Stage Ii Of Transition To Pure Call Market From June 14

Non-bank participants will be allowed to lend up to 75 per cent of average daily lending in call/notice money market during 2000-01

The Reserve Bank of India (RBI) said Stage II of the transition to a pure inter-bank call/notice money market will be effective from the fortnight beginning June 14, 2003.

In this stage, non-bank participants will be allowed to lend, on average in a reporting fortnight, up to 75 per cent of their average daily lending in call/notice money market during 2000-01.

In case a particular non-bank institution has a genuine difficulty in developing proper alternative avenues for investment of excess liquidity because of its size, the RBI may consider providing temporary permission to lend a higher amount in call/notice money market for a specific period on a case by case basis.

 

In view of the encouraging developments in NDS/CCIL, it would be desirable to accelerate the process of moving towards a pure inter-bank call/notice money market and facilitate further deepening of repo market.

It may be recalled that the annual policy Statement of April 2001 highlighted the intention to move towards a pure inter-bank call/notice money market in four stages by gradually phasing out non-bank participation.

In Stage I, non-bank participants were allowed to lend, on average in a reporting fortnight, up to 85 per cent of their average daily lending during 2000-01.

The implementation of stage I has not caused any strain on the market or created undue volatility in call/notice money rate.

Except for the Life Insurance Corporation of India, which has large liquid funds and is also subject to certain prudential constraints in investing its large surpluses in other non-bank institutions, by and large, most non-bank institutions have not faced any difficulty in adhering to the stage I guidelines.

Subsequently, in the annual policy Statement of April 2002, it was stated that RBI would announce the date of effectiveness of stage II, wherein non-bank participants would be allowed to lend, on average in a reporting fortnight, up to 75 per cent of their average daily lending in call money market during 2000-01, depending on the date when Negotiated Dealing System (NDS)/Clearing Corporation of India Ltd becomes fully operational.

To improve transparency and strengthening efficiency in the market, it is proposed that from the fortnight beginning May 3, 2003, it would be mandatory for all NDS members to report all their call/notice money market deals on NDS.

Deals done outside NDS should be reported within 15 minutes on NDS, irrespective of the size of the deal or whether the counterparty is a member of the NDS or not.

Full compliance with the reporting requirement to NDS will be reviewed in September 2003. In case there is repeated non-reporting of deals by an NDS member, it will be considered whether non-reported deals by that member should be treated as invalid with effect from a future date.