Move On Fii Entry Into T-Bills Awaited

The recommendations of the Tarapore Committee for the development of the money market are in line with the steps being taken by the Reserve Bank of India (RBI). This was the feeling expressed by a cross section of money market dealers. They also pointed out that the recommendations relating to the money market will in all probability be accepted in toto by the RBI.

The market is, however, keenly awaiting a decision by the RBI and the central government on whether to open the treasury bills market as an investment avenue for foreign institutional investors.

The committee has recommended that the RBI should increase its role as well as the number of primary and satellite dealers. It has also suggested that the RBI withdraw from the auctions in stages and set up the Office of the Public Debt (OPD). The OPD will eventually assume full responsibility for managing the borrowing programme of the government of India. In the recent past, the RBI has said that the enlistment of primary dealers was an ongoing process. It has already given the six primary dealers the option of underwriting a minimum of 25 per cent of the notified amount in any auction.

 

In turn, the RBI has been providing them underwriting commissions and liquidity support as a percentage of their bidding commitments.

While the RBI could offer incentives to facilitate the development of dedicated gilt funds, on the other hand its efforts at kick starting the money market MF industry has met with limited success. Money market dealers point out that the recommendation of the committee pertaining to freeing of the money market from segmentation should go a long way in widening and deepening the market.

The committee had also recommended that the reserve requirement should be uniform across the financial entities.

They are not sure about how soon the RBI would totally deregulate interest rates for they believe that the banks are not ready for such an eventuality. The money market feels that the development of a deep and liquid securities market across all maturities is easier said than done. The absence of a yield curve will hinder the development of the derivatives markets. Hence, they are sceptical about the introduction of futures in all government securities in the short run.