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Time for RBI’s little brother NBFC to become Big brother for Fintechs

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Non-Banking Financial Companies (NBFCs) are financial institutions that play a complimentary role in the banking sector along with the Financial Technology (Fintech) companies paving way for financial inclusion. However, certain events have brought online lending platforms in bad light recently:

• Bold steps taken by the Government to check any investment which is coming from China directly or indirectly by the Chinese resident or citizen or via fund house or venture capital or private equity shall be highly monitored and to get prior approval by the Government.

• Cases of suicide due to harassment by the employees of money lending apps reported in Telangana, where recovery agents resorted to threatening calls to individuals and family members.

In light of this, The Reserve Bank of India (RBI) has constituted a working group on digital lending — including online platforms and mobile apps — to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players. The working group shall evaluate digital lending activities and assess the standards of outsourced digital lending activities in RBI regulated entities. The group shall identify the risks posed by unregulated digital lending to financial stability, regulated entities and consumers; and suggest regulatory changes that supports online lending innovation while regulating the risks involved at the same time.

The narrative that seems to be lost here is that NBFCs have been beneficial to the economy as they serve the customer base that are under-served by the banks and are critical in terms of their wider reach and range of services to the financially excluded.

Fintech applications/websites act as intermediaries or aggregators between the customers and NBFCs where they facilitate customer acquisition for NBFCs in return of a fixed commission. Fintech applications attract customers in need of credit facilities who cannot comply with the list of obligations required by traditional banks for loans. These algorithms use advanced machine learning to extract information from vast sources of alternate data to predict individual’s creditworthiness. In the absence of any regulation regarding the usage of data by Fintech, the data collected by them is sometimes used to apply coercive measures of debt recovery (e.g., repeated calls to individual and family members).

Whereas Fintech applications are left unregulated in this ecosystem, NBFCs are regulated and supervised by the RBI through Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Banks, 2017 (Outsourcing Guidelines). This in turn leads to imposing of penalties by the RBI on such NBFCs which tie-up with Fintech Companies who do not comply with the Fair Practices Code referred to in the Outsourcing Guidelines. This creates a wide gap of power between the NBFCs and traditional banking institution that co-exist in the same banking ecosystem and carry similar lending operations. The NBFCs being penalized for the faults of Fintech applications jeopardize the scope of innovation in the Indian digital lending space. The present situation obviates the need to regulate Fintech applications instead of imposition of penalties on already cash strapped NBFCs.

RBI has been used to take the ‘Big Brother approach’ in order to regulate the financial space effectively. The business model that the NBFCs adopt majorly revolves around getting funds or borrowing money at cheaper rates and providing loans and other credit facilities at a higher rate of interest. RBI employs various channels through which the NBFCs get their funding depending on the way they perform and their ratings. RBI’s targeted long-term repo operation (TLTRO) is one of the channels used by RBI to fund the cash-strapped NBFCs. These were aimed at providing system-level liquidity as well as targeted liquidity to sectors and entities experiencing liquidity constraints and restricted market access because of COVID-19. However, the data released by RBI suggests that NBFCs that have benefited the most from these operations were strong. This indicates that NBFCs have to show good results to get funds from traditional banking institutions as they would perform due-diligence at their part before making an investment. TLTRO was targeted towards infusing more liquidity into NBFCs with traditional banks having the onus to check which NBFCs they shall invest in, based on the market performance. This gives more power to banks and indirectly forces NBFCs to ensure compliance with RBI norms to get the funding from banks.

This clearly shows how banking institutions are significant for NBFCs, similarly NBFCs are important for Fintech applications to continue their business. Instead of imposing more regulations on the NBFCs, regulation of Fintech applications could be done by RBI indirectly through the NBFCs if they are given more powers over such applications. RBI could create a system where NBFCs shall be rewarded for pointing out Fintech applications not in compliance with guidelines that could be enacted, to provide fair practices to be followed by such applications operating in the digital lending ecosystem. This shall give NBFCs the incentive and power to ensure compliance with the directions of RBI and blacklist the Fintech applications that do not comply.

A similar model has been earlier adopted by Indian Banking Association (IBA), in 2009 through Procedural Guidelines for Reporting Names of Third Parties involved in Frauds to IBA for inclusion in the Caution List. This requires Banks to furnish Fraud Monitoring Return (FMR) in individual fraud cases, irrespective of the amount involved, to RBI electronically using FMR Application supplied to them within three weeks from the date of detection.

