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| RBI tightens grip on money market instruments |
| BS Reporter / Mumbai Oct 28, 2009, 00:04 IST |
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To bring collateralised borrowing and lending obligations (CBLO) on a par with other liabilities, the Reserve Bank of India (RBI) has said these will be subject to maintenance of the cash-reserve ratio (CRR) from November 21.
“The objective of developing CBLO as a money market instrument has been broadly achieved. Therefore, liabilities of scheduled banks arising from transactions in CBLO with Clearing Corporation of India Ltd (CCIL) will be subject to maintenance of CRR,” RBI said.
The daily average volume in the CBLO segment has gone up from Rs 6 crore in January 2003 to over Rs.60,000 crore.
On other money market instruments, RBI is framing guidelines for non-convertible debentures (NCDs) with a maturity of less than a year, on the lines of the regulations on commercial papers. At present, issuance of such NCDs is neither subject to regulation by the Securities and Exchange Board of India nor the government of India.
“It was decided in the Hig-Level Coordination Committee on Financial Markets that such instruments, being money market instruments, needed to be brought under the regulation of the Reserve Bank,” RBI said. The central bank will bring out the draft guidelines by the end of November.
To encourage banks to invest in corporate bonds, RBI had put up draft guidelines on repo (repurchase agreement, a form of short-term borrowing to raise working capital) in such bonds. The final guidelines will be in place by the end of November.
In addition, RBI said floating rate bonds (FRBs) would be issued during the current financial year depending on market conditions. In the annual policy statement, RBI had said the issuance structure of FRBs had been revised to address the issues related to product design. Following this, FRBs were directed to be issued by way of price-based auctions as against the earlier practice of spread-based auctions.
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