Explore the future implications of the Fintech Revolution in India, examining anticipated developments within the FinTech Market for the year 2030.
The Growing Trend of AIFs in India
(AIF) is a different way to invest. Instead of the regular stuff like stocks, it tries out special things like venture capital, private equity, hedge funds.
Understanding RBI’s New Guidelines on Penal Charges on Loans
The Reserve Bank of India (RBI) recently issued guidelines on penal charges for loans, marking a significant shift in lending practices across the country. Effective from August 18, 2023, these guidelines apply to major banks, smaller cooperatives, and Non-Banking Financial Companies (NBFCs).
The aim is to promote responsible lending and transparency. By simplifying borrowing processes, borrowers gain clarity on loan terms, fostering trust and confidence in the lending ecosystem. Essentially, it sets the stage for a lending environment where people are well-informed and confident about their financial commitments.
Key aspects of the new guidelines:
Penal Charges vs. Penal Interest: It’s crucial to distinguish between penal charges and penal interest, as penal charges are distinct from the loan’s interest rate and cannot be imposed as “penal interest.”
Reasonableness and Proportionality: Charges should be reasonable and proportionate to the severity of non-compliance, avoiding blanket charges that lack fairness.
Non-Discriminatory Application: Charges must be applied uniformly within the same loan or product category, ensuring fairness across individual and non-individual borrowers.
Transparency and Clarity: Lenders must have a Board-approved policy outlining their penal charges structure, clearly communicating it to borrowers to ensure transparency.
No Compounding: Compounding of penal charges, including interest on interest, is prohibited to safeguard borrowers’ financial interests.
Implementation Timeline: The guidelines apply to new loans from April 1, 2024, and to existing loans by June 30, 2024, at the next review or renewal date, providing a clear timeline for compliance.
Applicability of the new RBI guidelines on penal charges for loans
The applicability of the new RBI guidelines on penal charges for loans depends on two factors: the type of loan and the loan’s timeline.
These guidelines are applicable to a wide array of loan categories, including home loans, personal loans, car loans, educational loans, credit card loans, and overdraft facilities. They are designed to ensure consistency and fairness in the application of penal charges across these retail lending segments. However, trade credit, structured obligations, and wholesale loans to businesses are excluded from these regulations. This ensures clarity and specificity in the application of penalties while maintaining appropriate regulatory oversight.
The RBI’s new guidelines on penal charges apply to loans sanctioned from April 1, 2024, onwards. For existing loans sanctioned before this date, compliance begins either at the next review/renewal date or within six months from August 18, 2023, with a deadline extension to June 30, 2024. This phased approach ensures a smooth transition while maintaining fairness in lending practices.
Securitisation and Co-lending Portfolios
The RBI rules are vital for charges in securitization and co-lending. In securitization, focus on clarity of loans, ensuring transparency throughout the process. Co-lending shared responsibility, so fair practices matter in all transactions.
Applicability of GST
Due to the lack of clear guidelines, the GST applicability on penal charges remains uncertain. RBI aligns with GST exemption for loan interest, but recent changes create confusion.
Application of Circular on Bank Guarantee/ Letter of Credit Invocation
RBI’s Circular on BG/LC Invocation means banks must stick to guarantee terms, promptly paying when beneficiaries ask. It keeps things fair and stable. Resolve issues peacefully, saving legal action as a last resort for smooth banking.
Applicability to Cash Credit and Overdraft Facilities:
RBI’s guidelines cover all retail loans, including Credit Card (CC) and Overdraft (OD) facilities, except for trade credit and structured obligations.
Applicability of Guidelines in Case of Default:
The RBI’s new guidelines on penal charges do not directly address loan defaults. They primarily focus on non-compliance situations like exceeding withdrawal limits, missed minimum balance requirements, and late payments.
However, lenders have the flexibility to define separate policies for charges in case of default within their overall credit risk management framework
Compliance and action points for lenders
The circular mandates regulated entities to:
- Create board-approved policies on penal charges, including default scenarios and charge determination principles.
- Disclose penal charges and reasons in loan agreements.
- Display key terms on penal charges on their website.
- Communicate applicable penal charges to borrowers during reminders for non-compliance, including reasons for their imposition.
Impact and Future Direction
The Circular takes effect on January 01, 2024. For new loans, compliance is immediate. Existing loans must implement penal charges during the next review, renewal, or within 6 months from the Circular’s effective date, ensuring adherence to its terms. It aims to make penal charges fairer, transparent, and non-discriminatory, enhancing access to credit and addressing customer grievances.
FAQs
For existing loans, the transition to the new penal charges regime happens on the next review or renewal date occurring on or after April 1, 2024, or within six months from the circular’s effective date, whichever is earlier.
Penal charges don’t apply to products under the RBI Master Direction on External Commercial Borrowings, Trade Credits, and Structured Obligations..
Material terms and conditions are determined by the bank’s credit policy and may vary depending on loan categories and individual lender assessments.
Penal charges in NPA accounts will be reversed for uncollected amounts, in line with the Master Circular on Income Recognition, Asset Classification, and Provisioning.
Yes, provided the policy is approved by the board and the structure is fair and proportional to the non-compliance.
Follow instructions from the Central Board of Indirect Taxes & Customs (CBIC) regarding GST on penal charges.
RBI’s New Guidelines on Penal Charges on Loans
Gain insights into RBI’s latest guidelines on penal charges imposed on loans. Understand the implications of these regulations and how they impact borrowers, ensuring clarity on financial obligations and penalties.