In light of the recent developments, the regulatory norms being proposed for the NBFCs are going to be stringent in the near future, nevertheless it is time to give the NBFCs some powers over the present-day Fintech applications which shall create a compliance oriented self-regulatory ecosystem which will be invention oriented in the lending ecosystem and customer friendly at the same time.

Mr. Sarpret Singh, Director – External Affairs, Home Credit India

Fintech applications/websites act as intermediaries or aggregators between the customers and NBFCs where they facilitate customer acquisition for NBFCs in return of a fixed commission. Fintech applications attract customers in need of credit facilities who cannot comply with the list of obligations required by traditional banks for loans.

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Policy & Politics

TELANGANA WELCOMES TESLA TO SET UP SHOP IN STATE

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Years after Tesla tried to make an entry into the Indian market, Industry and Commerce Minister of Telangana, KT Rama Rao invited Tesla CEO Elon Musk to set up shop in the state in a tweet.

“Hey Elon, I am the Industry and Commerce Minister of Telangana state in India. Will be happy to partner Tesla in working through the challenges to set shop in India/Telangana,” Rao said in a reply to Musk’s tweet.

“Our state is a champion in sustainability initiatives and a top notch business destination in India,” he added.

This statement has come days after Elon Musk said that Tesla “is still working through a lot of challenges with the government” in India to launch electric cars. Musk wrote in a post giving an update to a query on Twitter on Thursday. Tesla wants to begin selling imported cars in India this year but says taxes in the country are among the highest in the world, said Elon musk in a tweet

With a $39,990 global price tag, Tesla Model 3 may remain as an affordable model in the US but with import duties, it would become unaffordable in the Indian market with an expected price tag of around Rs 60 lakh.

Tesla’s request for tax cuts was first reported in July 2021, when sources told Reuters that the company had written to Indian ministries seeking a big reduction in import duties on electric vehicles. Soon after, Musk tweeted that Tesla was likely to set up a factory in India if successful with imported vehicles.

Another reason for the delay was that India treats clean energy vehicles the same as diesel or petrol vehicles, “which does not seem entirely consistent” with its climate goals, said Elon Musk as a reply to a tweet.

Lat year Rao helped in catalyzing a deal between the Telangana government and Kitex Group to get MD Sabu Jacob to invest Rs 2,406 crore in his state after Kitex pulled out of Kerala, withdrawing Rs 3,500 crore project from the state

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INNOVATION FOR INDIA, FROM INDIA, SAYS PM

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PM Modi called for a new mantra, that of innovate for India, innovate from India. This mantra came up to tackle challenges facing the country in the start-up industry. He counted the steps taken by the government in freeing entrepreneurs and innovation from bureaucratic silos. “The start-ups of India are changing the rules of the game. I believe that startups are going to be the backbone of the new India,” he said interacting with the youngsters from the world of startups. “Let us innovate for India, innovate from India”, he added. India, he said, has over 60,000 startups with 42 unicorns.

The government is focusing on three aspects to strengthen innovation, entrepreneurship and startup ecosystem- “Freeing entrepreneurship, innovation from government and bureaucratic silos; setting up institutional mechanisms to promote remodelling and innovation and handholding of youth innovators”, he said.

He also narrated the successes of startups during the recent years. “28,000 patents were granted last year as compared to 4,000 patents in 2013-14. In terms of trademarks, in 2013-14, 70,000 trademarks were registered in comparison with 2.5 Lakh trademarks in 2020-21”, he said.

He added, “India’s ranking on the Global Innovation Index is improving because of the programme on innovation started in the country. India’s ranking in the index in 2015 was 81 and now it is number 46.”

He lauded the efforts of startups in not only bringing innovation but also evolving as major job creators. As startups evolve and grow, the requirements of credential-bearing workforce with suited skill sets also increases. This leads to major job creation opportunities. Therefore PM Modi added that startups can be the ripe matrix for jobs and work opportunities to develop and blossom.

He said that the year 2022 has brought new opportunities and avenues for startups and January 16th will be celebrated as National Startup Day to help seep in the startup culture at the grassroot level in the society. Naming of the National Startup Day came in as big news because with the naming of the day, the entire culture of startups will get a new and rejuvenated boost. As people will be able to discern the day for startups and get to celebrate it the boost to the startups will be multiplied manifold.

Modi said that easier access to funds as well as making self-certification for compliance of nine labour and three environmental laws is also helping promote startups. Innovation and technology based solutions are being encouraged for finding solutions to facing the country.

Some of the famous startup unicorns of India include: UpGrad, CRED, Pharmeasy, PhonePe, OYO Rooms among others.

