The Reserve Bank of India (RBI) has established a technical consultative committee to engage banks, financial institutions and market participants on policy and operational issues affecting India’s rapidly evolving financial markets.
The committee will provide a formal platform for discussions on money markets, government securities, foreign exchange trading, derivatives and financial market infrastructure, according to a central bank statement issued on Wednesday.
The initiative comes as India’s financial system expands and market activities become more complex, increasing the need for effective regulation, liquidity management and resilient trading and settlement systems. By bringing industry participants into regular consultations, the RBI aims to obtain direct feedback on market conditions, operational challenges and emerging risks that could affect financial stability.
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The committee will be chaired by the deputy governor responsible for financial markets regulation and will include seven external members drawn from major financial institutions, market infrastructure providers and the investment industry.
Representatives from State Bank of India, Axis Bank, ICICI Bank, Citibank India, Clearing Corporation of India and Morgan Stanley India are among the external members. Ananth Narayan, a former senior policymaker at India’s markets regulator, is also part of the committee.
The RBI announced plans for the committee during its monetary policy review in October. It will meet at least once every quarter, providing a recurring channel for consultation rather than relying solely on occasional discussions when market disruptions or regulatory changes arise.
The committee will examine the functioning, efficiency, liquidity and resilience of India’s money markets, government securities markets, foreign exchange markets and related derivatives.
These markets are key to the transmission of monetary policy and the management of financial risks. Money markets help banks and other institutions manage short-term funding requirements, while government securities provide a benchmark for borrowing costs across the economy and serve as important instruments for investment and liquidity management.
The foreign exchange market is equally important for an economy with substantial international trade and capital flows. Changes in currency demand and supply can affect import costs, inflation, foreign investment and the financial positions of companies with exposure to overseas currencies.
Derivatives markets allow financial institutions and businesses to manage exposure to changes in interest rates, exchange rates and other financial variables. However, weaknesses in market liquidity, trading practices or risk management can amplify volatility when economic conditions deteriorate.
By examining these interconnected markets, the RBI’s committee will have an opportunity to identify operational weaknesses and assess how changes in domestic and international financial conditions could affect Indian institutions.
Its mandate also extends to trading, clearing, settlement and reporting arrangements, as well as the regulatory and operational frameworks governing these activities. These functions are essential to ensuring that financial transactions are processed reliably and that market participants can meet their obligations.
The inclusion of the Clearing Corporation of India is particularly relevant to this part of the committee’s work. Clearing and settlement infrastructure helps manage counterparty risk and ensures that transactions are completed according to established rules. Disruptions in these systems can affect liquidity and confidence across financial markets.
The committee will also examine international and domestic developments, financial innovations and emerging risks that could influence Indian markets.
This gives the RBI a mechanism to assess how new financial products, changing trading practices and developments in global markets are affecting domestic institutions. It also creates an avenue for banks and other market participants to raise concerns about regulatory requirements, operational costs and gaps in existing market arrangements.
The composition of the committee brings together perspectives from commercial banks, international financial institutions, market infrastructure providers and regulatory policy. Such representation could help the central bank identify differences between regulatory objectives and the practical conditions under which financial institutions operate.
The consultations could provide banks with an opportunity to discuss funding conditions, foreign exchange liquidity, government securities trading and the infrastructure required to support transactions. For investors and other market participants, the process could improve communication with the regulator on market access, transparency and operational efficiency.
The RBI also faces the challenge of balancing market development with financial stability. Greater innovation and participation can improve liquidity and broaden investment opportunities, but new instruments and trading arrangements can introduce risks that existing regulatory frameworks may not fully address.
The committee’s establishment therefore signals an effort to make financial market regulation more responsive to developments in the industry. As India’s financial markets deepen and become more integrated with international capital flows, regular engagement with institutions operating within those markets is expected to help the central bank improve its understanding of emerging vulnerabilities and strengthen the infrastructure supporting financial transactions.