Indian Banks & Rupee Derivatives: Governor Das Calls for Greater Participation

Mumbai, Apr 8 (PTI) Reserve Bank Governor Shaktikanta Das on Monday stressed the need for greater participation of Indian banks in rupee derivatives market, both domestically and offshore, while being prudent.

The governor noted that participation of domestic banks in derivative markets remains limited with only a small set of active market-makers. Also, participation of Indian banks in global markets is growing but it is quite small.

"Domestic banks are dealing with market-makers in global markets rather than with end clients and are yet to emerge as market-makers of note globally," Das said in his keynote address at the FIMMDA-PDAI Annual Conference in Barcelona.

Of course, he added banks need to do their own due diligence, assess their risk appetite, and then move forward carefully in this direction.

"Going forward, our focus should be on enhancing and widening the participation of Indian players in markets for INRderivatives, both domestically and offshore, while being prudent," the governor said.

He noted that the recent financial market reforms undertaken by the Reserve Bank are aimed at providing a strong bedrock for markets to move to the next trajectory for meeting the growing funding requirements in the economy, providing cost-effective hedging options and competing effectively in global markets.

There are, however, some areas which call for attention, he said, while highlighting specific areas where more can be done.

Das said transparency in pricing remains work in progress and more can be done.

"The retail customer is yet to get a deal at par with large customers. There is a need for effective market-making and finer pricing for smaller deals on NDS-OM," he said.

Divergence in pricing in FX markets for small and large customers is wider than what can be justified by operational considerations, Das said, and added that banks may need to do more to facilitate the use of the FX Retail platform..

"We continue to see banking channels being used by certain persons or entities to fund activities on unauthorised FX trading platforms. This warrants enhanced vigilance by the banks," the governor said.

He further said efforts are being made to leverage technology for achieving greater efficiency while also meeting the objectives of market reforms.

The Reserve Bank, he added remains engaged with stakeholders to assess the need for the introduction of new products and infrastructure based on evolving market developments.

"Innovation has been sought to be promoted through a move towards principle-based regulation, widening of the participant base, introduction of new products and platforms as well as enabling access to offshore markets," Das said.

In his address, the governor also dwelt upon the journey of the Reserve Bank, especially in the context of its role in developing the financial markets in India in the recent period.

The RBI has entered its 90th year of its formation on April 1, 2024.