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Policy & Politics

ECONOMIC REVIVAL, EXPANSION ON CARDS: SURVEY

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There is no doubt that India is already under the grip of a third wave of the Covid-19 pandemic. The country recorded at least 2.68 lakh new cases today, including 6,041 cases of Omicron; taking the total tally to 3.67 crore. Notwithstanding, the third wave spreading like wildfire, a significant percentage of industry leaders are optimistic about India’s economic revival with confidence ruling high amongst Indian businesses, finds a pre-budget survey conducted by Deloitte Touche Tohmatsu India LLP (DTTILLP).

DTTILLP assembled a total of 163 responses from 10 industries. It was found that more than 75 per cent of respondents were positive about India’s economic revival as economic activities pick up steam with a healthy GDP growth.

The survey further finds that around 91 per cent of respondents believe that the ‘Atmanirbhar Bharat’ initiative (Self-reliant India), coupled with monetary policy actions by the Reserve Bank of India (RBI) played an instrumental role in driving back the economy from gloom last year.

“The industry leaders expect the Union Budget FY 2022-23 to build on to this momentum,” DTTILLP said in a release. The Union Budget is scheduled to be presented by Finance Minister Nirmala Sitharaman on February 1.

On the other hand, 55 per cent of business leaders believe that providing extra tax incentives to long-term investors for infrastructure investment can encourage growth in the country.

While, 45 per cent of respondents believe that the upcoming budget should focus on announcing incentives for increased R&D spending that can boost sectors like automobile, technology, telecommunication, life sciences and capital goods.

Industry leaders, through the Deloitte survey also conveyed some other expectations like enhancing export competitiveness, putting in place competitive import tariffs, and reducing administrative inefficiencies.

“The economy has witnessed a steady recovery during 2021-22”, said, Sanjay Kumar, Partner, Deloitte Touche Tohmatsu India LLP, while commenting on the survey findings.

“The Indian economy will continue to witness the growth momentum if the government is able to sustain the efforts on implementation of reforms such as asset monetisation for the infrastructure growth, and PLI schemes,” he further added.

Also, most of the business intellectuals foresee an increased start-up activity fostered by the Centre’s stimulus packages (ECLGS) and policies, which will brighten up the Ease of Doing Business (EoDB) culture in the country, resulting in a faster economic revival, Kumar said.

The survey also finds that 59 per cent of respondents believe in the fact that India can be a favourable atmosphere to run a business. With this regard, they touched on three things: promoting digitalisation, simplifying tax regimes and, improving land and labour laws that would also help enhance the EoDB in India.

Meanwhile, Prime Minister Narendra Modi, today announced that January 16 will be observed as ‘Start-up day’ as they are the game changers, whereas small businesses are the spine of country’s economy.

“This partnership (between small businesses and start-ups) can benefit both, the society and the economy, especially women employment will get strengthened because of this,” Modi said as he interacted with start-ups via video conferencing on the occasion of Start-Up India Innovation Week.

The survey conducted by DTTILLP aimed at analysing the industry’s expectations from the upcoming ‘Budget 2022’, where focus will be on EoDB, self-reliance (start-ups) and economic growth.

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Policy & Politics

46 STARTUPS ANNOUNCED WINNERS OF THE NATIONAL STARTUP AWARDS 2021 ALONG WITH 1 INCUBATOR AND 1 ACCELERATOR

Startup India is about realising millions of dreams: Piyush Goyal

Tarun Nangia

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“Startup India is about realising millions of dreams,” said ShriPiyush Goyal today. Presenting the National Startup Awards 2021, the Union Minister of Commerce & Industry, Consumer Affairs, Food & Public Distribution and Textiles, he said the Startup Mission is a symbol of Self-Reliant & Self-Confident India.

“Be it a fisherman’s son from Chennai or a boatman’s daughter from Kashmir, they all want to bring prosperity to their families and to their people, and therefore are thinking bigger and bolder,” said Shri Goyal.

Shri Goyal said, realising the contribution of Startups towards nation-building, the Prime Minister Shri Narendra Modi today announced that January 16 will be celebrated as National Start-up Day, to take the Startup culture to the far flung areas of the country.

“Prime Minister Modi is a very firm believer in potential of Startups to contribute significantly to the growth of the nation during the Amritkaal, the next 25 years. He recognises Innovation to be the strongest pillar in making India ‘Aatmanirbhar’,” said Shri Goyal.

