Crisis highlights interconnections: RBI

The payment crisis at the National Spot Exchange has underscored the issue of “interconnectedness of financial institutions”, the Reserve Bank of India said in its quarterly macroeconomic review released on Monday.

The Financial Technologies group-promoted spot exchange has been mired in a crisis after it failed to settle dues of Rs 5,600 crore to over 13,000 investors who traded on its platform.

The NSEL default has not only impacted individual investors but also several brokers and corporates, who were trading in their proprietary account.

So far, however, none of the brokers have reported stress or spill over due to the payment crisis at NSEL. Broking firms have separate legal entities to trade in different segments of financial markets.

“Many brokerage firms are active in multiple segments, including equity, commodity and forex. A loss in one segment of their operations can have a cascading effect on other segments, propagating contagion effects through the market.”  the RBI has warned.

The central bank has the government has initiated a lot of changes following the NSEL fiasco.

“It has transferred the administrative control of FMC (Forward Markets Commission) to the inistry of Finance and constituted two committees, one under RBI Deputy Governor, K C Chakrabarty and the other under the Secretary, Department of Economic Affairs, Arvind Mayaram, to look into various aspects relating to this crisis. These committees have since submitted their reports to the central government,” RBI noted.

In late July, NSEL had to abruptly suspend trading of all contracts following directions of FMC and Ministry of Consumer Affairs (MCA). Later it spiraled into big crisis as NSEL defaulted its payout schedules to investors.