GIFT City seeks RBI nod for dollar payment system to boost efficiency

27 Feb 2024 , 01:28 PM

According to news reports, representatives from GIFT City have contacted the Reserve Bank of India (RBI) to discuss putting up a dollar payment system mechanism that intends to increase the efficiency of transactions made in US dollars. ET was informed of these discussions. 

‘There are initial discussions about this matter because at present when a dollar transaction happens from one bank’s nostro account abroad, it takes several hours for a subsidiary in GIFT City to receive the the dollars,’ according to an ET report. 

According to the report, a hypothetical new dollar payment system might resemble the current Real-Time Gross Settlement System (RTGS).

A nostro account is a local bank’s overseas account that has currency holdings denominated in the foreign currency of the country in question.

One of the ideas under discussion right now is the creation of a single ‘settlement bank’ in GIFT City, where other organizations would be able to deposit money. According to reportss, debits and credits would then be made via the settlement bank.

‘Chances are that the Clearing Corporation of India would be called upon to operate as a facilitator for an RTGS-type model because they have expertise in handling such operations,’ a different source stated. 

‘There would be no counterparty guarantee or trades – the CCIL would basically act as a payment system for a one-leg US dollar transaction,’ stated a source. 

The RBI allowed banks that operate in the International Financial Services Centre (IFSC) to provide resident non-retail users with non-deliverable derivatives contracts that use rupees for hedging in June 2023. 

The RBI stated that the action was taken to give locals the freedom to effectively plan their hedging activities and to grow the onshore rupee non-deliverable derivatives contract market.

These transactions would be cash-settled in rupees and would be flexible enough to allow for cash settlement in either rupees or any other foreign currency between two appropriate banks or between a bank and an individual who resides outside of India. 

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