The Reserve Bank of India's (RBI) advisory group on payment and settlement system has recommended the setting up of a clearing agent abroad by the Clearing Corporation of India (CCI) along with the creation of a settlement guarantee fund for foreign exchange clearing.
The advisory group said, "Settlement of the netted amount in the foreign exchange may be done by the CCI itself through its clearing agent abroad, while the rupee shall be settled locally through the central bank account."
The group, in order to minimise the risk relating to the possible failure of clearing agent, suggested that payouts from the clearing account may be made first and the clearing account could be funded separately.
The advisory group on the payment and settlement system is one of the 10 advisory groups constituted by the standing committee on international financial standards and code. The group is headed by M G Vide, chairman, National Institute of Bank Management.
The group feels that the settlement guarantee fund is needed to reduce the risk in foreign exchange transaction.
"In fact, such a guarantee fund could be the outcome of a detailed risk reduction framework in which net bilateral, multilateral and system caps for each participants are embedded."
The group feels that there may be a clash between the settlement of the net amount arrived at the CCI on account of forex clearing and the net amount arrived at the rupee clearing house.
To avoid this the group has suggested that "these two clearing adjustments should be placed in the same batch for settlement in the real time gross settlement system".
"It is desirable to have a predetermined view in this regard in consultation with the Reserve Bank of India and appropriate measures/safeguards are required to be built in to the arrangement," it added.
