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In Covid year, banking sector sees record profit of Rs. 1 lakh crore

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In FY21, the banking sector made its highest-ever profit of Rs. 1,02,252 crore. This is a considerable improvement over the industry’s net loss of about Rs. 5,000 crore in FY19. Half of the profits in the business came from two banks: HDFC Bank and SBI.

ICICI Bank earned Rs. 16,192 crore, more than doubling its previous year’s earnings. SBI, the country’s largest lender, added another 20%, or Rs. 20,410 crore, to the total. Private banks gained market share when public sector banks (PSBs) curtailed their lending. PSBs made a profit for the first time in five years.

The elimination of PSBs’ legacy bad loan crisis was the single most important factor in their Rs. 57,832-crore turnaround. After the RBI pushed banks to label 12 major delinquent accounts as non-performing assets and commence bankruptcy procedures, the burden hit an all-time high. Yes Bank’s net loss was maintained at Rs. 3,462 crore as it continued to make provisioning.

ICRA The profits for the current year came from windfall gains on public banks’ bond portfolios, which accounted for two-thirds of their profits before taxes in FY21. Banks had finished making arrangements for the majority of these loans by March 2020, according to ICRA. It went on to say that profits from bond sales outperformed all other public banks’ pre-tax profits.

It was a year of consolidation for the 10 public sector banks that merged into four in 2020-21. Last year, the merging institutions suffered massive losses in the fourth quarter before the merger, contributing to the PSU banks’ Rs. 26,015-crore deficit in FY20. Indian Bank topped the list with a profit of Rs. 3,004 crore, followed by Union Bank with a profit of Rs. 2,905 crore.

The impact of the epidemic has yet to be reflected in bank balance sheets because defaulters’ loans have been allowed to be restructured. The RBI permitted banks to give troubled debtors one additional year to repay in the second wave. Banks do not expect additional losses as a result of Pandemic-related defaults because large business accounts are unaffected.

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CoinSwitch Kuber: The story of India’s largest crypto exchange

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The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.

In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.

Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.

CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”

Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.

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Cyberattacks vs crypto exchanges: CoinSwitch Kuber, WazirX, and ZebPay explore a possible solution

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If a centralised crypto exchange falls or is hacked, the system could be crippled, and users assets could be lost. Popular Indian cryptocurrency exchanges, on the other hand, are embracing the concept of Decentralised Exchanges (DEX) as a potential solution. In 2021, India was placed second in the world in terms of crypto adoption, after only Vietnam.

Users can save their bitcoins in electronic and physical wallets, or trade them on more secure DEXs. On this, trades are made directly between investors over a blockchain-based peer-to-peer network. There is no centralised third-party that takes custody of customer funds other than the customers themselves. This could be the need of the hour as in August, a cyberattack on the Japanese exchange Liquid resulted in the theft of $97 million in cryptocurrency.

Concerns about privacy and KYC

DEX is being viewed as the future of crypto and decentralisation by certain Indian crypto exchanges. When signing up for a DEX on a centralised exchange like ZebPay, users are obliged to disclose their personal information with the exchange. With DEXs, there is no trusted third-party involved hence no KYC takes place.

It raises privacy problems for crypto exchanges, especially given the general lack of legislative clarity.

DEX ecosystem in its infancy

DEXs include dYdX, UniSwap, and others. Hundreds of millions of dollars are traded every day on PancakeSwap, 1inch Liquidity Protocol, and SushiSwap. Nischal Shetty, the Founder & CEO of WazirX feels the global DEX ecosystem is still in its infancy. Getting a DEX off the ground and seeing good transaction volumes early on, he believes, will be difficult.

WazirX was the first Indian crypto exchange to officially announce that it is working on a decentralised exchange. Polygon (formerly Matic Network) — an Indian business that has developed a Layer 2 Ethereum scaling solution – aims to commercialise it. Customers should not be forced to trade just on decentralised exchanges or centralised systems, according to Nischal.

Observance of the law

Although the model for creating a DEX is simple and has been done before, local and federal governments continue to scrutinise it. There could potentially be further legal concerns with existing investors under Indian or Singaporean law, according to Tanvi Ratna, Founder & CEO of independent research and strategic advice group Policy 4.0. However, even if specific founders are targeted, DEXs may continue to operate.

With their DEX plans, leading Indian crypto exchanges hope to stay on the right side of the law. In India, no government can regulate or censor a DEX, and exchanges are not trying to go around the legislation. According to Ashish Singhal, Founder & CEO of CoinSwitch Kuber, the rule is in place to safeguard everyone while also fostering a collaborative environment.

Is it possible to create a hybrid model?

A hybrid centralised/decentralised strategy, according to Ashish Agrawal, could be the way forward. Centralised exchanges, according to him, might be more controlled, dependable, and user-friendly. They assist in balancing the demand-supply ratio and allowing users to exchange currency without relying on third-parties.

