Mumbai: India’s financial markets have witnessed remarkable growth and maturity over the past four years, evolving into a more resilient and robust force capable of supporting sustained economic expansion. The foreign exchange (forex) and money markets have expanded significantly, almost doubling in size, according to Reserve Bank of India (RBI) Governor Sanjay Malhotra, who addressed the 24th FIMMDA-PDAI annual conference held in Bali.
Speaking to financial market participants, Governor Malhotra revealed that the average daily turnover in the foreign exchange market surged from $32 billion in 2020 to nearly $60 billion in 2024. Similarly, India’s overnight money market witnessed a substantial jump in daily trading volumes, climbing from ₹3 lakh crore to ₹5.4 lakh crore during the same period.
This growth reflects increasing financial sophistication, improved liquidity, regulatory reforms, and greater integration of domestic and international financial markets.
Government Securities Market Registers Strong Growth
In addition to the forex and money markets, the government securities (G-sec) market has also expanded. The average daily volumes in G-secs have risen by 40%, reaching around ₹66,000 crore, up from approximately ₹47,000 crore four years ago.
This expansion, Malhotra noted, is supported by increased participation, higher levels of transparency, and consistent efforts to improve market infrastructure. “Indian financial markets are now operating at levels of transparency that compare well with global standards,” he said, while stressing that continued progress hinges on cooperation between market participants, regulators, and technology providers.
Integration and Diversity Fuel Market Strength
Malhotra emphasized the growing integration between onshore and offshore markets, made possible through thoughtful and phased regulatory reforms. This alignment has fostered participant diversity and expanded the product range, leading to improved efficiency and risk management.
“Today, our markets support a broad set of participants and a wide array of instruments, and most importantly, they have remained stable even in the face of global headwinds,” the RBI Governor added.
He acknowledged that although the Indian rupee experienced some depreciation pressures recently, it has since stabilized and recovered some of the lost value, underscoring the underlying strength and resilience of India’s currency and forex mechanisms.
Transparency and Efficiency in Forex Markets
Highlighting recent improvements in the foreign exchange markets, Malhotra pointed to the increasingly narrow bid-ask spreads and consistent liquidity levels. Most FX derivative transactions are now reported to a central trade repository, with cash and spot transaction reporting recently initiated.
A major shift has been the move toward electronic trading platforms (ETPs) for spot market activity, which has brought greater efficiency and transparency. While ETPs are available for forward contracts, many such trades still occur on a bilateral basis, often limiting visibility and broader price discovery.
“We are keen to see a larger share of FX transactions taking place on ETPs. Doing so will enhance transparency, foster better pricing mechanisms, and build more trust in the system,” Malhotra asserted.
Retail Participation and Pricing Disparities
A key concern voiced by the Governor was the pricing disparity in forex markets between institutional and retail customers. Malhotra noted that while mechanisms for transparent pricing exist, implementation remains uneven, especially when it comes to serving smaller clients.
“The divergence in FX pricing for small versus large customers cannot be fully justified by operational costs alone,” he said. This issue, he argued, raises important fiduciary and ethical questions for banks and authorized dealers.
The FX-Retail platform, which was developed to allow transparent and fair forex transactions for individuals and small businesses, has seen only modest uptake. According to Malhotra, this is largely due to banks’ reluctance to offer the platform to customers.
Expansion Through Bharat Connect
In a move aimed at improving retail access to foreign exchange services, Malhotra announced that the FX-Retail platform will soon be integrated with Bharat Connect, a broader digital public infrastructure initiative.
The first phase of the rollout will include a pilot program allowing individuals to purchase U.S. dollars through the platform. Based on its success, the RBI plans to gradually expand the service to include more currencies and transaction types.
Malhotra appealed to authorized dealers and other market participants to fully cooperate in this initiative. “Your proactive support will be crucial for the smooth implementation and eventual scaling of this pilot,” he told the attendees.
Warnings Against Unauthorised FX Platforms
The RBI Governor also raised alarms about the increasing use of unauthorised forex trading platforms, many of which operate outside regulatory oversight but continue to attract participants by leveraging banking channels for fund transfers.
“This is a serious issue that threatens market integrity,” he said. He urged banks to take proactive steps in educating customers about the risks of dealing with such platforms and to maintain strict vigilance on suspicious activities.
“Financial institutions have a responsibility not just to enforce compliance but also to protect their customers from harm,” Malhotra added.
Call for Self-Regulation and Market Discipline
Governor Malhotra concluded his remarks by highlighting the need for greater introspection among market makers and dealers. He stressed that mere regulatory compliance is not enough; instead, there must be a deeper commitment to fair pricing, customer protection, and responsible conduct.
“The future of India’s financial markets will depend not only on how efficiently we function but also on how responsibly we treat every participant—from the largest institutional investor to the smallest retail customer,” he said.
He urged industry stakeholders to work in tandem with regulators to build an ecosystem that is not just efficient and innovative, but also fair and inclusive.
India’s Market Evolution: A Reflection of Reforms and Participation
The almost twofold rise in forex and money market volumes over just four years is not merely a statistical accomplishment. It reflects deeper shifts in market behavior, technology adoption, and regulatory modernization. India’s progress has also been shaped by a broader global context where financial integration is no longer optional but essential for sustainable development.
With greater transparency, enhanced infrastructure, and increased engagement from both institutional and retail investors, India is now better positioned to handle volatility, attract capital, and support long-term economic goals.
Governor Malhotra’s address reinforces the message that while India’s markets have made impressive strides, challenges remain, especially in ensuring inclusive access, fair pricing, and customer protection. The next phase of growth will depend not only on the volume of transactions but also on the quality of participation and integrity of practices.
The RBI’s roadmap signals a clear commitment to fostering a balanced, robust, and inclusive financial market architecture capable of driving India’s economic ambitions forward.
