 "RBI, Reserve Bank of India")
RBI, Reserve Bank of India (Photo: Shutterstock)
Foreign banks operating in India, caught in a regulatory dispute between the European Securities and Markets Authority (Esma) and the Reserve Bank of India (RBI), have approached the Indian central bank for clarity on certain trading norms, according to a report by The Economic TimesLenders, including Deutsche Bank, Credit Agricole, BNP Paribas, and Societe Generale, are facing hurdles in adopting an alternative trading model that would allow them to continue participating in India’s bond and swap markets.
While the proposed third-party trading model is unlikely to be ready before the October deadline, these banks have requested the RBI to relax specific rules until a permanent solution is in place.
The dispute arose in October 2022 when ESMA de-recognised the Clearing Corporation of India Limited (CCIL), citing a lack of audit and inspection rights over the local clearing house. This move created a significant obstacle for European banks, which conduct billions of dollars in bond and swap transactions through the CCIL. While national regulators in France and Germany granted a temporary extension until October 2024 for their banks to trade with the CCIL, a long-term solution remains elusive.
Earlier media reports indicated that ESMA was in “active” discussions with the RBI and that the dispute would be resolved by September; however, no final agreement has been reached.
The foreign banks are currently caught between conflicting regulatory requirements. They need Subsidiary General Ledger (SGL) accounts to fulfill their reserve requirements for government securities transactions but cannot simultaneously operate Constituent Subsidiary General Ledger (CSGL) accounts, which would be necessary under the proposed third-party model. As one source told ET“A bank cannot be both a primary member with an SGL account and a client with a CSGL account under current provisions.”
At present, proprietary transactions in government securities for primary members like scheduled commercial banks and primary dealers are settled through their SGL accounts at the RBI’s Public Debt Office. On the other hand, gilt account holders must settle transactions through CSGL accounts held with their primary members.
The third-party model under consideration would see the foreign banks become clients of domestic banks for clearing operations instead of directly transacting with the CCIL. This would allow them to continue trading in India’s bond and swap markets. However, according to sources, this model is still in its early stages and unlikely to be implemented immediately. The delay leaves the banks with limited options: either await a memorandum of understanding between the RBI and Esma or hope for an extension from French and German regulators.
First Published: Sep 17, 2024 | 10:01 AM IST
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Kanishk Singh has always had a keen interest in fast-paced cars. For the past three years, he has been writing about automobiles, but his fascination with cars dates back even further. He thoroughly enjoys learning about their features and expressing his thoughts through his writing. Kanishk also has a profound interest in the stock market, shares, and business strategies. He possesses a wealth of knowledge on these subjects and consistently writes articles on them. Currently, he is working as a writer for Lattestnews24, specifically focusing on the Automobile, Finance, and Business categories. His well-crafted words are highly appreciated by the readers, as they find them both informative and creative.