CoinSwitch Kuber is focusing on liquidity aggregation solutions, which might be a crucial component if it decides to construct a DEX. Users interact with a centralised frontend system, but the backend is decentralised, according to the CoinSwitch CEO.

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The Pandora Papers: A Step-by-Step Guide to the Leak

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You might have heard about the Pandora papers in the news and wondered, “What is this new-age Pandora’s box, and what’s in it?”

So, what is it?

The Pandora Papers are a leak of about 12 million documents that expose hidden riches, tax evasion, and money laundering by some of the world’s wealthiest and most powerful people. For months, more than 600 journalists from 117 countries combed through 14 sources’ data, uncovering tales that were published this week.

The International Consortium of Investigative Journalists (ICIJ) in Washington DC received the information.

What has been uncovered?

The Pandora Papers contain 6.4 million documents, including three million photos, over a million emails, and nearly half a million spreadsheets. 

So far, the following stories have been revealed:

  • Anil Ambani, The chairman of Reliance ADA Group and his representatives own at least 18 offshore companies in Jersey, the British Virgin Islands (BVI) and Cyprus. 
  • A trust set up by Praveen Purvi, the creative director of Firestar, has been accused of defrauding Punjab National Bank (PNB) through fraudulent letters of undertaking (LOUs).
  • Niira (Nira) Radia Trident, Trust Company BVI, has been conducting her offshore transactions through London-based Sanjay Newatia, a former Credit Suisse banker.
  • The late Captain Satish Sharma, who was a close friend of the Gandhi family and a former Union Minister, had offshore entities and properties abroad, the Pandora Papers show.
  • Jackie Shroff was the prime beneficiary of a trust set up in New Zealand by his mother-in-law, records show. He also made “substantial contributions” to this trust, which had a Swiss bank account and owned an offshore company registered British Virgin Islands company.

The documents reveal how some of the world’s most prominent people, including more than 330 lawmakers from 90 nations, hide their money through secret offshore businesses.

These people, according to Lakshmi Kumar of the US think tank Global Financial Integrity, “are able to funnel and syphon money away and hide it,” typically through the use of anonymous corporations.

How big is the Pandora Papers leak?

SourcesFilesData
1411,903,6762.94 TB

How do the files break down?

DocumentsImagesEmailsSpreadsheetsOthers
6,406,1192,937,5131,205,716467,405886,923

How does Pandora compare with previous leaks?

YearDataFiles
Offshore Leaks2013260 GB2.5 million
Panama Papers20162.6 TB11.5 million
Paradise Papers20171.4 TB13.4 million
Pandora Papers20212.94 TB11.9 million

GB: Gigabyte, 1,000GB = 1TB, TB: Terabyte

____________________________________________________

Source: International Consortium of Investigative Journalists

What do we mean by ‘offshore’?

The Pandora Papers expose complicated cross-border networks of corporations, which frequently result in undisclosed money and asset ownership.

Someone may hold property in the United Kingdom, but it is owned through a network of businesses situated in other countries, or “offshore.”

These are the countries or territories off the coast of the United States where:

  • It’s simple to start a business.
  • There are restrictions that make it difficult to determine who owns a business.
  • Corporation tax is either minimal or non-existent.

Tax havens or secrecy jurisdictions are terms used to describe these locations. There is no official list of tax havens, however, the most well-known locations include British Overseas Territories like the Cayman Islands and the British Virgin Islands, as well as countries like Switzerland and Singapore. 

Is it illegal to use a tax haven?

According to the UK government, tax evasion “involves functioning within the letter, but not the spirit, of the law.” There are genuine reasons why people may want to keep money or assets in different countries, such as to protect themselves from criminal attacks or to protect themselves from unstable governments.

How easy is it to hide money offshore?

It’s as simple as forming a shell business in one of the countries or jurisdictions with high levels of secrecy. This is a firm that exists just in name, with no employees or offices, and it can be established anywhere in the world.

However, it is not free. You pay a specialist firm to set up and administer a shell company on your behalf. These companies might provide an address as well as the names of paid directors, leaving no trace of who is really behind the business.

How much money is hidden offshore?

It’s impossible to say for sure, but the ICIJ reports that estimates have varied from $5.6 trillion to $32 trillion. According to the International Monetary Fund, tax havens cost governments around the world up to $600 billion in missed taxes each year.

It is harmful to the rest of society, according to Ms Kumar: “The ability to hide money has a direct influence on your life… it affects your child’s access to education, health, and a home.”

What is the UK doing about it?

Legislation requiring property owners in the United Kingdom to reveal who they belong to has yet to be submitted to MPs. The United Kingdom has been chastised for allowing the property to be owned by anonymous foreign corporations. According to a 2019 parliamentary study, the UK system attracts “money launderers” who want to utilise the property to hide illicit funds.

It claims that when parliamentary time permits, it would establish a register of offshore businesses with UK property.

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