Indian banks are cautiously advancing towards the implementation of wholesale Central Bank Digital Currency (CBDC), with a tentative launch date set for January 2024. To ensure a smooth transition, the initial phase will focus on integrating small and medium-sized enterprises (SMEs) into the system.
“The infrastructure for wholesale and retail CBDC is quite similar, but we need to exercise extra caution with wholesale CBDC as it involves large transactions,” stated a senior bank official. “Banks will need to implement robust accounting, auditing, settlement reporting systems, and other security safeguards to handle these substantial transactions.”
The Reserve Bank of India (RBI) initiated a wholesale CBDC pilot in November 2022 to facilitate secondary market transactions in government securities. Bankers emphasize that the RBI is urging banks to proceed with caution and avoid rushing into the wholesale CBDC launch.
Several prominent lenders, including SBI, Bank of Baroda, Union Bank of India, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, and Yes Bank, are actively involved in developing wholesale CBDC infrastructure.
“Our primary customers for the initial phase will be SMEs,” explained another bank official. “Targeting MSMEs offers several advantages. Their transaction sizes are typically smaller, while transaction volumes are high. This aligns well with banks’ objectives during the initial phase, as they focus on testing the system’s reliability.”
“We are starting with SMEs because their average transaction value and transaction volume are manageable,” he added. “Large corporates will be onboarded later as their transaction sizes are significantly larger.”
Banks are collaborating with partners to deploy CBDC infrastructure, a process that typically takes around three months. One of the key challenges lies in convincing corporates to adopt CBDC when they are already accustomed to the well-established Real Time Gross Settlement (RTGS) system.
“Companies are comfortable with RTGS due to its established dispute resolution mechanisms,” commented another bank official. “Wholesale CBDC is a relatively new concept, and companies have concerns regarding dispute settlement. We need to enhance awareness about dispute settlement procedures among companies to encourage adoption.”