SEBI’s EOP Framework : Direct Mutual Fund Selling Opportunity for WealthTech Startups
SEBI, India’s regulatory authority for capital markets, unveiled a pioneering regulatory framework for Execution-Only Platforms (EOPs) in September 2023. EOPs, digital platforms enabling direct mutual fund transactions without advisory services, respond to the increasing demand for commission-free direct plans. This move prioritizes investor protection, fostering industry growth in India’s mutual fund landscape.
Growing popularity of direct mutual fund plans and the emergence of EOPs
Direct plans are shaking up the industry by offering lower expense ratios compared to regular plans. This translates to significant cost savings for investors, attracting them to take control of their financial journey. As awareness grows and investors crave transparency, the demand for direct plans is soaring. Recent data showcases a 30% increase in assets under management for direct plans in just a year.
A growing number of investors are now using digital platforms to get direct plans, giving rise to several Execution-Only Platforms (EOPs). However, there’s a concern because some SEBI-registered investment advisers and stockbrokers are offering services on their digital platforms to investors not covered by existing rules. To fix this, SEBI introduced a clear framework that outlines what EOPs need to do. This helps them run their businesses smoothly, eases investor worries, and sets up a way to handle complaints.
EOP License Framework
Under this new framework, Execution-Only Platforms (EOPs) must secure a license from either SEBI or the AMFI. Currently, EOPs function with licenses like stockbroker or investment advisor (IA). The new framework classifies EOPs into two categories:
Category 1 EOPs (registered with AMFI):
Acting as intermediaries for asset management companies (AMCs), these Execution-Only Platforms (EOPs) seamlessly connect their systems with AMCs and Registrar, Transfer Agents (RTAs) authorized by AMCs. They facilitate the consolidation of transactions in direct plans of mutual fund schemes and offer services to both investors and intermediaries.
Category 2 EOPs (registered as stockbrokers with SEBI)
Category 2 EOPs function as representatives of investors, exclusively offering services through platforms provided by stock exchanges. They are restricted from consolidating transactions in direct plans of mutual fund schemes and can only directly provide services to investors.
Onboarding Requirements
- ● Category 1 EOPs must obtain a registration certificate from the Association of Mutual Funds in India (AMFI).
- ● Catergory 2 Eops must obtain a registration certificate from SEBI as a stockbroker.
- ● Ensure compliance with Know Your Client (KYC) requirements during investor onboarding.
- ● Conduct KYC verification for investors, collecting necessary documents to verify their identity and address.
- ● Enter into agreements with stock exchanges to facilitate direct mutual fund transactions.
Transaction and Onboarding Fees
Category 1 EOPs are allowed to impose a flat transaction fee, covered by AMCs within the upper limit defined by AMFI. Any onboarding fees, if applied, will also be covered by AMCs. On the other hand, Category 2 EOPs can impose a flat transaction fee, to be borne by investors within the upper limit set by the stock exchanges. Any onboarding fees, if applicable, will be covered by AMCs and/or investors.
Risk Management and Compliance
- ● EOPs in both categories are required to establish robust risk management frameworks, ensuring platform security, preventing unauthorized access, and upholding data integrity and privacy. To prevent conflicts of interest, EOPs engaged in multiple activities within the same entity must maintain a separate and impartial relationship.
- ● EOPs in both categories are required to establish robust risk management frameworks, ensuring platform security, preventing unauthorized access, and upholding data integrity and privacy.
- ● Processes to identify, assess, and mitigate operational risks.
- ● Manage potential conflicts of interest, such as when offering EOP services for mutual funds with which they have other relationships.
- ● Implement robust KYC/AML (Know Your Customer/Anti-Money Laundering) procedures to prevent financial crimes and comply with SEBI regulations.
Advertising and Disclosure Requirements
- ● EOPs cannot showcase advertisements for mutual fund schemes on their platforms.
- ● They must furnish factual information on mutual funds, including past performance, presented in a user-friendly manner while adhering to minimum disclosure requirements.
- ● Interactive tools should be accessible for investors to screen and filter schemes based on chosen criteria.
- ● No display of recommendations or rankings for any scheme is allowed on the platforms.
Exceptions Granted to Platforms Affiliated with Investment Advisors and Stockbrokers
Platforms linked with investment advisors and stockbrokers are exempted from acquiring EOP registration if their services are solely accessible to their current advisory or broking clients. This exemption has sparked concerns regarding potential confusion surrounding widely-used direct investment platforms that provide both stockbroking and direct mutual fund investment services to their clients.
Impact of the New Framework
SEBI’s regulatory framework for Execution-Only Platforms is expected to bring several positive changes in the Indian mutual fund industry and for investors:
Clarity and Assurance: Investors and EOPs now benefit from a well-defined regulatory framework outlining the scope of EOP services and responsibilities.
Enhanced Competition: The framework is poised to stimulate competition in the mutual fund distribution market, potentially resulting in reduced costs for investors.
Improved Investor Protection: EOPs are now obligated to adhere to specific risk management and customer protection norms, elevating the level of safety for investors.
Regulated Access Channels: The framework ensures that investors have transparent and regulated channels available for investing in direct plans of mutual fund schemes.
SEBI’s rules for Execution-Only Platforms in India are big step in keeping up with changes in financial services. The goal is to make things safer and more competitive for investors and the growing EOP industry. These rules will likely have a big impact on the mutual fund market in India, making it grow more, be clearer, and giving investors more confidence in the industry.
Start Your Direct Mutual Fund & Alternative Investment Selling Platform
Discover how to start Direct Mutual Fund and Alternative Financial Instrument selling Platform under SEBI’s EOP Framework – Get our expert guidance to start your Wealth-tech startup.
