The string between the Reserve Bank of India (RBI) and the European Securities and Market Authority (ESMA) over the inspection of Indian financing clearing houses may be broken by the central bank digital currency (CBDC).

According to a report published in the Economic Times, one of the senior banking executives said, “The RBI does not want any foreign agencies inspecting entities regulated by it, which is a fair point. But in the current situation where it has been implemented the world over, it is difficult to make an exception here.”

“India needs these institutions here more and not complying with these norms will mean an unsustainable capital charge on banks, which could force them to pull out of the country,” he further added.

According to media reports, at present, the banks have to set aside about 2.5 percent in capital which means about 2.5 crore for every 100 crore of trades. If the Indian central counterparties fail to comply with ESMA regulations this could go up by about 50 times, making business unsustainable.

The prime advantage of a central counterparty like CCIL is that it allows multilateral netting of deals. This suggest that a bank can settle multiple deals with different participants through the system. This ensures that payments and receivables are netted off.

Under CBDC, a digital currency account is maintained with the RBI and banks will have to first transfer money to this account from their respective current accounts.

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