Exclusive | RBI provides platform for G-Sec trading via digital rupee

RBI recently issued an alert list of entities not authorised to deal in forex.

The Reserve Bank of India (RBI) has provided the Negotiated Dealing System-Order Matching (NDS-OM) platform to nine banks to trade in government securities using the central bank’s digital currency as a pilot project, three people aware of the development told Moneycontrol.

“We have been given a new platform to trade in government securities by the RBI, in which we will transact using digital currency,” one person said on November 1 on condition of anonymity.

The new platform is called NDS-OM CBDC.

The first pilot in the digital rupee-wholesale segment (e₹-W) will start on November 1, the RBI said on October 31.

The central bank identified State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC to participate in the pilot project in this segment. These banks will use the new platform to trade in government securities among themselves using digital currency.

“More than Rs 100 crore of transactions had taken place by 12 pm on this platform,” the person said.

Bonds worth Rs 275 crore has been settled on the first day via wholesale CBDC on the first day of the pilot projects, according the NDS-OM CBDS trades on the CCIL website.

How the platform works

Transactions on the platform are settled instantly, reducing the timeline of settlements and costs for banks, one of the people said.

As of now, trades in government securities are settled on a T+1 basis through the Clearing Corporation of India (CCIL), which means the securities get debited and the money gets credited a day after the transaction date.

However, on the new platform, the settlement is on a T+0 basis, which is instant, with no third party involved. Basically, the new platform uses the Request for Quotation, a document that details a buyer’s requirements and asks vendors to respond with pricing and payment terms, the person said.

“There are certain transaction charges which one has to pay to CCIL for the settlement,” the person added.

Trades on the new platform are not visible to everyone but delayed deals can be viewed on CCIL's NDS-OM platform in a separate section called CBDC trades.

According to the CBDC trades section, 13 deals of 7.38 percent securities maturing in 2027 had taken place as of 12 pm at a weighted average yield of 7.3485 percent. There were 12 trades of 7.26 percent securities maturing in 2032 at a weighted average yield of 7.4171 percent.

What is CBDC?

CBDC is the central bank digital currency, a legal tender issued in digital form. It is the same as fiat currency and can be exchanged one-to-one with government-issued money. In other words, CBDC is the same as the legal currency we use–just that it’s in digital form.

CBDC will ease transactions. An RBI report described CBDC as something that will provide a safe, robust, and convenient alternative to physical cash. Depending on various design choices, it can also assume the complex form of a financial instrument, the RBI said in the report.

Pilot launch

“Use of e₹-W is expected to make the inter-bank market more efficient,” the RBI said in a release on October 31.

Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk, the central bank said.

Other wholesale transactions and cross-border payments will be the focus of future pilots, based on learnings from this pilot, the RBI added.

The first pilot in the digital rupee-retail segment (e₹-R) is planned within a month in select locations in closed user groups comprising customers and merchants, the RBI said. Details regarding operationalisation of the pilot will be issued in due course, it said.