All You Need to Know About Insurance Intermediaries
Insurance sector is a complex world, within which lies various insurance products and regulations making it a confusing choice for consumers to decide in. Without proper guidance and expertise, it can become almost difficult for consumers to make an informed choice about insurance coverage which can lead to costly mistakes. But don’t worry. There’s a solution and that is intermediaries in the insurance sector.
SEBI Intermediaries: A comprehensive guide for investors
Are you looking to invest in the financial market or want to become an intermediary? But feeling that it is an overwhelming and a complex task? GenZCFO is here to rescue you. We are a team of trusted guides ensuring every step you take is in the right direction.
Slowdown in NBFC Licensing and the Fintech Challenges in India
Curious about the slowdown in NBFC licensing and the challenges Fintech faces in India? Explore our blog to uncover insights on navigating the hurdles of NBFC licensing and addressing Fintech challenges effectively.
Fintech companies in India, known for their fast and affordable financial services, are facing a challenge. The process of getting licensed as a Non-Banking Financial Company (NBFC), a key step for these tech-driven firms to provide various financial services, has significantly slowed down. This slowdown is causing problems for Fintech companies and impacting their plans for growth.
The issuance of NBFC licenses in India has slowed significantly in past few years. This decline reflects Fintech companies, which use technology for finance services, are having a harder time reaching more people and changing how financial services work. The delay in licensing, especially for Fintech companies aiming to become NBFCs, is now a major topic of conversation.
Reasons Behind the NBFC Licensing Slowdown
RBI's Cautious Approach:
Market Stagnation: With economic growth slowing down, the Reserve Bank of India (RBI) has adopted a cautious stance towards issuing new NBFC licenses. They worry about oversaturation in a stagnant market, where existing NBFCs might struggle to compete, increasing financial instability.
Post-Crisis Concerns: Recent crises like the IL&FS and DHFL debacles have rattled the NBFC sector and raised concerns about its systemic stability. The RBI, responsible for maintaining financial stability, is understandably less eager to grant new licenses in this climate.
Unregulated Chinese Players: The influx of unregulated Chinese players in the lending space has further stoked the RBI’s apprehension. The lack of proper oversight raises concerns about predatory lending practices and financial risks, leading to stricter scrutiny for all new entrants, including Fintech companies.
The issuance of NBFC licenses in India has slowed significantly in past few years. This decline reflects Fintech companies, which use technology for finance services, are having a harder time reaching more people and changing how financial services work. The delay in licensing, especially for Fintech companies aiming to become NBFCs, is now a major topic of conversation.
Stringent Regulatory Environment:
Increased Scrutiny: The RBI has tightened the licensing process, demanding higher minimum capital requirements, stricter due diligence, and enhanced governance standards. This rigorous vetting, while meant to ensure financial stability, also creates a significant hurdle for new players, especially young Fintech startups.
Complex Guidelines: The regulatory framework surrounding NBFCs is intricate and evolving, often leaving applicants navigating a murky terrain with unclear expectations. This complexity discourages potential entrants and delays the approval process.
Challenges Faced by Fintech Players due to NBFC Licensing Slowdown
Restricted Entry and Growth
The restricted entry and growth present a considerable barrier. The sluggish issuance of NBFC licenses directly hampers Fintech’s operations in crucial areas such as lending, payments, and wealth management. Without access to NBFC licensing, expansion becomes challenging, limiting Fintech companies to specific business models and impeding their growth potential.
Increased Competition and Market Barriers
The complexities of licensing and regulatory compliance make it difficult for Fintech companies to form partnerships and collaborations with traditional financial institutions, limiting their access to resources and customer base.
Financial and Resource Constraints
The costs associated with regulatory compliance can be prohibitively expensive for startups, impacting their financial resources and competitive capabilities. The slowdown in the sector may also erode investor confidence in Fintech, making it harder for companies to raise capital and sustain operations.
Recommendations for Fintech Players
Explore Mergers and Acquisitions:
Fintech companies struggling to get NBFC licenses could consider teaming up with existing NBFCs through mergers or acquisitions. This collaboration offers a smoother regulatory process and access to an established customer base.
Partnering with Established NBFCs:
By teaming up with established NBFCs, Fintech companies can strategically enter the lending space. This collaboration allows them to benefit from the infrastructure and regulatory approvals of well-established players, creating win-win partnerships.
Exploring Acquisitions of Existing NBFCs:
Another viable option is acquiring or taking over existing NBFCs, especially those facing challenges. This approach offers a quicker market entry, utilizing the pre-existing regulatory approvals and infrastructure. It also provides the flexibility to restructure and rebrand as needed.
The NBFC licensing slowdown poses challenges to India’s Fintech revolution, but it’s also an opportunity for Fintech players to showcase resilience. Fintech players need to adjust their strategies to navigate the changing regulatory landscape. Exploring collaborations, mergers, and acquisitions with existing NBFCs emerges as viable alternatives. In the dynamic financial environment, strategic partnerships could be the essential element for Fintechs to effectively enter the NBFC space in India.
NBFC Licensing and Compliance guidance at your fingertips!
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India’s Fintech Revolution: Unveiling a $400 Billion Value Potential by 2030
Explore the future implications of the Fintech Revolution in India, examining anticipated developments within the FinTech Market for the year 2030.
Slowdown in NBFC Licensing and the Fintech Challenges in India
Curious about the slowdown in NBFC licensing and the challenges Fintech faces in India? Explore our blog to uncover insights on navigating the hurdles of NBFC l ...
