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Business News/ Companies / SWIFT woos Indian banks with new messaging system
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SWIFT woos Indian banks with new messaging system

Global financial transaction messaging system is building a first-of-its-kind domestic network in India

Swift earlier this month received the Reserve Bank of India’s (RBI’s) approval to start operations through its local subsidiary named Swift India Domestic Services (SIDS). Premium
Swift earlier this month received the Reserve Bank of India’s (RBI’s) approval to start operations through its local subsidiary named Swift India Domestic Services (SIDS).

The Society for Worldwide Interbank Financial Telecommunication (SWIFT), the global financial transaction messaging system, is building a first-of-its-kind domestic network in India through which Indian banks and companies can send and receive financial information for local transactions.

The Belgium-based co-operative of more than 10,800 financial institutions earlier this month received the Reserve Bank of India’s (RBI’s) approval to start operations through its local subsidiary named Swift India Domestic Services (SIDS).

Through this subsidiary, SIDS will allow domestic lenders to exchange messages on letters of credit, guarantees and treasury operations among others.

M.V. Nair, chairman of SIDS, said nine top banks which account for 55-60% of transactions in India own 45% of the company and have already joined the network.

State Bank of India, Canara Bank Ltd, Union Bank of India (UBI), Punjab National Bank, Bank of India, Bank of Baroda, HDFC Bank Ltd, ICICI Bank Ltd and Axis Bank Ltd have already joined the network as shareholders, Nair said.

“By the end of this fiscal, we will reach out to all banks and expect at least six more banks to join in the first year. We are also in touch with 25-50 local and international firms to join the system," Nair, who was earlier chairman and managing director at UBI said.

Though Indian banks have been using the Swift messaging system for international financial transactions since 1991, local inter-bank transactions communication was mostly paper-based.

In December 2001, the RBI-funded Institute for Development Research in Banking Technology (IDRBT) launched the structured financial messaging system (SFMS) through which banks can communicate securely. Most banks in India communicate through the SFMS system today.

Saqib Sheikh, chief executive of SIDS, said RBI’s aim to grant them permission to start a local system in India is with a view to reduce “systemic risk and concentration risk" on one channel of communication.

“We will have to co-exist with the existing system. RBI, while giving us the approval, said they need an international product and standards, but in an indigenous way. They wanted local governance, pricing and local innovation and through a joint venture. In Swift’s 40 years of existence, we have done nothing like this before," Sheikh said.

Swift sees a huge opportunity in India because of the large and growing size of the economy and a young population, which is seeking efficiency through technology.

“In India, currently, more than 360,000 high-value payments are cleared and settled on a daily basis through Real Time Gross Settlement System (RTGS), much higher than all of Europe. But, more importantly, this is just 20% of the Indian wallet, the rest is paper-based instruments, cheques and cash; so this will only grow," Sheikh said.

RTGS is an inter-bank fund transfer system through which anyone can transfer 2 lakh and above in real time.

SIDS plans to get financial institutions and companies on its network to offer messaging services linked to cash management, trade finance and securities exchanges, besides its core payments sector.

Besides, banks and firms, SIDS expects to get on board agencies such as Clearing Corp. of India Ltd (CCIL), local stock exchanges and also the National Payments Corp. of India (NPCI), which handles the payment systems in the country.

Nair said the success of the venture will depend on how many banks SIDS can get into its network. But bankers said cost will be an important part of whether banks will choose to join in.

“The pricing will be crucial because we already have a digital system in place locally and this being a foreign system, it could be expensive," said Harihar Krishnamoorthy, treasurer at FirstRand Bank Ltd.

However, Siddharth Rath, treasurer at Axis Bank Ltd who is also on the board of SIDS, said the idea is to give banks a totally integrated system for payments, letters of credit and guarantees.

In order to entice banks to join, SIDS is offering a discounted fixed fee this fiscal, while the firm debates where to charge customers on per transaction as they do for global transactions or offer unlimited transactions for a fixed fee, Sheikh said.

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Published: 13 Apr 2015, 12:15 AM IST
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