Multiple sources told ET that this was said in a meeting between senior officials of MNC banks and RBI Deputy Governor T. Rabi Shankar on November 11.
“The RBI’s stand is clear. The new rules that caused the controversy were not introduced by the RBI. They did not originate in India, but are derived from the jurisdictions and countries where these multinational banks are headquartered. Therefore, foreign banks should find some way out with their respective regulators and authorities,” said an official of a large European bank. Another banker said, “RBI is expected to hold more meetings on this subject.”
According to banking circles, it is clear by now that the RBI is not comfortable with the dual regulatory regime; And under these circumstances European banks in India have to think of a plan B to carry out their routine treasury operations.
RBI spokesperson did not comment on the matter.
As part of risk mitigation measures in the wake of the 2008 financial meltdown, ESMA will conduct on-site inspections of all CCPs with which European banks deal anywhere in the world — a rule that the RBI finds unacceptable because It boils down to a foreign regulator exercising supervisory power in the CCP that is outside its jurisdiction.
If RBI sticks to its stand, european union bank Bilateral deals with other banks have to be cut, avoiding the Clearing Corporation of India (CCIL), which acts as a CCP that undertakes clearing and settlement risk in transactions such as government bond trading, foreign exchange forwards, repos and interest rate swaps. handles.
“The advantage of trading through CCIL is that the counterparty risk is taken over by CCIL which reduces the capital requirement for the bank. But, bilateral deals would mean higher capital as the counterparty would be a higher risk-weighted bank. If it is from a country with a lower sovereign rating, the risk weight will be higher.
shielding equity market
Although it is possible to trade bilaterally in bonds and currency and interest rate derivatives, a CCP is indispensable in trades made on stock exchanges. For example, Deutsche Bank, which is a major custodian for foreign portfolio investors, has to deal with the NSE Clearing Corporation for share transactions by offshore funds. Along with CCIL, NSE Clearing is one of the six CCPs recognized by ESMA.
Under these circumstances, SEBI (as opposed to RBI) is currently negotiating to find a middle ground and may be open to European regulators like ESMA and Bank of England (BOE) scrutinizing the books of NSE Clearing Corp. , till it conducts a joint inspection with SEBI. And takes no objection certificate from the Indian regulator before starting any inspection. BoE has disqualified CCIL and Indian Clearing Corp, CCP for trades carried out on the Bombay Stock Exchange.
“Perhaps, the priority of the government is to see that there is no adverse impact on the stock market. Therefore, it may be comparatively more concerned about the disqualification of the Stock Clearing Houses than the disqualification of CCIL. This way SEBI can arrive at a solution faster than RBI.
Deutsche among foreign banks affected by ESMA directive BNP ParibasInstitutions such as Credit Suisse and Credit Agricole while Standard Chartered and Barclays have to deal with BOE regulations.
highlighted
- RBI Deputy Governor T. Rabi Shankar met EU banks on 11 November
- RBI wants EU banks to talk to their country’s regulators
- MNC banks considering plan B if impasse persists
- RBI may hold more meetings with European banks