Calls Stay In A Narrow Band, Rush On For Gilts

Rumours of a one percentage point cut in the cash reserve ratio (CRR) triggered off a veritable buying spree in the government of India securities market. Dealers said the expected reduction in the CRR could be announced either a few days before the credit policy or along with it. However, there was hardly any secondary market trading in the 13.82-per cent six-year paper. Most primary dealers had offloaded the security after it was put up for auction on Tuesday.

The subsidiary general ledger (SGL) transactions of the last two days are pointers to the fact that banks picked up the paper at a discount of almost 30 paise.

 

"However, by next week, it is expected that the rates will go down to 8 per cent," said a dealer in the money market.

"The commission offered by the primary dealers (PDs) is distorting in the yield curve," players in the secondary market averred. Most of them are willing to fork out a 25-paise commission to banks in order to see to it that the securities are picked up at the auction. A few primary dealers, particularly those which are subsidiaries of nationalised banks, are paying a commission as high as 50 paise.

According to PDs, the RBI is working on the guidelines for a system of secondary or satellite dealership. PDs, on their part, are looking forward to the proposed mechanism as it will facilitate the process of retailing securities. State Bank of India (SBI) has already identified a few branches through which it intends to retail GOI securities.