The challenge:

Indirani Rao, Chief Forex Officer at CCIL explains: “We aggregate trades reported by our 33 member banks, giving them the benefits of cross-currency settlement through CLS routed via RBS. Net settlement is effected in 14 currencies on a payment-versus-payment basis.”

CCIL’s prime objective was to improve transaction settlement efficiency, mitigate risks, insulate the Indian financial system from operations-related shocks and undertake other activities that would help to broaden and deepen the money, debt and FX markets in India. CCIL also sought to expand its operations to cover settlement of cross-currency transactions in India under the CCIL umbrella, by utilising the well-established and proven mechanism of the CLS Bank.

The solution:

To achieve its objective, CCIL adopted a settlement procedure along similar lines to that of CLS Bank. CCIL provides CLS settlement through a CLS Settlement Bank (RBS). Settlement through CLS takes place on a real-time, payment-versus-payment basis eliminating settlement risk and reducing liquidity requirements by up to 90% and improving fund flow.

To add extra value CCIL has customised the CLS product for its members. It offers a real-time web-based tool that enables the member banks to track the online status of deals submitted, of currency-wise net positions and obligations, and of payments made and received. The solution also offers its members the facility to pay and receive currency obligations within the operating timelines of the respective currencies. On an average day about 2,500 deals are settled with an average gross volume of over US$3 billion and an average netting factor of about 90%.

Best practice and innovation:

The solution is the only one in the world whereby cross-border settlement of cross-currency transactions of eligible banks in the entire country is being achieved through CLS Bank by availing the third-party services offered by RBS.

CCIL accepts collateral in local currency, and by virtue of its role as a Central Counterparty, is able to offer banks the ability to leverage on their unutilised collateral posted towards margins for its settlement services. By using local collateral, banks can get the benefit of early pay-outs so that they can deploy the funds in the local markets. Under the umbrella of CCIL, the CLS solution has gained immense credibility with the domestic participants.

Thus, the solution has a direct impact on the Indian economy, which is one of the largest in the world. The scale of the solution is enormous given its crucial role in the Indian financial system. Managing the extremely complex landscape that involves a large number of stakeholders – including Indian banks and regulators – and employing a streamlined approach was a challenging task.

Through sustained and collaborative marketing, it has now achieved critical mass among the top Indian banks. A total of 33 banks are now members of the CLS platform with new additions every year.