Feasibility of expanding RTGS to settle transactions can be explored: Das

Divergence in global monetary policies can be expected to lead to volatility in capital flows and exchange rates, which may disrupt financial stability, says Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday said that the feasibility of expanding real time gross settlement systems (RTGS) to settle transactions in major trade currencies, such as the US dollar, the euro, and the GBP, can be explored through bilateral or multilateral arrangements.

India is one of the few large economies where there is a 24*7 RTGS. It is an integrated payment and continuous (real time) settlement system developed by RBI, whereby the banks and financial institutions transfer funds (both for customers and inter-bank transactions) to one another on an immediate, final and irrevocable basis.

India and a few other economies have already commenced efforts to expand linkage of cross border fast payment systems both in the bilateral and multilateral modes, the governor said at a conference organised by the RBI in Delhi.

Das also highlighted that remittances are the starting point for many emerging and developing economies, including India, to explore cross-border peer-to-peer (P2P) payments. “We believe there is immense scope to significantly reduce the cost and time for such remittances,” he said.

Additionally, central bank digital currencies (CBDCs) is another area which has the potential to facilitate efficient cross-border payments. India is one of the few countries that have launched both wholesale and retail CBDCs, Das said. 

“Programmability, interoperability with the Unified Payments Interface (UPI) retail fast payment system and development of offline solutions for remote areas and underserved segments of the population, are some of the value added services which we are now experimenting as part of our CBDC pilot,” Das said, adding that going forward, harmonisation of standards and interoperability would be important for CBDCs for cross-border payments and to overcome the serious financial stability concerns associated with cryptocurrencies.

Speaking about the emerging risks to financial stability, Governor highlighted that with the divergence in global monetary policies -- monetary easing in some economies, tightening in a few, and pause in several other economies -- can be expected to lead to volatility in capital flows and exchange rates, which may disrupt financial stability. It was evident during the sharp appreciation of the Japanese Yen in early August which led to disruptive reversals in the Yen carry trade and rattled financial markets across the globe.

Further, the private credit markets have expanded rapidly with limited regulation. They pose significant risks to financial stability, particularly since they have not been stress-tested in a downturn, Das warned.

Additionally, he highlighted that higher interest rates, aimed at curtailing inflationary pressures, have led to increase in debt servicing costs, financial market volatility, and risks to asset quality.

“Stretched asset valuations in some jurisdictions could trigger contagion across financial markets, creating further instability. The correction in commercial real estate (CRE) prices in some jurisdictions can put small and medium-sized banks under stress, given their large exposures to this sector. The interconnectedness between CRE, non-bank financial institutions (NBFIs), and the broader banking system amplifies these risks,” Das warned.