RBI Governor: India’s Forex and Money Markets Have Grown Significantly in the Last Four Years

Mumbai, April 20 (NationPress) India’s financial markets have evolved into a dynamic and resilient force driving economic growth, with the foreign exchange market nearly doubling from $32 billion in 2020 to $60 billion in 2024. Moreover, the average daily volumes in the overnight money markets have surged from approximately Rs 3 lakh crore to over Rs 5.4 lakh crore during this four-year span, as stated by RBI Governor Sanjay Malhotra.

Additionally, there has been a 40 percent increase in average daily volumes in the government securities (G-secs) markets, which now stand at Rs 66,000 crore.

Speaking at the 24th FIMMDA-PDAI annual conference in Bali this weekend, Malhotra noted that the levels of transparency in Indian markets are on par with the best globally.

“Following recent regulatory reforms, we have observed greater diversity in products and participants, and the integration of onshore and offshore markets has improved,” he highlighted.

Malhotra emphasized that all segments of the country's financial markets, including Forex, G-sec, and Money Markets, have largely remained stable. While the Rupee faced some pressure a few months ago, it has since shown resilience and recovered some of its value.

The foreign exchange markets are relatively liquid with narrow bid-ask spreads, and there is an increase in transparency within this market. All FX derivatives are now reported to the Trade Repository, and the reporting of cash and spot transactions has begun. Most FX spot transactions are conducted on electronic trading platforms (ETPs). Authorized trading platforms are available for forward transactions, though there is a noticeable preference for these trades to occur bilaterally. Trading on ETPs enhances transparency and market efficiency, and we hope to see a growing share of transactions occurring on ETPs,” he stated.

Malhotra further remarked that the fair treatment of customers and transparency in forex pricing for smaller and less sophisticated clients continue to be a focus for the RBI.

“Much more can and should be done in this area. The discrepancy in pricing within FX markets for small and large clients is significantly greater than what can be justified by operational factors. FX-Retail, a transparent platform for FX transactions, has experienced a lukewarm reception, largely due to banks’ reluctance to promote the platform to their customers,” the RBI governor commented.

He pointed out that regulations are in place to ensure pricing transparency for retail customers, including a requirement to disclose the mid-market or interbank rate. It is essential for market-makers to reflect on how they can effectively meet these regulatory and fiduciary obligations, he added.

Recently, the RBI announced that access to FX Retail will also be facilitated through the Bharat Connect platform. In the initial phase, a pilot program to enable individuals to purchase US dollars is planned, with a subsequent expansion based on the feedback received.

He called upon all financial market participants, including Authorized Dealers, to fully cooperate in ensuring the successful implementation of the pilot.

He also raised concerns about using banking channels for activities on unauthorized FX trading platforms. “This necessitates heightened vigilance and increased efforts by banks to educate their clients about the dangers of using such platforms,” the RBI Governor concluded.