India’s GIFT City, RBI in talks to enable real-time FX settlement by domestic banks, says official

MUMBAI: The regulator of India’s Gujarat International Finance Tech (GIFT) City is in discussions with the country’s central bank to allow domestic lenders to instantly settle forex transactions through the tax-neutral finance hub, the regulatory body’s chairman said.

The move would make forex transactions quicker and cheaper and ease settlement processes for foreign investors investing in India through GIFT City, which Prime Minister Narendra Modi is pitching as a finance hub to rival centres like Dubai and Singapore.

On Tuesday, GIFT City launched a real-time foreign currency settlement system, with Standard Chartered’s India unit initially selected to handle U.S. dollar clearances. This facility is only for bank branches in GIFT City.

The launch of the real-time system has speeded up settlement timelines to 30 seconds from nearly 24 hours earlier, K. Rajaraman, chairman of the International Financial Services Centres Authority, told Reuters in an interview late on Tuesday.

The regulators are now in discussions to allow Indian banks to settle their forex transactions in real-time, which would give investors a wider suite of options and open up a new line of business for lenders.

“In the next six-to-eight months, we plan to allow banks in India to settle their dollar transaction through this clearing system with due permissions from Reserve Bank of India,” Rajaraman said.

Boosting derivative trades at GIFT City

Earlier this month, the National Stock Exchange of India announced the introduction of daily expiry contracts for GIFT Nifty, a dollar-denominated derivative of the Nifty 50 index traded at the finance hub.

The move was in contrast to the tighter regulatory framework for domestic derivatives. India’s markets regulator has recently tightened rules for equity derivatives, citing data that shows nearly 90% of retail investors incur losses.

Rajaraman said risk management measures would be implemented to prevent any spillover from increased derivative activity in GIFT Nifty to the domestic markets.

“This product is dollar-denominated and meant for institutional investors,” he said.

“Problem in Indian derivatives is due to resident retail investors trading in those instruments, a concern missing in GIFT City,” Rajaraman said.