Powering Ahead On Call

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Mumbai, May 18: The Reserve Bank of India (RBI) has planned a further move towards a pure inter-bank call and notice money market. The RBI has shrunk the lending capacity of non-bank participants, on average in a reporting fortnight, up to 45 per cent of their average daily lending in call/notice money market during 2000-01. At present, non-bank entities could lend, on average in a reporting fortnight, up to 60 per cent of their average daily lending in call/notice money market during 2000-01.

The new lending norm would be applicable from the fortnight beginning June 26, 2004.

However, in case a particular non-bank institution has genuine difficulty in developing proper alternative avenues for investment of excess liquidity because of its size, the central bank said that it would consider providing temporary permission to lend a higher amount in the call and notice money markets. The RBI has set up a committee headed by Clearing Corporation of India Ltd chairman RH Patil to review the performance of NDS in the context of its operational efficiency and suggest improvements and enhancements in hardware and software systems and functionalities, including introduction of anonymous screen-based order matching system. The Group is expected to submit its report soon.

A central counterparty based clearing arrangement for OTC derivatives would reduce counterparty risk and extend the benefits of netting. Accordingly, in order to strengthen the OTC derivatives market and to mitigate the risks involved, a clearing arrangement through CCIL is also being considered by the central bank.

CCIL is also working out an arrangement for settlement on non-guaranteed basis and dissemination of information relating to trades in listed as well as unlisted non-SLR debt instruments by NDS members. It may be recalled that prudential guidelines on banks’ investment in non-SLR securities require banks to report all “spot” transactions in listed and unlisted non-SLR securities on the NDS and settle through CCIL from a date to be notified by RBI.