Week ending February 18, 2024

# 1 Markets

Indian equity markets continued their upward trend for the fourth consecutive session on Friday with Nifty closing above the 22000 level and Sensex closing at 72426. Dow Jones, Nasdaq and S&P though started the week with weekly gains within reach, ended lower on Friday closing, after another hotter-than-expected inflation reading undermined the case for interest rate cuts.

Indian bond markets remained flat (10Y at 7.08%) during the week though a small spike mid-week caused by short term liquidity concerns, though the prospect of higher inflow through inclusion in global indexes continue to propel buying by FIIs. Last week, an advisory committee at Bloomberg Index Services Ltd has recommended inclusion of Indian government bonds in the Bloomberg Emerging Market Local Currency Index and a formal announcement of this is likely in the coming days,

US 10y spiked from 4.17% to 4.30% last week caused by higher inflation and unlikelihood of near-term rate cuts by Fed.

# 2 RBI

RBI through its notification dated Feb 15, 2024, has halted businesses from paying each other via credit cards, by ordering card networks Visa and Mastercard to stop all such payments.

  • Businesses typically pay their vendors by bank transfers or commercial credit cards, sometimes mediated by fintechs. The latter are called business payment service provider (BPSP) transactions, now suspended by RBI.
  • It is important to note that BPSPs are regulated and licensed by the RBI under the PA/ PG (payment aggregator/payment gateway) guidelines.

Why sudden RBI crackdown?

  • RBI’s concern seems to come from the fact that certain recipients of card transactions may not be registered merchants, (who may not have Point of Sale machines and therefore not registered) something that is not allowed by the KYC regime.
  • Fintechs were pooling funds from corporate credit cards and transferring them to these merchants who are not registered for receipt of card money and thus violated provisions of RBI Payments and Settlements Act 2007 for making such transfers.
  • Transactions processed under this arrangement did not comply with the originator and beneficiary information requirements, as stipulated under Master Direction on KYC issued by the Reserve Bank. As the names of fintechs would appear in the credit card statement, instead of the ultimate supplier or the actual beneficiary of the payment made, KYC challenges were seen.
  • Since KYC is one of the critical components in the battle against money laundering and for preventing fraud, compliance with these guidelines is not optional. KYC measures prevent perpetrators from opening fictitious accounts and also help in identifying the sender of the funds and the recipient of such funds, thereby creating a trail for tracking down criminal activities.
  • In case of peer-to-peer transactions, cards were never allowed, and even today you cannot pay some individual by your card. However, some fintechs were allowing such payments where a person would pay rent through their credit card to a fintech, which would then send it to the landlord. In this case, the landlord is not a registered merchant and therefore cannot accept card payments.

Though the issue is understandable, the suddenness of RBI is not explained.

BSPS reiterate that transfers are being done using banking channels and thus KYC of beneficiary is available in the system.

So, it appears that there is more than what meets the eye. We need to wait for RBI’s actions in the months ahead.

Any Impact:

  • As per Macquerie report, this will hit the volume of card spends but will not impact profits in the card business.
  • As per RBI notification it is only one card network and PayMate appears to be using Visa card network for its BPSP transactions. PayMate is involved in roughly Rs, 30,000 cr of turnover a month.


# 3 SEBI

3.1 SEBI has started asking IPO-bound companies to remove private equity or venture capital (PE/VC) shareholders, and other shareholders who intend to sell their shares, from the decision-making process of pricing of the IPO,

  • rationale for this move is to reduce the undue influence these so-called “selling shareholders” can have on the pricing of the IPO and thus, the performance of the IPO.
  • Underperformance of tech IPOs driven by PE/VC shareholders is one of the concerns as the regulator is of the opinion that such shareholders/investors may prioritise the maximisation of their return on investment, by pushing for a higher price band.

3.2 SEBI has proposed to increase oversight of portfolio management services (PMS) distributors by making registration with industry body, Association of Portfolio Managers in India (APMI) mandatory for them.

  • Presently, the persons engaged by a portfolio manager to act as a distributor of the PMS, are required to obtain certification from the National Institute of Securities Markets (NISM) by passing an examination.
  • The proposed suggestion is in line with the practise already being followed by the mutual fund industry, wherein mutual funds distributors are required to register with Association of Mutual Funds in India (AMFI) and obtain an ARN (AMFI Registration Number) for providing distribution services.