Ensuring Responsible Digital Lending: Key Guidelines and Default Loss Guarantee Arrangements
In today’s rapidly evolving digital landscape, digital lending has gained significant traction, providing borrowers with convenient access to financial services. To ensure customer protection, transparency, and responsible conduct, regulatory authorities have introduced comprehensive guidelines for digital lending operations. Additionally, the implementation of Default Loss Guarantee (DLG) arrangements offers an added layer of security for regulated entities engaging in digital lending. This article provides an overview of these guidelines and DLG arrangements, emphasizing their importance in fostering a trustworthy digital lending ecosystem.
Digital Lending Guidelines: Safeguarding Customer Protection and Conduct
▶ Loan Disbursal, Servicing, and Repayment:
Regulated entities (REs) must ensure that loan servicing, repayment, and related transactions occur directly between the borrower and the RE’s bank account, eliminating the involvement of third-party intermediaries. Disbursements should be made directly into the borrower’s bank account, except for specific cases.
▶ Collection of Fees and charges:
REs are responsible for ensuring that any fees or charges payable to Lending Service Providers (LSPs) are paid directly by the RE, preventing direct charges to the borrower. All applicable penal interest or charges should be clearly disclosed upfront in the Key Fact Statement (KFS).
▶ Fair Interest Rates:
It is important to decide interest rates that are fair and reasonable, considering market conditions and the risk involved. Also, it is crucial to avoid usurious interest rates that could trap borrowers in a cycle of debt.
▶ Disclosures to Borrowers:
Transparency is key in digital lending. REs should disclose the Annual Percentage Rate (APR) upfront and provide borrowers with a comprehensive Key Fact Statement (KFS) before loan execution. The KFS should include vital information such as the APR, recovery mechanism, grievance redressal officer’s details, and the cooling-off/look-up period. Any fees or charges not mentioned in the KFS cannot be levied on the borrower.
Both REs and LSPs should appoint a nodal grievance redressal officer to handle complaints related to digital lending. The contact details of these officers should be prominently displayed, and a robust complaint management system should be available for borrowers.
▶ Assessing the Borrower's Creditworthiness:
REs should capture the economic profile of borrowers before extending loans and ensure that credit limits are not automatically increased without explicit consent from the borrower.
▶ Cooling off/Look-up Period:
To provide borrowers with flexibility, a cooling-off period should be offered, allowing them to exit the digital loan within a specified timeframe without incurring penalties. The cooling-off period, determined by the RE’s board, should not be less than three days for loans with a tenor of seven days or more.
Technology and Data Requirements
▶ Data Collection, Usage, and Sharing:
REs must ensure that DLAs and LSPs collect borrower data based on explicit consent. Borrowers should have the option to provide or deny consent, restrict disclosure, revoke consent, and request data deletion or erasure.
▶ Data Storage:
LSPs should only store minimal personal information necessary for operational purposes. REs should establish clear policies on data storage, privacy, and security.
▶ Comprehensive Privacy Policy:
DLAs and LSPs should maintain a comprehensive privacy policy compliant with relevant laws and guidelines. Details regarding third parties authorized to collect personal information should be disclosed.
▶ Technology Standards:
REs and LSPs must adhere to technology standards and cybersecurity requirements specified by regulatory authorities.
▶ Financial Education:
Offer resources and information to help borrowers understand financial concepts, budgeting, and responsible borrowing. Promote financial literacy to prevent over-indebtedness.
Default Loss Guarantee (DLG) Arrangements
▶ Scope and Eligibility:
DLG arrangements apply to regulated entities engaged in digital lending, including commercial banks, cooperative banks, and non-banking financial companies. DLG providers must be incorporated companies under the Companies Act, 2013.
▶ Creditworthiness Assessment:
Data-driven methods must be employed to assess the creditworthiness of borrowers. It is vital to take into account their ability to repay loans. Experts highly suggest lending to individuals who are at high risk of default.
▶ Structure and Forms of DLG:
DLG arrangements should be supported by explicit and legally enforceable contracts between the RE and DLG provider. DLG can be accepted in the form of cash, fixed deposits with lien, or bank guarantees.
▶ Cap on DLG:
The total DLG cover on outstanding portfolios should not exceed five percent of the loan portfolio. For implicit guarantee arrangements, the DLG provider’s performance risk should not exceed five percent of the underlying loan portfolio.
▶ Recognition of NPA and Regulatory Capital Treatment:
Responsibility for recognizing individual loan assets as Non-Performing Assets (NPA) and making provisions lies with the RE, irrespective of DLG cover. Existing norms for capital computation should be followed when considering DLG for regulatory capital.
▶ Invocation, Tenor, and Disclosure:
DLG should be invoked within a specified overdue period, not exceeding 120 days. DLG agreements should remain in force for a period not less than the longest tenor of loans in the underlying portfolio. LSPs with DLG arrangements should disclose the number of portfolios and respective DLG amounts on their websites.
▶ Due Diligence and Customer Protection:
REs should have a board-approved policy for DLG arrangements, including eligibility criteria for DLG providers and robust credit underwriting standards. DLG arrangements should not replace credit appraisal requirements. Customer protection measures and grievance redressal should align with existing guidelines on digital lending.
▶ Regular Audits and Monitoring:
Adhering to regular internal and external audits to ensure compliance with regulations and ethical lending practices is really vital. Monitoring and assessment of the performance of loans and borrower behaviour must be a consistent practice.
▶ Continuous Improvement:
Be open to feedback from borrowers and regulatory authorities to improve your lending practices. Continuously innovate and adapt to changes in the lending landscape.
Conclusion:
The guidelines on digital lending and Default Loss Guarantee arrangements play a crucial role in promoting responsible digital lending practices and protecting borrowers’ interests. Regulated entities must adhere to these guidelines to ensure transparency, customer protection, and the overall growth of the digital lending ecosystem. By establishing robust systems, leveraging technology securely, and fostering responsible conduct, the industry can drive financial inclusion and empower individuals with accessible and trustworthy digital lending solutions.
