European banks functioning in India is likely to find it problematic to operate viably if the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) can negotiate fresh terms with the European Securities and Markets Authority (ESMA) on a mistake of counterparty institutions.

Earlier this week, ESMA, the EU’s monetary markets regulator and manager, said six of India’s Central Counterparties (CCPs) would be de-recognised concerning the European Market Infrastructure Regulation following an assessment led by it. To mitigate the opposing impact on EU market participants, it has deferred executing the decisions until 30th April 2023. European banks may need to function with levels of capital that are 40-50 times more advanced than today’s requirement.

The six organisations on ESMA’s list are The Clearing Corporation of India (CCIL), administered by RBI; Indian Clearing Corporation (ICCL); Multi Commodity Exchange Clearing (MCXCCL); and NSE Clearing (NSCCL), managed by SEBI; India International Clearing Corporation (IFSC) (IICC) and the NSE IFSC Clearing Corporation (NICCL), controlled by the International Financial Services Centre Authority (IFSCA).

Regulatory specialists believe that RBI and SEBI are unfortunate, with overseas regulators wanting oversight of Indian counterparty institutes. Still, the matter is improbable to snowball to levels where business is altogether interrupted. “They view this as over-stepping the stroke and will try to persuade ESMA to soften its stance,” a financial services expert mentioned.