Money Market Blueprint
The Tarapore Committee has recommended that the FIIs should be allowed to invest in treasury bills and also recommended the introduction of futures in all Government securities.
With a view to the development of the gilts market the committee's blueprint include: increasing the role as well as the number of primary dealers and satellite dealers; setting up of an Office of the Public Debt (OPD) by government which will eventually assume full responsibility for the management of public debt including timing and amount of primary issue of all Government securities; RBI withdrawing from the primary market in stages with active presence in the secondary market; RBI providing a liquidity adjustment facility (LAF) to primary dealers through repos as well as reverse repos.
The Committee believes that the LAF would provide a corridor within which market rates would be able to move without undue volatility and would facilitate formation of a consistent yield curve.
It has stated that the money market, in its existing form, suffers from a considerable degree of segmentation and recommended that such segmentation should be given up simultaneous with introduction of uniform reserve requirement prescriptions for banks and non banks.
At present the banks, FIs and mutual funds are subjected to different norms regarding borrowing and lending.
The financial institutions and non bank entities may be permitted entry in the money market subject to exacting prudential regulations.
The RBI should issue prudential guidelines in regard to asset liability mismatches in rupee books of banks and non banks.
The Committee has suggested that strong and exclusive fiscal incentives for dedicated gilt funds should be given to encourage effective retailing of government securities.
It has also emphasised the importance of a totally automated real time gross settlement through the DVP system for government securities.
The Tarapore Committee has taken a view that the development of a deep and liquid securities market across all maturities is a sine qua non for development of a consistent yield curve.
This is a necessary condition for the development of derivatives markets in forex and rupees would be constrained.
Deregulation of interest mooted
With a view to developing the money markets, the Committee has recommended that all interest rates should be totally deregulated, minimum period restrictions removed and restriction on entry of participants should be totally removed. Participants in the money market at the wholesale and retail level should be distinguished only by the size of transactions.