All You Need to Know About Insurance Intermediaries
Insurance sector is a complex world, within which lies various insurance products and regulations making it a confusing choice for consumers to decide in. Without proper guidance and expertise, it can become almost difficult for consumers to make an informed choice about insurance coverage which can lead to costly mistakes. But don’t worry. There’s a solution and that is intermediaries in the insurance sector.
SEBI Intermediaries: A comprehensive guide for investors
Are you looking to invest in the financial market or want to become an intermediary? But feeling that it is an overwhelming and a complex task? GenZCFO is here to rescue you. We are a team of trusted guides ensuring every step you take is in the right direction.
The Rise of Family Investment Funds in India’s GIFT City: A Wealth Management Revolution
Curious about the rise of Family Investment Funds in India’s GIFT City? Explore our guide for insights into this wealth management revolution. Discover how Family Investment Funds are reshaping investment strategies and financial futures.
In India, a significant shift is occurring among wealthy individuals and family offices in their approach to wealth management, investments, and taxes. One noteworthy development is the increasing preference for fund structures over direct investments from a company’s balance sheet. Family offices are now eyeing GIFT City, India’s pioneering International Financial Services Center (IFSC), as an avenue to facilitate organized global investments. Central to this transformation are the Family Investment Funds (FIFs), self-managed funds that have gained traction within the IFSC framework. This article delves into the key aspects of this financial revolution and the associated tax framework.
Family Investment Funds (FIFs) in the IFSC
Establishment and Structure
FIFs within the IFSC are established as self-managed funds that pool resources exclusively from a single family. These funds can adopt various permissible structures defined by the International Financial Services Centres Authority (IFSCA), including companies, contributory trusts, LLPs, and more. They have the flexibility to operate as closed or open-ended schemes and invest in a wide array of assets such as securities, shares, bullions, and others.
IFSCA’s Regulatory Relaxations
The IFSCA has introduced a series of regulatory relaxations to encourage the establishment of FIFs in the IFSC, as outlined below:
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- Expansion of ‘Single Family’ Definition: The previous definition of a “single-family” was limited to individuals with direct lineage from a common ancestor, including spouses, children, stepchildren, and adopted children. Now, this definition encompasses entities such as sole proprietorships, partnership firms, companies, LLPs, trusts, or corporate bodies controlled by individuals from the same family, allowing them to have a “substantial economic interest.”
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- Protection of Minority Non-Family Members: To safeguard the interests of non-family members holding up to 10% economic interest in the single-family’s entity, FIFs must disclose investment risks and offer an exit strategy. The exit can only be offered by those holding a minimum of 90% interest in the entity, with the acquisition price determined by an independent third-party service provider.
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- Inclusion of Non-Family Members’ Contributions: FIFs can now accept contributions from individuals outside the single family, solely for allocating economic interest to FIF employees, directors, the fund management entity (FME), and others providing services. These contributions are limited to 20% of the FIF’s profits and must align with the FIF’s internal policies.
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- Setting up Additional Investment Vehicles: FIFs can establish additional investment vehicles, allowing flexibility in structuring economic interest allocation based on taxation preferences, regulatory requirements, and documentation complexity.
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- Procedural Requirements: Before commencing investment activities, individuals from the single family contributing to the FIF need to provide an undertaking acknowledging their understanding of the risks and regulatory measures unique to FIFs. This streamlines operations and ensures risk awareness.
The Pioneers: NR Narayana Murthy and Azim Premji
Notably, the family offices of billionaire NR Narayana Murthy and Azim Premji are at the forefront of this trend. They are poised to establish the first Family Investment Fund (FIF) in GIFT City. FIFs in GIFT City enjoy the privilege of investing in assets both within India, the IFSC, and globally.
Family Offices and Family Investment Funds
What is a Family Office?
In essence, a family office is a private wealth management advisory firm catering to ultra-high-net-worth individuals (HNWI). Distinct from traditional wealth management, family offices offer comprehensive solutions to manage the financial and investment needs of wealthy individuals and families.
What is a Family Investment Fund?
Family Investment Funds (FIFs) allow individual investors to contribute up to $250k, while family-owned entities with at least 90% ownership can contribute up to 50% of their net worth. FIFs must maintain a minimum capital of $10 million within three years of operation.
GIFT City: A Catalyst for Change
GIFT City, Gujarat, stands as a project of national significance and a cornerstone of India’s journey towards becoming a developed nation. The city’s unique tax framework has played a pivotal role in attracting both domestic and international investors.
Tax Framework in GIFT City
Direct Tax
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- Units in IFSC enjoy 100% tax exemption for ten consecutive years out of fifteen.
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- MAT/AMT at 9% of book profits applies to companies and others setting up units in IFSC.
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- Dividend income distributed by IFSC companies is taxed in the hands of shareholders.
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- Certain incomes earned by specified funds in the IFSC are exempt from surcharge and health and education cess.
Indirect Tax
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- No GST on services received by units in IFSC.
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- GST is applicable on services provided to DTA (Domestic Tariff Area).
Other Tax Incentives
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- State subsidies are provided to units in IFSC, covering lease rental, PF contribution, and electricity charges.
- Investors benefit from exemptions from STT, CTT, and stamp duty for transactions carried out on IFSC exchanges
The rise of Family Investment Funds (FIFs) within the IFSC framework in India is reshaping the landscape of wealth management, investments, and taxation. These innovative financial structures, coupled with the advantageous tax framework in GIFT City, have piqued the interest of prominent family offices. As billionaires like NR Narayana Murthy and Azim Premji venture into the world of FIFs, GIFT City’s status as a global financial hub is set to soar, ushering in a new era of wealth management for India’s affluent families.
