RBI blames banks for sluggish implementation of FX-Retail platform

Has only 1,100 customers and a volume of less than $1 million a day; RBI wants banks to implement the service by March

Since its launch in August, the FX-Retail platform, which allows a bank customer to buy foreign exchange almost at par with interbank rates, has managed to onboard only 1,100 customers and a volume of less than $1 million a day, as banks are not yet ready with the processes to offer their customers the required services.

Concerned that banks are going slow deliberately, the Reserve Bank of India (RBI) is telling them to get it up and running, latest by March, though this is not a deadline, but more like a persuasion. 

“Offering such a service is not in the banks’ best interest. Some could be deliberately going slow, but we understand there could also be technical issues,” said a source familiar with the matter and closely associated with the platform.

State Bank of India (SBI) has not rolled out the service yet, while HSBC among foreign banks advised customers to take advantage of the platform. However, due to the low volume, the advantage is not that material. The RBI, which in June had told banks to onboard customers expeditiously, is understandably quite vexed about the lax attitude of banks.

“If the RBI sees the banks are trying to scuttle the implementation, it will have material impact on the bank in question. Banks are slowly getting aware about that,” said the source. 

The FX-Retail platform is offered by the Clearing Corporation of India (CCIL), but the banks have to integrate their treasury desk with the platform for them to be able to offer the service to their clients. This is something that the banks have to do themselves as there is no single solution that CCIL could offer.

For starters, different banks have different platforms for treasury operations, such as E*Trade, Murex, etc. Separate set of software have to be developed for integration with these services, and they needed to be tested thoroughly, said a senior banker whose bank expects to offer the services by next month. Once all banks start offering the services, the platform is expected to garner trade volume of over $100 million per day. The FX-Retail platform was introduced by the RBI to help retail and micro enterprise customers get cheap foreign exchange. 

The card rates used by banks are significantly higher than what the actual market rate is. But under this platform, a customer can directly buy from the market like any other participant. The retail orders would be bunched up into $5 million of marketable lots and orders can be placed in the market like any other anonymous buyer. This will help the customer avail of superfine interbank rates and will significantly cut down on exorbitant exchange rates that the banks charge for foreign currency needs. The FX-CLEAR interbank spot rates would also be available to customers for viewing purpose on the platform. Generally, banks charge about 1-2 per cent extra to provide foreign currencies, which can be eliminated by the use of this platform. The RBI had announced in its June 2019 policy the launch of this platform, but a draft guideline on this was issued in October 2017.

“Overall, this would bring down the total cost faced by the retail customer in the forex market. Facilitating direct access of retail customers to the market, rather than through price-setting by their banks, would also bring down the risk that banks face in warehousing transactions,” the RBI said in a notification in June last year. 

There will be no cap on the number of transactions (buy or sell) per customer during a day, but the total amount of transactions of a customer will be subject to the limit assigned by the customer’s bank. The RBI has not set minimum transaction limit but the size of a single transaction should not be more than $5 million. While the bank will charge the retail customer an administrative charge, CCIL won’t charge any fee for transactions up to $50,000 per day.

“A transaction charge of 0.0004 per cent shall be charged by the CCIL for transactions in excess of $50,000 per day,” the notification said. Fees charged by banks, if any, should be spelt out on the FX-Retail platform.

Why the delay

• FX-Retail, offered by the Clearing Corporation of India, allows a bank customer to buy foreign exchange almost at par with interbank rates

• Since August, the platform has garnered only 1,100 customers, and less than $1 million daily volume

• Banks are not yet ready with the software to link FX-Retail with their treasury

• If banks don’t offer the service by March, they can be pulled up by RBI

• Once all banks start offering the services, the platform is expected to garner trade volume of over $100 million per day