Four European Union Banks Request RBI Approval For Third-party Transaction Model

Four leading European banks, which are also key custodians in the local sovereign debt trade, have requested approval from the Reserve Bank of India (RBI) for a third-party transaction model. This is to resolve the deadlock between their home authorities and Indian policymakers over audit oversight rights.

According to a source familiar with the situation, the heads of these European banks met with top RBI officials last month to seek approval for the proposed third-party model. The source mentioned that the banks are seeking RBI's approval as there are no established guidelines for such an arrangement.

Following the meeting, which was attended by RBI deputy governor T Rabi Sankar, the overseas banks involved are expecting the central bank to convey its stance within the next few weeks.

The banks in question are Credit Agricole, Societe Generale, Deutsche Bank and BNP Paribas.

Eurozone-based lenders are facing challenges in trading Indian government bonds and derivatives due to the European Securities and Markets Authority (ESMA) decision to de-recognize the Clearing Corp of India (CCIL) in October 2022.

The ESMA took this action after the Reserve Bank of India (RBI) refused to allow audit and inspection rights over the CCIL, which manages the local platform for government bond trading and ensures guaranteed settlement.

European banks have until October 2024 to cease transactions with the CCIL and are working on establishing an alternative third-party clearing mechanism.

An email to the RBI for comment on this matter went unanswered, and a spokesperson for Deutsche Bank declined to comment. Emails to other banks also did not receive responses.

These four European banks collectively execute trades worth billions of dollars in Indian government bonds and derivatives, with some playing significant roles in custody operations for foreign investments in local markets.