The regulatory relaxations, extended definitions, and tax incentives provided by the IFSCA create a conducive environment for the growth of FIFs, ensuring the protection of both family and non-family members’ economic interests. With these developments, GIFT City continues to fulfill its mission as a beacon of India’s economic progress.
All You Need to Know About Insurance Intermediaries
Insurance sector is a complex world, within which lies various insurance products and regulations making it a confusing choice for consumers to decide in. Without proper guidance and expertise, it can become almost difficult for consumers to make an informed choice about insurance coverage which can lead to costly mistakes. But don’t worry. There’s a solution and that is intermediaries in the insurance sector.
SEBI Intermediaries: A comprehensive guide for investors
Are you looking to invest in the financial market or want to become an intermediary? But feeling that it is an overwhelming and a complex task? GenZCFO is here to rescue you. We are a team of trusted guides ensuring every step you take is in the right direction.
Exploring Gift City as a Fertile Ground for Fintech Startups
Interested in exploring Gift City’s potential as a hub for fintech startups? Our guide dives into why Gift City is the ideal ground for launching and growing fintech startups. Discover opportunities, resources, and success stories for fintech startups in Gift City.
Gift City: A Fertile Ground for Fintech Startup Success
The Indian government’s vision of transforming Gift City, or the Gujarat International Finance Tech-City, into a thriving International Financial Services Centre (IFSC) has been steadily gaining momentum. Gift City is designed to attract both domestic and foreign investment in the financial sector, making it an enticing destination for fintech startups. In this article, we will delve into the various aspects of Gift City and why fintech startups should consider it as a prime location to launch and grow their ventures.
The Gift City Ecosystem
Gift City is currently the sole operational IFSC in India, with a dedicated regulator called the International Financial Services Centre Authority (IFSCA). This regulatory authority oversees financial products, services, and institutions within Gift City. The existence of a unified regulator streamlines the regulatory process for fintech startups, offering clarity and efficiency compared to the previous multifaceted regulatory landscape.
Fintech Framework
One of the key initiatives introduced by IFSCA is the Fintech Framework, designed to foster innovation in financial products and services. The framework encourages the development of advanced technological solutions and solutions that leverage customer data. Fintech startups that intend to offer innovative solutions in banking, insurance, securities, fund management, and other financial sectors can seek authorization under this framework.
Category (a) includes activities such as digital lending, crowd lending, neo banking, crowd funding, personal finance, robo advisory, InsureTech, and cyber insurance. Category (b) encompasses activities like AgriTech, DefenseTech, and Accelerators.
To be eligible, Indian entities should be recognized as FinTech startups by the DPIIT or be Indian companies, limited liability partnerships (LLPs), or branches of Indian companies or LLPs in IFSC. Even Indian entities operating under domestic financial regulators (RBI, SEBI, IRDAI, or PFRDA) can apply for authorization in Gift City. Foreign entities must be from Financial Action Task Force (FATF)-compliant jurisdictions.
Sandbox Mechanism
Gift City’s Fintech Framework also offers various sandbox options to encourage fintech players to innovate and develop their ideas without the burden of regulatory compliance. These sandboxes include:
(a) Regulatory Sandbox: Eligible Applicants can seek permission to test innovative technology solutions without full regulatory compliance. This is particularly valuable for startups aiming to revolutionize financial services.
(b) Fintech Innovative Sandbox (FIS): Startups can apply to test and develop their ideas in isolation from the live market. However, no relaxation from the regulatory environment is granted in this sandbox.
(c) Inter Operable Regulatory Sandbox (IORS): IORS allows for testing innovative hybrid financial products/services that fall under multiple regulatory bodies. This option is available to foreign fintech entities seeking entry to India.
FinTech Incentive Scheme
IFSCA has launched an incentive program to attract fintech entities to innovate and launch solutions in Gift City. Grants under this scheme can range up to INR 75 lakhs, depending on the category of operations. These grants are available to fintech entities in regulatory or innovative sandboxes, those referred to IFSCA under a FinTech bridge arrangement with another regulator, and those participating in special programs acknowledged by IFSCA.
Payment Services in IFSC
IFSCA is actively working on a regulatory framework for payment services and payment service providers in Gift City. The presence of various projects related to payment services in the Fintech sandbox indicates the growing importance of this sector within Gift City.
Why Fintech Startups Should Consider Gift City
Now that we’ve explored the various facets of Gift City’s fintech ecosystem, let’s delve into the reasons why fintech startups should seriously evaluate the possibility of setting up their operations there:
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- Regulatory Clarity: Gift City offers a streamlined regulatory environment with IFSCA as the single regulator. This simplifies the regulatory process, making it easier for startups to navigate and ensure compliance.
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- Incentives and Grants: The FinTech Incentive Scheme provides financial incentives, which can significantly boost the financial health of startups. These grants can be used for research, development, and expansion.
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- Sandbox Opportunities: Gift City’s sandbox mechanisms provide a safe environment for startups to test and develop their fintech innovations. This allows startups to refine their ideas and solutions before entering the market.
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- Tax Benefits: Gift City offers tax benefits such as 100% tax exemption for ten years, no GST on services within IFSC, and exemptions from stamp duty and taxes on security or commodity transactions. These incentives can significantly reduce operational costs.
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- Access to Talent: India boasts a vast pool of highly skilled engineering talent, making it an ideal location for fintech startups to tap into the workforce required to drive innovation.
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- Access to India Stack: India’s robust digital infrastructure, including Aadhaar and UPI, provides fintech startups with a strong foundation to build innovative solutions. Gift City can serve as the ideal platform to leverage these resources.