Shri Goyal said the PM has focused on three sutras (pillars) to strengthen innovation:

Liberating entrepreneurs from the web of Govt processes & bureaucratic silos, – over 25,000 compliances reduced, decriminalization of laws, etc, but what more can be done to help businesses grow & prosper in an easier environment?

Building institutional mechanisms, – strengthen regulatory processes and self-regulation, &

Handholding young innovators & new enterprises, – mentoring will define Innovation in the future

Shri Goyal called upon the Startups to focus mainly on five areas to make India the No. 1 Startup ecosystem in the world:

1. Develop solutions & content in Indic languages

2. Encourage products & solutions that have a larger social & economic impact

3. Promoting Startups in every district across the country, – Establish ‘Startup Access centers’ in every district

4. Creating Innovation zones at the level of Urban Local Bodies, &

5. Adopt best practices from across the globe & enhance India’s global competitiveness

Quoting PM Modi, Shri Goyal said, “Today India is rapidly moving towards hitting the century of unicorns. I believe the golden era of India’s start-ups is starting now…”

“Government is standing with our innovators and so is the entire country…Let’s Innovate for India, innovate from India!” he said.

Speaking on the occasion, DPIIT Secretary Shri Anurag Jain said the Department will handhold the Startup Award finalists across seven tracks i.e. Investor Connect, Mentorship, Government Connect, Capacity Development, Corporate Connect, Brand Showcase and Unicorn Engagement.

“Our journey together doesn’t end here with just awards, we will walk step by step with you in this journey,” he said.

During the ceremony, the Results of the National StartupAwards (NSA) 2021 were declared. A total of 46 Startupshave been recognized as winners of National Startup Awards 2021 along with 1 incubator and 1 accelerator.

The second edition of the awards invited applications across 15 sectors and 49 sub-sectors. The sectors included Agriculture, Animal Husbandry, Drinking Water, Education & Skill Development, Energy, Enterprise Technology, Environment, Fintech, Food Processing, Health & Wellness, Industry 4.0, Security, Space and Transport and Travel. Six special categories were also introduced to recognize exceptional Startups contributing to the good of the society. The 2021 edition of the awards also recognized exceptional Startups innovating solutions to promote Indic languages and to compliment national efforts to combat COVID-19 pandemic.

A total of 2177 applications were received from Startupsacross the 49 sub-sectors along with applications from 53 incubators and 6 accelerators for the ecosystem enablerscategories. These applicants included 863 Women-led, 414 innovations for combatting COVID-19 and 253 Startupsworking in rural areas.

All applicants were evaluated against six broad parameters namely Innovation, Scalability, Economic Impact, Social Impact, Environmental Impact, and Inclusiveness and Diversity.

After three rounds of detailed evaluation, 175 Startups were selected for presentation before the jury which made presentations before the 16 specialist jury panels, which comprised of domain experts from industry, investors and government.

The recognised entities will benefit from such recognition, not only in terms of being able to attract more business, financing, partnerships and talent, but also enable them to serve as role models for other entities, and to inspire them to be purposeful and responsible about their socio-economic impact.

53 applications were received from incubators and 6 applications were received from Accelerators. Select incubators and accelerators were selected after three rounds of evaluation for presentation before Jury Panel which gave presentations before the Jury.

The felicitation ceremony was accompanied by the release of an e-Report on National Startup Awards 2021 highlighting the year-round handholding support provided to the finalists of first edition of National Startup Awards and the journey of NSA 2021.

The ‘Blockchain-enabled verification for DPIIT tax incentive certificates’, ‘Digilocker enabled DPIIT Startup recognition certificate’ and second edition of the ‘Startup Champions’ programme on Doordarshan were also launched during the event.

The Department for Promotion of Industry and Internal Trade (DPIIT) conceived the National Startup Awards to recognize and reward outstanding Startups and ecosystem enablers that are building innovative products or solutions and scalable enterprises, with high potential of employment generation or wealth creation, demonstrating measurable social impact. The measure of success is not only the financial gains for the investors, but also the contribution to social good.

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Pandemic proves to be good fortune for telecom sector

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While every other sector was doomed during the lockdown, the telecommunication sector has been in high demand. The visible shift towards work from home, online gatherings and classes, streaming services such as Netflix for entertainment brought the telecom sector into the spotlight today. The pandemic has shown the importance of the telecom sector in running business and staying connected.

