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To enable Indian banks and companies to send
and receive financial information for local
transactions, the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) is building a first-of-its-kind domestic network in
India. The Belgium-based
co-operative of over 10,800 financial institutions received the Reserve Bank of
India’s (RBI’s) approval in February 2015 to start operations through its local
subsidiary named Swift India Domestic Services (SIDS).

What is SWIFT?

The Society for Worldwide Interbank
Financial Telecommunication is a member-owned
cooperative that facilitates exchange of confidential financial information
through safe channels.  With presence in
over 200 countries, SWIFT enables its customers to automate and homogenise transactions,
thereby lowering costs, cutting operational risks and removing inefficiencies.

Reason for adopting the
system

While Indian
banks have been using the SWIFT messaging system for international financial
transactions since 1991, local inter-bank transactions communication was mostly
paper-based. Hence, the need for change.

Characteristics
of the new messaging system:

– SIDS will allow domestic banks to exchange messages on letters of
credit, guarantees and treasury operations.

– The new system will co-exist with the structured financial messaging
system (SFMS) that banks have been using since 2001. The reason for
co-existence is RBI’s demand for international product and standards in an indigenous
way. This is to guarantee local
governance, pricing and innovation through a joint venture.

– This system may help to
reduce systemic and concentration risk on one channel of communication.

Banks
that will join the network

Nine top
banks that account for 55-60% of transactions in India have joined the network.
The includes: State
Bank of India, Canara Bank Ltd, Union Bank of India, Punjab National Bank, Bank of India, Bank of Baroda, HDFC Bank Ltd, ICICI Bank Ltd and Axis Bank Ltd.

SIDS aims to embrace six more banks by the end of the current fiscal. It also
plans to rope in establishments like Clearing Corporation of India, the
National Payments Corporation of India, local stock exchanges, etc.

Why does SWIFT see opportunity in India?

Currently, more than 360,000 high-cost payments are
settled daily through Real Time Gross Settlement (RTGS) System, which is much
higher than all of Europe. However, as this is only 20% of all transactions,
the rest being done through cheques or cash, there is immense scope for a local
communication platform.

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