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- Commitment from Global Players: Google’s decision to establish a global fintech operations center in Gift City underscores its potential as a global fintech hub. This move is likely to attract more global players and investors to the city.
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- Infrastructure Development: Gift City is witnessing rapid infrastructure development, including commercial and residential spaces, making it an attractive location for both work and living.
Challenges and Considerations
While Gift City offers numerous advantages, there are also challenges and considerations that fintech startups should keep in mind:
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- Talent Retention: Startups may face challenges in retaining talent in Gandhinagar compared to more cosmopolitan cities like Mumbai and Bengaluru.
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- Long-Term Confidence: Building long-term confidence in Gift City as a fintech hub may take time, and startups should assess the stability of tax benefits and regulatory support.
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- Competition: Gift City is vying with established fintech ecosystems in Mumbai, Bengaluru, Gurugram, and Hyderabad. Startups should carefully evaluate their competitive positioning.
- Regulatory Changes: Any changes in the central government’s policies or regulatory landscape could impact the advantages offered by Gift City.
Gift City represents a promising opportunity for fintech startups to thrive and innovate within a supportive regulatory framework, access financial incentives, and leverage India’s digital infrastructure. With global players like Google recognizing its potential, Gift City is well on its way to becoming a prominent global fintech hub. However, startups must weigh the advantages against challenges and carefully plan their entry into this vibrant ecosystem. As the fintech landscape evolves, Gift City stands as a beacon of opportunity for those looking to shape the future of finance in India and beyond.
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The Insurtech Revolution: Five Key Steps for Success
In recent years, the insurance industry has witnessed a digital transformation like never before, giving rise to a new breed of companies known as insurtech startups. With over 142 insurtech startups operating in the country today, including unicorns like Policy Bazaar and promising players like Digit Insurance, Acko, Coverfox, and Turtlemint, the sector is undergoing a profound shift. In this article, we’ll explore how insurtechpreneurs can capitalize the untapped opportunities in the Indian insurance landscape.
First of all Unlearn Everything about Insurance
Insurance is notorious for being a complex product, and this perception is not without reason. Mehmood Mansoori, Member of Executive Management and Group Head at HDFC ERGO, suggests that insurtechpreneurs should shift their focus away from the intricacies of insurance and instead concentrate on understanding the customer’s mindset.
Mansoori emphasizes that customers seek simplicity and ease when interacting with insurance. Their experience should be as seamless as buying a product from an e-commerce platform or making transactions through a mobile wallet. By mastering this customer-centric approach, insurtech startups can set themselves apart in the industry.
Digital is the Key
In an age dominated by digital technologies, the insurance sector can resolve many of its challenges by adopting a digital-first approach. Unfortunately, according to Nobel laureate and economist Amartya Sen, the insurance industry has been slow to embrace these changes.
Manik Nangia, Director & Chief Operations Officer at Max Life Insurance, underscores the importance of putting the customer first and thinking digitally. He highlights that digital disruption has revolutionized how businesses engage with customers. Understanding customer preferences, especially when it comes to human interaction versus digital channels, is crucial for success in the industry.
In essence, insurtech startups must prioritize customers and focus on creating exceptional digital experiences.
Five Key Steps to Launching a Successful Insurtech Startup
Launching an insurtech startup requires a strategic approach. Based on experience, here are five key steps to go from concept to selling policies in record time:
- Launch an MVP (Minimum Viable Product) and Commit to It: Embrace the concept of a Minimum Viable Product, even if you’re a perfectionist. Going live quickly, albeit with some imperfections, allows you to gather real customer feedback and adapt accordingly.
- Create the Right Team: Assemble a team with a mix of insurance and non-insurance expertise. Challenge the status quo while maintaining compliance with regulations.
- Build a Positive Relationship with Regulators: Regulatory compliance is essential in the insurance industry. Establish a positive working relationship with regulators to ensure a smooth market entry.
- Stay True to Your Vision: Maintain a clear vision for your startup and ensure that your team remains focused on the ultimate goal. Test everything against your vision, even if it requires extra effort.
- Know Your Numbers: While initial assumptions are necessary, closely monitor your financial metrics. Be prepared to adjust your budget and resource allocation based on real-world data.
Collaboration is Key
To succeed in the evolving insurtech landscape, all stakeholders—insurers, insurtech startups, regulators, and government bodies—must work collaboratively. Insurtechs can develop innovative solutions, embrace partnerships, prioritize profitability, and proactively address compliance and governance. Insurers, on the other hand, can engage in joint innovation, adapt to a two-speed world, and contribute to shaping regulatory frameworks.
In conclusion, the insurtech revolution in India presents a wealth of opportunities, but success requires a customer-centric, digitally-driven, and collaborative approach. By following these principles and steps, insurtech startups can navigate the complexities of the industry and thrive in this new era of insurance.
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The Emerging Landscape of Savings Technology in India
In recent years, the Indian financial landscape has witnessed a significant shift towards savings technology, as investors increasingly turn their attention to startups in the savings segment. This article explores the evolving business models in the savings technology sector, the types of savings technologies emerging, regulatory requirements, and offers a SWOT analysis of this burgeoning industry. Additionally, we provide a detailed list of the top 10 investments in the Banking, Financial Services, and Insurance (BFSI) sector in India.
The Business Model of Savings Technology
Savings technology, often referred to as “Savings Tech,” focuses on leveraging innovative digital solutions to provide better savings and investment opportunities to a wide range of consumers. The key aspects of the business model in this sector include:
- Access to Investment Portfolios: savings technology startups aim to bridge the gap between Indians’ propensity to save and their limited exposure to investment portfolios. They offer accessible investment options to individuals at various income levels.
