Money Mkt Reforms To Continue

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: The annual policy statements for 2004-05 has no surprises. No rate cuts were expected — neither in the Bank Rate nor in the Repo Rate. Nonetheless, the policy has, in detail, dealt with important infrastructural issues.

In line with RBI’s recent practice of addressing the issues as and when they arise, a number of steps were already taken in the recent past.

These include seven-day repos replacing overnight repos, issuance of market stabilisation bonds (MSBs) and the introduction of DVP III system, Real Time Gross Settlement System (RTGS) etc.

However, the policy could have thrown some light in regard to the long time expectation of exclusivity in primary auctions to the primary dealers (PDs), at least in the T-Bills to start with.

The policy, a continuation of earlier announcements, contains further steps in moving towards pure inter-bank/call/notice/money market by reducing the lending by non banking entities from 60 per cent to 45 per cent of their average daily lending in call/ notice/money market during 2000-01.

Institutions like LIC, UTI etc may have to refine their fund management to that extent as also those who borrow from these institutions.

To strengthen and smoothen collateralised borrowing and lending operations (CBLO), RBI has now introduced automated value-free transfer of securities between market participants and Clearing Corporation of India Ltd (CCIL).

In the absence of such a provision, the market participants are now required to wait for a day or more to take advantage of CBLO facility more effectively until the securities so transferred were given effect. It is a welcome development in accordance with international standard and practices.

Further, OTC derivative deals to be cleared through CCIL is a welcome step.

So are the indications that transactions in listed and unlisted non-SLR securities to be put through Negotiated Dealing System (NDS) and settled through CCIL, though on a non-guaranteed basis.

One hopes that the next step would be to have a structure and discipline to have a guaranteed settlement.

This would, indeed, go a long way in bringing about transparency in the corporate bond market.

Related to this market, the policy also indicates that banks would be allowed to raise long term bonds (five years and above) to finance infrastructure projects.