  • The regulator has also proposed to ease digital onboarding process for clients of Portfolio Managers, though there are operational challenges in complying with the requirements of handwritten note on the fees in the agreements.
  • While on-boarding a client, portfolio manager must ensure that the client has understood the fee structure and the words, the panel said. The regulator said every portfolio manager should have an online fee calculation tool that highlights all fee options with multi-year fee calculations with high watermark concept.

The move would help in providing single filing for compliance and other declarations for PMS distributors, provide access to industry data, offer easy as well as faster access to portfolio managers, and faster grievance redressal.

3.3 SEBI has increased scrutiny of IPO disclosures as per statement by one of its WTM last week.

  • Companies looking to raise money through initial public offerings (IPOs) will have to give accurate details of the end use of the funds. This is being done to avoid a longer lock-in of promoter shareholders’ shares mandatory after an IPO.
  • Currently, if most IPO proceeds are to be used for capital expenditure, then the lock-in for the promoters’ shares is 36 months. But if the IPO-bound company states that the objective is for loan repayments or working capital requirements, then the lock-in is only for 18 months. But if the loan repayment is used for repayment of another loan which was for capex, the lock in for shares must be 36 months.

This is intended as Sebi noticed that companies use IPO money for capex while declaring in offer documents for usage of loan repayments.  Longer lock in rules for promoters have been put in place because of project implementation risks and ensure that promoters minimum holding of 20% during implementation stage and one of investor protection measure.


4.1 As per circular dated Feb 14, 2024, IRDAI has recommended several modifications to promote business ease, minimise stakeholder compliance obligations, and safeguard policyholder interests. Key changes include:

  • The free look period for insurance purchased through any channel is 30 days (in place of 15 days presently for sold physically) from the date of receipt of the policy document.

o The free look period allows policyholders to review their insurance policies and cancel them within a specified period without incurring surrender charges.

o During this period, the insurance company refunds the first premium paid by the policyholder upon policy return.

o At present this 30-day period is only for policies sold electronically.

o the time taken to convey underwriting decisions on policies has been decreased from 15 days to 7 days, thereby reducing wait times for customers.

o Refund of premiums paid along with proposal if the proposal is declined, has been proposed to be reduced from 15 days to 7 days.

  • In order to facilitate electronic transmission of refunds and payment of claims, the insurer must gather the insured’s bank account information during the proposal stage.
  • Like MFs, nomination made mandatory and no

policy in case of life insurance shall be issued unless nomination is obtained. Nomination provisions relating to general and health insurance also introduced.

  • Insurance policies meeting defined criteria to be issued in electronic form and thus help save in Digilockers.
  • Other proposals include dispensing with requirement of filing advt. with the authority, no prior approval requirement for opening place of business, relaxation in solvency ratios etc for opening foreign branch offices etc.

These are progressive directions aimed at enlarging the insurance coverage for all.

4.2 IRDAI has released draft regulations on Feb 14, 2024, as it has proposed to establish, a digital public infrastructure called “Bima Sugam- an online Insurance Marketplace, as a one-stop solution to enhance availability, accessibility, and affordability of insurance product. IRDA aims to empower and protect the interest of policyholders.  Key features include:

  1. Bima Sugam – shall be a not-for-profit entity.
  2. The shareholding of the Company shall be held amongst Life insurers, General Insurers and health insurers with no single entity having controlling stake.
  3. One stop solution for all Insurance stakeholder’s vis-a-vis customers, insurers, intermediaries or insurance intermediaries and insurance agents
  4. Marketplace for providing various services to the insurance stakeholders. end-to-end digital solution in meeting the requirements of the insurance stakeholders and the market it serves.
  5. Insurers may facilitate availability of their insurance products for sale and provide all services related to an insurance policy including settlement of insurance claims, grievance redressal in the Marketplace on an ongoing basis.
  6. Consumers shall not be charged for availing the services of the Marketplace. – [similar to other broking platforms]

While the noble attempt is to promote transparency, efficiency, collaboration

across the entire insurance value chain, success of the initiative would be seen basis extent of adoption by stakeholders. Revenue model is also not clear and such initiatives have not brought desired results in Mutual Fund industry where indirect scheme continues to be more than 80%. Even in banking, Online PSB Loans where banks are participants, is yet to see complete adoption. In Life or Health insurance, people would still feel the need for agents sitting across the table to walk him through the features and requires support at the time of making claims.

