Reserve Bank of India acts as Clearing House for Commercial banks in India. This means that all inter-bank transactions happen through RBI only. It acts as a bridge. However, do you know who acts as Clearing House for transactions between foreign banks and Indian banks? It is Clearing Corp of India Limited (CCIL).
Now, this matter is so important because of following issues:
- European Securities and Markets Authority (ESMA) has asked RBI for permission to conduct audit of CCI, however, RBI refused to grant the same. Of course, to maintain confidentiality and sanctity of Indian banking system, it was an important step.
- As a result of above action, ESMA de-recognized CCI as Clearing Authority in October, 2022.
- There are so many banks that deal in Indian government bonds and derivatives, so now they are facing the problem in Clearing Operations.
- Therefore, 4 major European banks viz. Credit Agricole, Societe Generale, Deutsche Bank and BNP Paribus have filed an application with RBI to appoint a third party to complete these functions.
- The third party may be a Non-Banking Finance Company, a micro finance company or any other such type.
- Very high stakes of these banks are involved hence it is a matter of grave concern for them.
Our Central Bank would definitely come out with some solution to this because it may impact international image of the country as well.
Other functions of CCIL:
Apart from the above, it also performs following functions:
- Risk Management;
- Foreign Exchange clearing transactions;
- Acting as a trade repository (centrally maintains and records over the counter derivative transactions);
- Â Settlement of varied other types of financial instruments.
Since, RBI’s decision on the matter is yet to come so we can hope that it will clear the air and uncertainty surrounding such transactions.
Insightful
Thanku sir