Contrary to many other industries, the telecommunication sector has been generally exempted from major COVID-19-related restrictions, such as stay-at-home orders and quarantine requirements, as it is recognized as an essential service. The importance of having a strong telecommunications network during this lockdown has also been acknowledged by the government in the guidelines, issued by the Ministry of Home Affairs (MHA), which provides that telecommunications, internet services, broadcasting and cable services, IT and IT-enabled services only are the essential services and are exempt from the lockdown.

Many telecom players from broadband to mobile to data center operators have benefitted from a surge in the traffic of data and voice. As a result, the telecom sector is performing well compared to other infrastructure sub-sectors. Telecommunications has been directly contributing around 6% of the GDP and during the lockdown, this has gone up 5-6 times, which is huge. According to our India Telecoms Report, India’s internet consumption rose by 13% since the nationwide lockdown. Indians consumed 308 petabytes (PB) of data daily on an average for the week beginning March 22. This sudden overnight surge in demand caught the industry off guard with mobile network operators (MNO) struggling to augment capacity and manage data traffic. The forecasts are that mobile subscriptions and fixed broadband subscribers will continue to fuel the telecoms sector growth in the 2019-25 period.

A recent report by Kantar highlighted that India’s rural areas have witnessed a 45% growth in internet penetration in 2019 as compared to urban India’s 11%. Sector regulator TRAI has asked telecom operators to extend the validity period of prepaid users to ensure that subscribers get uninterrupted services during the 21day nationwide lockdown. Telecom Regulatory Authority of India (TRAI) has also sought details of the steps being taken to ensure availability of uninterrupted telecom services to such customers on a priority basis.

Telecom sector is continuously adapting to the changes caused due to COVID-19 crisis. Being the sole distributor of Internet infrastructure to other industry verticals, telecom operators have made several amendments in their operations and offerings to serve their customers in a better way.

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WFH and its impact on affordable housing

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With the Covid-19 pandemic becoming endemic across the country, people have gradually learnt to accept the ‘new-normal’ and imbibe it to their lifestyle. A notable change that came to existence, since the pandemic struck is the concept of work from home (WFH). It started with the focus solely on keeping employees safe at home and gradually became the most popular work trend all over the country.

This led to companies stepping away from large real estate construction projects and lease deals. The workplace environment began to bear a scanty look with a depleted staff. The focus now has shifted primarily to an employee’s health followed by better communication while WFH.

The pandemic ensured that people begin to seriously consider homeownership where the idea is to own a home and give it an office-like makeover alongside a homely touch. Instead of going for multipurpose projects and erecting skyscrapers, developers and real estate firms have begun to cash in on this trend; by tapping the consumers’ minds. There was also a faster adoption of digital technologies by builders. On the other hand, some developers in partnership with architects are even going an extra mile to infuse business centres to give WFH population an office-like look.

This new trend of WFH also ensured that a major chunk of the middle class that is city-centric (based in New Delhi, Mumbai, Bengaluru, Hyderabad and Pune to name a few) flies back to their respective homes as the pandemic-induced-WFH is here to stay. The developers have begun to shift their attention to tier-II and tier-III cities as the demand for affordable living increased during the pandemic with more and more people wanting to stay indoors while kids attending online classes.

REALTORS PIN HIGH HOPES THIS YEAR

The realty sector like most of the sectors staged a rebound from 2020’s economic downturn. It also stands at firm ground after tackling the pandemic gloom. Housing sales have witnessed a rise of over 50 per cent, thanks to a sharp rise in WFH. However, it is yet to reach pre-pandemic levels. This uptrend has ensured the property dealers pinning their hopes from 2022 beginning with the Budget (that is scheduled to happen on February 1).

Economic revival is on cards as the real estate sector is projected to reach $1-trillion-mark by 2030 from $200 billion in the pre-pandemic year.

The year 2021 began on a positive note for the real estate sector as the sales were strong during the January-March period, assisted by low-interest rates on home loans, pent up demand, discounts offered by cash-starved developers and lower stamp duty offered by some states.

NAREDCO President Rajan Bandelkar described 2021 as a “year of recovery”. He said, “The declining number of cases and resurgent homebuyers’ interest paved the way for a sustainable recovery”.

The central government also extended an additional tax deduction of Rs 1.5 lakh on interest paid on housing loans for the purchase of affordable homes by one more year to March 31, this year; thereby facilitating recovery to the real estate sector. The additional deduction of Rs 1.5 lakh over and above Rs 2 lakh was brought in Budget 2019.

The government should focus on demand stimulation measures to sustain economic recovery. It should look for ways to boost private consumption and incentivise the real estate sector in the upcoming Budget.

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