RBI to expand CBDC pilot, includes more banks, locations

The Reserve Bank on Tuesday said the scope of the Central Bank Digital Currency (CBDC) pilot is being expanded gradually to include more banks and locations.

The first pilot in the Digital Rupee -Wholesale Segment (e rupee-W) commenced on November 1, 2022. It was followed by the first pilot for retail digital rupee (e rupee-R) was announced on December 1, 2022. Retail digital rupee offers features of physical cash like trust, safety and settlement finality in digital mode.

It can be held or used to carry out transactions, similar to how currency notes can be used in physical form, the RBI said in its annual report.

The pilot was launched in Mumbai, New Delhi, Bengaluru and Bhubaneswar, comprising participating customers and merchants in a closed user group (CUG). Other locations, including Ahmedabad, Chandigarh, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla are also being added to the pilot in phases.

The pilot began with four banks -- State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank -- while four other banks -- Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank have joined subsequently.

"Five more banks (viz., Punjab National Bank, Canara Bank, Federal Bank, Axis Bank and IndusInd Bank) are in the process of joining the pilot. The scope of the pilot is being expanded gradually to include more banks, users and locations as needed," it said.

The results of both the pilots so far have been satisfactory and in line with expectations, it added. With regard to Digital Rupee -Wholesale Segment, the report said the use case for this pilot is the settlement of secondary market transactions in government securities (G-secs).

The use of the Digital Rupee -Wholesale Segment is expected to make the inter-bank market more efficient.

Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.

Nine banks -- State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC -- are participating in the pilot.

The CBDC is expected to make the interbank market more efficient and settlements in e-rupee can reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.