RBI has now allowed repos of one day to one year maturity to be issued. In addition the RBI sub-group has recommended that all entities, including corporates, may be allowed to undertake repos in government securities, PSU bonds and other debt papers. These proposals offer a chance for correcting some of the anomalies in money market.

The advantages of repos over call money is that it is secured while transactions in call which are unsecured. Moreover today repo rates follow call rates, which again are highly dependent on the requirements of the reporting Friday. Once repos for all maturities are in place, they can form a benchmark for interest rates for the next one year.

The greater number of players with surplus cash can bring in the required depth in the market, and thatwould remove the necessity of RBI to keep a fixed auction rate for repo transactions. However, development of repo markets cannot be done in isolation. The accounting treatment of repos still remains a problem and Indian standards have still not been able to define whether a repo should be treated as lending and borrowing transaction or as a buy and sell transaction. Further if repos are to be done in PSU bonds, then there is the additional problem of stamp duty. The state government has compounded the problems by treating stamp duty as a revenue gathering measure. Since stamp duty is a state subject, it is hoped that along with RBI's liberalisation, sense should prevail among state governments to give a much-needed push to the development of money markets in India.