Global Banks Urge RBI to Enable Same-Day Settlement for FPI Stock Trades in India

Global Banks Urge RBI to Enable Same-Day Settlement for FPI Stock Trades in India

Major multinational banks, acting as custodians for foreign portfolio investors (FPIs) in India, are requesting the Reserve Bank of India (RBI) to amend current regulations to facilitate same-day settlement, or T+0 settlement, for FPI trades. These banks propose that the RBI allow FPIs access to intra-day funding mechanisms, enabling shares to be bought and squared off within a single trading day. This adjustment would support the upcoming extension of T+0 settlement cycles to institutional trades, whereby buyers and sellers receive shares and funds, respectively, on the trade date.

The Securities and Exchange Board of India (SEBI) is expected to introduce T+0 settlement for FPIs and institutional trades by the end of December or early January. SEBI’s Chairperson reportedly aims to implement the shift before her term ends in February 2025. For foreign investors working across various time zones, this transition would necessitate maintaining funds in their Indian bank accounts or securing intra-day funding. However, many international asset managers are hesitant to pre-fund accounts due to currency risks and reduced returns. Instead, they prefer a system in which custodian banks handle payments to exchanges on their behalf, hedge forex positions, and then convert foreign currency to rupees once funds arrive later in the day.

Under the current Foreign Exchange Management Act, FPIs cannot freely borrow from Indian banks, so an RBI directive would be necessary to allow banks to issue ‘irrevocable payment commitments’ (IPCs) to exchanges and clearing houses for T+0 trades on behalf of FPIs. Previously, in May, the RBI amended IPC regulations for T+1 settlements, but further adjustments are needed for T+0 as settlements would occur before foreign currency is credited to banks’ nostro accounts (offshore accounts held by Indian custodian banks). This regulatory change is essential to fully support the new settlement cycle for FPIs