|Date : Dec 05, 2017|
|Reserve Bank cautions regarding risk of virtual currencies including Bitcoins|
BITCOINS AND VIRTUAL CURRENCIES
In India, besides the RBI, the government, too, has made public its discomfort with bitcoin.
On Nov. 30, finance minister Arun Jaitley said India does not recognise virtual currency as legal tender. Earlier this year, a committee set up by his ministry had reportedly recommended banning cryptocurrencies over fears that they could be used to launder money and perpetuate frauds.
These warnings come in the wake of bitcoin’s skyrocketing value—up more than 1,000% this year. In India, its price has almost doubled in a month, from Rs4.55 lakh ($7,070) on Nov. 01 to Rs8.6 lakh on Dec.05.
In spite of the strong warnings, the cryptocurrency exchange operators remain unfazed.
The spike has led to a buying frenzy.
In fact, measures to curb the use of cryptocurrencies have been gaining momentum across Asia. The central banks of Indonesia and Bangladesh have even barred the use of bitcoin as a payment tool. In September, China shut down bitcoin exchanges and banned initial coin offerings. On Nov. 29, the vice-president of the European Central Bank warned against investing in bitcoin at such soaring prices. The governor of the Bank of France cautioned against its potential hazards, as did Russian president Vladimir Putin and Germany’s central bank.
Meanwhile, rallying past all warning signs, bitcoin is at a record high, having crossed the $12,000 mark today (Dec. 06).
It is further said that the Government must take strong steps to stop the transactions in virtual currencies and warnings will not work in India.
The National Green Tribunal (NGT) has pulled up civic agencies including Bruhat Bengaluru Mahanagara Palike (BBMP) for allowing construction activities in the buffer zone of Kaikondrahalli lake on Sarjapura road.
NGT has also took to task BDA, BESCOM, and other agencies for giving permission for construction of buildings within the revised 75m buffer zone around Kaikondrahalli lake. The agencies have been served with notices, and the next hearing has been set for January 8.
In May 2016, the NGT had issued a direction to maintain a 75m buffer zone around lakes. For Storm Water Drains (SWD), the buffer zone is 50m, 35m for secondary SWD and 25m for tertiary SWD. Pointing this out, Saransh Jain, advocate from Namma Bengaluru Foundation, said they noticed some violations even after the May 2016 directive. He further stated that “BBMP has issued occupancy certificates (OC) to a 50-storeyed building that is within the buffer zone at Kaikondrahalli lake.
FRDI BILL 2017
A LOOK INTO THE SECURITY OF COMMON MAN`S DEPOSITS!!
Though the bill has been sent to the joint parliamentary committee, which is studying the bill and is expected to submit its report in the winter session, some media reports fuelled by social media messages are causing panic among investors and depositors. But rather than clarifying its position on the bill as soon as the first reports were out, the government waited for social media to go absolutely berserk before the Finance Minister came out with a pacifier.
Before addressing some of these fears, let us first look at what the existing rules mean for depositors and then deliberate on the changes that are expected if and when FRDI is implemented in its current form.
India has historically been a country where not only bank accounts but even mutual funds are considered safe places to park one’s money. No depositor has ever lost his or her money despite the Deposit Insurance Corporation providing a cover of only Rs 1 lakh for both the principal amount and interest earned. The cover was only Rs 1,500 in 1962, when the corporation was incorporated but was increased to Rs 1 lakh in May 1993.
However, the insurance company did not have much work to do as depositors of banks going under were taken care of by merging the failed banks with bigger banks.
Coming to FRDI, here is what section 52 – the section of the FRDI bill that deals with ‘bail-in’, has to say:
“…the Corporation may, in consultation with the appropriate regulator, if it is satisfied that it is necessary to bail-in a specified service provider to absorb the losses incurred, or reasonably expected to be incurred, by the specified service provider and to provide a measure of capital so as to enable it to carry on business for a reasonable period and maintain market confidence, take an action under this section by a bail-in instrument or a scheme to be made under section 48”.
Section 48 details the method and time of resolution and provides for all possible means to ensuring that the depositor’s money is safe. It calls for transferring the whole or part of the assets and liabilities of a specified service provider or creating a bridge service provider, or merger or amalgamation of the specified service provider, as well as the acquisition of the specified service provider, in whole or in part.
In other words, the bill talks of ensuring that the depositor is insured and protected by the relevant regulator in all possible ways, as is the case even now. Although FRDI details the processes for how the depositors’ money is protected, what is not spelled out yet is the cover provided on the loss of one’s deposit and interest.
Given the path the government has chosen in the case of smaller banks, where they are being asked to merge with bigger ones, the cover amount is not so much of an issue as the government allowing a bank to collapse. Still, the government should have made a reference to it in the bill to allay public fear.
In any case, depositors need not worry as subsection (7) of Section 52, which talks of the bail-in instrument or scheme, clearly states that this section shall not affect any liability owed by a specified service provider to depositors to the extent such deposits are covered by deposit insurance. It also talks of not affecting any liability that the specified service provider has by virtue of holding client assets.
Subsection (7)(e) of Section 52 talks of not affecting any liability any liability, so far as it is secured – thus covering all secured deposits. Subsection (7)(f) takes care of the liability owed to employees or workmen including pension liabilities of the specified service provider, except for liabilities designated as the performance-based incentive.
Depositors have little to worry about in India as even failed mutual funds, as was seen in the case of Unit Trust of India, have been bailed out by the government using taxpayer money. All the depositor has to ensure is that they are part of a bigger entity. After all, if the political damage is big enough, all depositors are bound to get paid, irrespective of the bank or financial entity involved.
BUT, THE GOVERNMENT MUST COME OUT WITH A VERY STRONG CLAUSE TO PROTECT THE INTEREST OF THE DEPOSITERS IN CLEAR TERMS OTHER THAN WHAT HAS BEEN ALREADY DRAFTED.
FRDI contemplating increase in deposit insurance cover: Report
FROM RS.1,00,000/- TO RS.3,50,000/- Hope the Government will amend and incorporate this to safeguard the interest of the public and the depositors.