BharatPe said it is committed to help small merchants and kirana store owners grow their business with a range of fintech products for them.

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Finance Ministry refutes reports of alleged black money held by Indians in Switzerland

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Finance-Ministry

The Union Finance Ministry on Saturday said that increase in deposits of Indians in Swiss Banks could be on account of increase in business of Swiss bank branches located in India and raised Inter-bank transactions, rather than due to an increase in alleged black money held by Indians in Switzerland.

It, however said that Swiss Authorities have been requested to provide the relevant facts along with their view on possible reasons for increase or decrease in deposits so that facts could be presented in correct perspective.

Certain reports suggested that that funds of Indians in Swiss Banks have risen to over Rs 20,700 crore (CHF 2.55 billion) at the end of 2020 from Rs 6,625 crore (CHF 899 million) at the end of 2019, reversing a 2 year declining trend. It has also been stated that this is also the highest figure of deposits in the last 13 years.

“Reports allude to the fact that the figures reported are official figures reported by banks to Swiss National Bank (SNB) and do not indicate the quantum of much debated alleged black money held by Indians in Switzerland. Further, these statistics do not include the money that Indians, NRIs or others might have in Swiss banks in the names of third-country entities,” the Ministry statement said.

The statement added that the customer deposits have actually fallen from the end of 2019 in a Swiss Banks. The funds held through fiduciaries has also more than halved from end of 2019. The biggest increase is in “Other amounts due from customers”. These are in form of bonds, securities and various other financial instruments, the finance min statement said.

The ministry also ascribed various other reasons for increase in deposits and not possibly on account of the increase of deposits in the Swiss banks out of undeclared incomes of Indian residents. It said that that increase in deposits may be on account if increase in deposits owing to the business of Swiss Bank branches located in India or Increase in Inter- bank transactions between Swiss and Indian Banks. Also, it could be due to capital increase for a subsidiary of a Swiss Company in India or increase in the liabilities connected with the outstanding derivative financial instruments.

The government has issued clarifications in wake of widely held position that it has curbed generation of black money in the economy or unaccounted funds of Indians stashed abroad. The fresh tax agreements reached between India and certain perceived tax havens has introduced certain instruments to prevent round tripping of funds and generation of black money.

It is pertinent to point out that India and Switzerland are signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC) and both countries have also signed the Multilateral Competent Authority Agreement (MCAA) pursuant to which, the Automatic Exchange of Information (AEOI) is activated between the two countries for sharing of financial account information annually for calendar year 2018 onwards.

Exchanges of Financial Account information in respect of residents of each country have taken place between both countries in 2019 as well as 2020. In view of the existing legal arrangement for exchange of information of financial accounts (which has a significant deterrent effect on tax evasion through undisclosed assets abroad), there does not appear to be any significant possibility of the increase of deposits in the Swiss banks which is out of undeclared incomes of Indian residents, the finance ministry said.

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