The national connectivity would also facilitate instant crediting or debiting of funds towards a bank's SGL transactions not just in important centres like Mumbai, but also in the case of outstation transactions. This is expected to give an impetus to a deep all-India gilts market, which is mostly concentrated in Mumbai now.

The participation of banks in auctions, which is also exclusive to Mumbai now, will acquire an all-India character.

In the first phase, 13 of the major centres including Mumbai, Delhi, Calcutta, Madras, Hyderabad, and Bangalore will be connected, followed up by the next phase which would link up the remaining centres by the first half of 1999.

The inter-connectivity will be at two levels. The first step would be to connect the three departments to each other in each office of the RBI. For example, the PDO, DAD and PAD at, say, the Bhopal office would all be connected to each other, just as it would in all other centres. The next step would be to connect each of these departments to its counterparts at other centres -- the PDO at, say, Bhopal would be linked to the PDOs at all other RBI centres.

This will be replicated in the case of the other two departments, as well, all over the country. The inter-connectivity will be provided by linking all RBI centres by VSATs to the central server installed at Hyderabad. As of today, the only form of connectivity in these departments is a local area network (LAN), which connects all computers of a single department in a particular RBI centre to each other.

While the PDO deals with government securities, the DAD oversees current accounts of banks and financial institutions and the PAD handles government accounts. Once the VSAT network is established, transactions between these three departments, whose operations are inter-connected, will be speeded up. For example, the interest on gilts held by banks themselves can be directly debited from government accounts and credited to their accounts with the RBI. This can happen even in the case of non-Mumbai transactions.

Similarly, tax payments from banks to the government can be debited directly from one category of accounts to the other. Bankers point out that in the absence of national connectivity, computerised vouchers are generated and manually signed. The loss of even a day that could take place as a result matters since the volumes are very large -- SGL transactions could be as many as 250 on a peak day. The other major advantage would be the centralisation of bank accounts at an interconnected DAD.

Secondly, in the retail segment, even if custodial functions are entrusted to National Securities Depository Limited, it is only when the market opens at a national level up that people from all over the country will have access to the Mumbai market. Also, once the PDO Act (which stipulates that all SGL transactions have to be accompanied by a filled-in physical form) is amended -- as is expected to happen soon -- the transactions would be absolutely paperless in a scenario of total connectivity.

Says a treasury head of a new private sector bank: "The national connectivity should also help to clear grey areas on breach of law. If I hand my SGL to a buyer, who has sent in his own to the RBI first, the transaction bounces today. It is deemed to be short-selling, which is prohibited by the RBI. This will not happen once the RBI departments are inter-connected."

The connectivity will enable the RBI to gather data real-time and access it, at least for its own use on, say, the response to a particular open market operation. This is if it does not want to release it immediately for public consumption.