India’s financial system has once again managed to resist global challenges and could provide some lessons for the global financial system
India’s financial system has once again managed to overcome global challenges, thanks largely to the regulatory frameworks that were built in over the past several years. In fact, Indian banking experts could proffer some ideas to make global banking and trade easier to execute and do so in a transparent manner.
Economic affairs secretary Ajay Seth said the global financial situation is daunting but India’s economy and financial sector is well protected and well regulated, though the need for caution is a constant when it comes to moving money. In this context, India is now pitching a SWIFT-type that could facilitate easy and transparent cross-border trade and transactions.
Seth made the comments while briefing the media on the outcomes of the Financial Stability and Development Council, headed by finance minister Nirmala Sitharaman. The council had its 27th meeting yesterday. He was quite categoric in denying that there would be no spill-over of the recent collapse of the Silicon Valley Bank, Signature Bank and Credit Suisse.
Govt. seeks to make transparency the key
Discussions around creating robust early warning indicators of stress on the banks and the economy’s preparedness were discussed. Sitharaman underscored the importance of taking appropriate measures to mitigate any vulnerability in the financial system, given that its stability was a shared responsibility of the government and the regulators.
In this context, India’s pitch for a digital system based on an electronic bill of lading as an interoperable digital document could go a long way in creating the requisite transparency in the banking sector at a global level. Of course, the system would also facilitate easier global trade with end-to-end visibility of all stakeholders, including the relevant compliance authorities.
A report published in ET quoted unnamed sources to suggest that India is pushing this idea at the G20 meetings as such a digital document would allow data and information flow across systems, applications and components across countries. Just like SWIFT does with financial data, this system would provide information on all cross-border trade.
Creating a SWIFT type mechanism
The SWIFT (Society for Worldwide Interbank Financial Telecommunications) messaging network is used globally by financial institutions to accurately and securely send and receive information to facilitate global money transfers. The latest idea from India on trade also does the same by eliminating paper in cross-border transactions.
The process suggested would require shipping liners, insurance companies and banking entities to have a common interface with an effort to work on a template that can be easily adopted by any country. The bill of lading provides proof of ownership of goods and forms the basis for the release of payment.
India’s view is that such a system would make global trade paperless, reduce transaction costs, boost trade and most importantly ensure quality data points for banking transactions. The template includes standardized certificates and a mutually recognized set of standard protocols as part of the process. This standardization will allow data infrastructures of one country to speak with another thus bringing down the transaction time and release of payment.
The move also goes well with what finance minister Nirmala Sitharaman has sought in terms of providing timely and appropriate measures to mitigate vulnerabilities, which is a prerequisite for financial stability of the banking system.