India’s financial markets have emerged as a resilient and dynamic catalyst for economic growth, nearly doubling their scale in the past four years. The foreign exchange market expanded from $32 billion in 2020 to $60 billion in 2024, while average daily volumes in overnight money markets surged from approximately ₹3 trillion to ₹5.4 trillion during the same period. Average daily trading volumes in government securities also increased by 40 percent, reaching ₹660 billion, as highlighted by Reserve Bank of India Governor Sanjay Malhotra during the 24th FIMMDA-PDAI annual conference in Bali.
Malhotra noted that Indian financial markets demonstrate levels of transparency comparable to the best in the world. He highlighted the increased diversity in products and participants within the market, coupled with stronger integration between onshore and offshore segments. Despite occasional pressures on the rupee, financial market stability has prevailed.
The forex markets are recognized for their liquidity and narrow bid-ask spreads. Transparency has improved significantly, with all FX derivatives now being reported to the Trade Repository, and the reporting of cash and spot transactions being operational. The majority of FX spot transactions occur on electronic trading platforms, although forward transactions often take place bilaterally. Trading via electronic platforms is encouraged to enhance market efficiency and transparency.
The RBI Governor emphasized the need for fair treatment of retail customers in forex markets, citing concerns about pricing disparities between small and large participants. FX-Retail, a transparent forex transaction platform, has had limited uptake due to banks’ reluctance to offer it widely. Regulatory measures mandate banks to disclose mid-market or interbank rates to ensure pricing transparency for customers.
Access to FX-Retail is being expanded through the Bharat Connect platform, with a pilot phase enabling individuals to purchase US dollars. The initiative’s scope will broaden based on the insights gained from the pilot phase. Malhotra urged authorized dealers to cooperate fully with the RBI in ensuring the project’s smooth implementation.
The Governor flagged the use of banking channels for unauthorized FX trading platforms as a concern requiring greater vigilance. He called on banks to raise awareness among customers about the risks associated with such platforms.
As India’s financial markets evolve, regulatory reforms, technological advancements, and the emphasis on transparency and customer protection are expected to drive further growth and efficiency, underscoring their critical role in supporting economic development.