# 5 IT – MSMEs

As per notification released last week reiterating its earlier announcement, MSMEs in India must now disclose their MSME registration number and recognition status in Forms 5 and 6 when filing income tax returns, effective April 1, 2024. The change is expected to impact millions of MSMEs, signalling the government’s increased focus on supporting and tracking the sector.

  • Previously, MSME registration details were not mandatory for ITR filing.
  • Information required includes the MSME Registration Number obtained from the Udyam portal and the business’s classification as Micro, Small, or Medium.

This has come as a shot in the arm, on the back of amendment made under the Section 43B(h) of the Income Tax Act, last year, where a business entity failing to pay its vendors registered as ‘micro’ or ‘small’ (MSE) within 45 days of delivery, would not get the deduction of its purchase in the year of the purchase but can claim the deduction only in the year of ‘actual payment.

The change aims to improve data collection, ensure transparency, and streamline government support for MSMEs. Benefits include aiding policy formulation, promoting compliance, and facilitating targeted support programs.

# 6 Indian economy -Reassertion!


India is the third largest digitalised country in the world, only behind the United States of America (USA) and China, as per the State of India’s Digital Economy Report, 2024, by Indian Council for Research on International Economic Relations (ICRIER) released last week. The study is based on ‘CHIPS’ framework wherein it has scored countries on five pillars – connect, harness, innovate, protect and sustain. US tops with Chips score of 65.1 followed by China and India at 62.3 and 39.1 respectively.

  • the state of digitalisation in India is better than some developed countries including the United Kingdom, Germany and Japan, compared by their aggregate level of digital¬isation.
  • However, at the level of individual users, India is ranked 12th in terms of digitalisation among the G20 countries.
  • Amongst States in India, Karnataka tops Chips Score with 58.7, followed by Maharashtra (52.6), Telengana (50.8) and Gujarat (49.7)

6.2 Goldman Sachs

As per report released on Friday, Indian economy is likely to average more than 6% growth annually between 2023 and 2028, basis extrapolation of growth between 2019 and 2023. Key drivers:

  • No. of people using discretionary products and services in India is around 50-60 million, with income pyramid indicating nearly 60 million earning $10,000 per annum. This no was 20 million in 2011, went up to 37 million before pandemic in 2019. This is likely to go up to 100 million by 2027.
  • The number of credit cards has grown by about 14-15%.
  • The tax filings for more than 1 million rupees were growing at about 19%.

6.3 IMF

As per report released last week, Japan has slipped to fourth largest economy, Germany at 3rd.

  • India is all set to overtake the Japanese economy by 2026 and Germany by 2027.
  • India is officially ranked as the 5th largest economies behind USA, China, Germany, Japan.
  • A grim reminder to India, as the report highlights how the Japanese economy has gradually lost its competitiveness and productivity while the population shrinks as Japanese people age and have fewer children.

6.4 Ministry of Statistics

As per data released last Monday, Indian economy displayed resilience with rising industrial output and falling inflation in the beginning of the year.

  • Industrial output grew by 3.8% in December, rebounding from an eight-month low in November; Factory output expanded by 6.1% in April-December period, slightly above the previous year’s figure.
  • Capital goods production rose by 3.2% annually, indicating investment in the economy; Consumer durables production increased by 4.8%, reflecting positive consumer sentiment.
  • Consumer price index (CPI) based retail inflation dropped to a three-month low of 5.1% in January, attributed to slower rise in food prices.


# 7 Tech funding – State Update

Key take aways from Tracxn Geo Annual report 2023

  • Funding for tech startups in Karnataka, Gujarat, and Tamil Nadu witnessed significant declines.

o Funding in Karnataka plummeting to $3.4 billion, down 72% from $12.2 billion in 2022. Late-stage investments also fell down by 74% to $2.3 billion in 2023 from $8.9 bn in 2022.

o Funding in Gujarat fell by 66% to $139 million from $412 million in 2022.

o Funding in Tamil fell by 85% decline to $255 million in 2023 compared to $1.7 billion in 2022.

  • Among cities,

o Bengaluru led funding with $3.4 billion in 2023

o Chennai followed raising $247 million in 2023

o Vadodara next, raising $65 million in 2023

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