Us Fed Note Stalls Rbi'S Forex Clearing House Plan

An Indian clearing house will take away a good part of non-fund based business of the foreign banks. Reportedly, these banks have been lobbying with the Fed against the RBI decision.

The RBI plan is to initially have a clearing house only for dollar deals and extend it to other currencies later. The plan has been in the pipeline for over a year. It was recommended by the Sodhani committee and accepted by RBI. In fact, banks have set their own systems in place for the clearing house and only the final RBI nod was awaited.

An RBI official said a reply to the Fed is ready and will be sent soon. The Fed queries, he said, were "genuine" in nature and even if the foreign banks lobbied with the Fed, the US central bank is strong enough not to give in.

 

The Fed has no say in matters concerning India, nor does RBI need its permission to set up a clearing house. However, as a matter of courtsey RBI agreed to offer the clarifications.

Currently, all clearing has to go through a US-based bank which clears it with the Fed. For instance, if a dollar cheque drawn on SBI is deposited with Bank of India, BoI will present the cheque to its correspondent US based bank which will clear the cheque with the Fed and then credit BoI. The Fed will, through the correspondent bank of SBI, debit the SBI account.

If India has its own clearing house, such cheques between Indian banks will be netted and cleared locally. The rest will go overseas for clearance.

This will mean that the massive fees that foreign banks get for clearing the deals will be reduced. That is the reason why they are objecting, say bankers.