European banks to continue dealing with Indian clearing firms post October

By Ruchi Bhatia and Saikat Das 

Market regulators in France and Germany asked their banks to continue dealing with India’s clearing houses beyond an October-end deadline, after a dispute over supervisory powers threatened to derail trading, according to people familiar with the matter. 

Europe’s authorities set the deadline last year after their request for co-supervision of European trades settled through Indian clearing houses was denied by the Reserve Bank of India. They’ve told their banks to consider alternate arrangements with local lenders, said the people, who included an Indian official. 

The possible options include European banks settling trades through Indian peers, instead of dealing with the clearing houses, the people said, who didn’t want to be identified as the discussions are private. Another alternative is for French and German banks to set up operations as a bond underwriter, they said. 

Indian and European regulators have been locked in a tussle after the RBI denied the European Securities and Markets Authority’s request to co-supervise some transactions. In response, the ESMA withdrew recognition from six Indian central counterparties in May 2023. If unresolved, the dispute risks disrupting billions of rupees of trading in government bonds and interest-rate derivatives that are transacted on the Clearing Corporation of India’s platforms. 

A spokesperson for the French regulator said they had no comment to make on this matter, while the German watchdog’s spokesperson said they can’t comment on discussions with policymakers. India’s finance ministry spokesperson didn’t immediately respond to a request for comment. 

European banks including BNP Paribas SA and Deutsche Bank AG are important market makers in India and their withdrawal may impact trading volumes, especially in interest-rate derivatives and currency forwards.