- Technology-Enabled Financial Planning: These startups utilize technology to provide users with data-driven financial planning and advice. This approach ensures that individuals can make informed decisions about their savings and investments.
- Diverse Portfolio Options: savings technology companies emphasize the importance of diversified portfolios to balance risk and returns. They offer a range of investment options tailored to customers’ risk appetites and profiles.
- Innovation in Investment Products: Startups in this sector often introduce innovative investment products that capture market segments not adequately served by traditional financial institutions. Examples include gold-linked products, micro-savings platforms, and fractional ownership.
Types of Savings Technologies
savings technology encompasses various subsectors, each addressing specific aspects of savings and investments:
- Digital Gold Investments: Startups like Augmont, Jar, milliGOLD, and IndiaGold offer digital gold investment options, allowing users to invest in the precious metal conveniently and digitally.
- Micro-Savings Platforms: Platforms like Siply enable underserved populations to inculcate savings behavior with minimal investments, sometimes as low as ₹1.
- Theme-Based Investment Portfolios: Companies like Smallcase enable investments in portfolios of stocks or exchange-traded funds (ETFs) that track specific themes, strategies, or objectives.
- Debt Instruments: Startups like Wint Wealth facilitate retail investors’ access to debt instruments (bonds) with low minimum investment requirements, bridging the gap between low-risk and high-risk investment options.
- Round-Up Investing: Apps like Jar and Deciml offer spare change/round-up investing, where users can invest accumulated amounts in mutual funds, US stocks, or digital gold.
- Save Now, Buy Later (SNBL): SNBL startups incentivize saving for significant expenses without the risk of accumulating debt associated with “Buy Now, Pay Later” models.
Regulatory Requirements
For savings technology startups to succeed and gain the trust of investors, they must adhere to regulatory requirements. Key considerations include:
- Compliance with Financial Regulations: Startups must comply with existing financial regulations to ensure the safety and security of investors’ funds.
- Regulator Confidence: Gaining the confidence of financial regulators is crucial. Demonstrating a commitment to regulatory compliance and investor protection is vital for long-term success.
- Transparency: Startups should prioritize transparency in their operations, investment products, and fee structures to build trust with customers.
- Data Security: With the handling of sensitive financial information, data security is paramount. Implementing robust security measures is essential.
SWOT Analysis of Savings Technology
Strengths:
- Growing Market: India’s savings technology market is expanding rapidly, with increasing investor interest and demand for innovative savings solutions.
- Diverse Investment Products: savings technology startups offer a wide range of investment products, catering to various customer preferences and risk profiles.
- Financial Inclusion: Micro-savings platforms and low-cost investment options are promoting financial inclusion by reaching underserved populations.
Weaknesses:
- Regulatory Challenges: Navigating complex financial regulations and gaining regulatory approval can be challenging and time-consuming.
- Trust Building: Establishing trust among investors, especially in a competitive market, is a significant hurdle for new startups.
Opportunities:
- Untapped Market: The penetration of savings and investment products in India is relatively low, leaving ample room for growth and innovation.
- Innovation: Startups have the opportunity to introduce unique and tailored investment products that cater to specific investment goals and demographics.
Threats:
- Competition: As the savings technology sector gains traction, competition among startups and established financial institutions may intensify.
- Regulatory Changes: Changes in financial regulations could impact the operating environment and product offerings of savings technology startups.
Top 10 Investments in BFSI Companies
Here is a list of the top 10 investments in the BFSI sector in India, showcasing the growing interest of investors in financial services and technology:
- Poonawalla Housing Finance: TPG Capital invested $472 million (₹3,900 crore) in December 2022.
- Hinduja Leyland Finance: Elara Capital and others invested $111 million (₹910 crore) in October 2022.
- KFin Tech Investor Services: IIFL VC, ICICI Prudential, and others invested $85 million (₹675 crore) in December 2022.
- Lentra AI: Citi Ventures, Susquehanna International Group, and Bessemer invested $60 million (₹489 crore) in November 2022.
- NeoGrowth: FMO and others invested $36 million (₹300 crore) in December 2022.
- KreditBee: MUFG Innovation Partners, Mirae Asset Global Investments, and others invested $20 million (₹162 crore) in December 2022.
- Zype Credit Management App: Xponentia Capital and others invested $18 million (₹148 crore) in December 2022.
- Pillow Crypto Platform: Jump Capital, Quona Capital, and others invested $18 million (₹148 crore) in October 2022.
- Juno Neo Bank: ParaFi Capital and others invested $18 million (₹148 crore) in October 2022.
- Drivetrain: VH Capital, Jungle Ventures, and others invested $15 million (₹125 crore) in October 2022.
savings technology is rapidly reshaping the Indian financial landscape, offering diverse investment opportunities, fostering financial inclusion, and catering to the evolving needs of investors. While startups in this sector face regulatory challenges and the need to build trust, the opportunities for growth and innovation are substantial. With increasing investments in BFSI and fintech companies, India’s savings technology industry is poised for significant growth in the coming years, contributing to the nation’s evolving financial ecosystem.
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Insurance sector is a complex world, within which lies various insurance products and regulations making it a confusing choice for consumers to decide in. Without proper guidance and expertise, it can become almost difficult for consumers to make an informed choice about insurance coverage which can lead to costly mistakes. But don’t worry. There’s a solution and that is intermediaries in the insurance sector.
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Are you looking to invest in the financial market or want to become an intermediary? But feeling that it is an overwhelming and a complex task? GenZCFO is here to rescue you. We are a team of trusted guides ensuring every step you take is in the right direction.