MUMBAI, May 10: The Reserve Bank of India (RBI) has allowed financial institutions to access short-term deposits and abolished the existing instrument-wise limits for resource mobilisation of the institutions. The RBI move assumes significant as financial institutions which have already taken the plunge in short-term financing now can raise short-term resources in a big way to avoid asset-liability mismatches. At one stroke, the central bank has also pulled down the barrier between banks and institutions on the resource generation front.

In a path-breaking move, financial institutions (FIs) are allowed to raise short-term deposits between one to five years instead of the earlier prescription of three years and over. The existing ceiling on interest rate on term deposits of 14 per cent will remain unchanged.

The central bank decided to fix an umbrella limit for each financial institution for mobilisation of resources through term money borrowings, term deposits, certificates of deposits (CDs) and inter corporate deposits. The overall ceiling for the umbrella limit will be equal to the net owned funds of the financial institutions.

IDBI, for example, is at present allowed to raise Rs 3800 crore through CDs (limit: Rs 2500 crore), term deposits (Rs 800 crore) and term money (Rs 500 crore). By linking it to IDBI's NOF, the limit has been raised to Rs 7138 crore. Similarly, in case of ICICI, the cap so far was fixed at Rs 2100 crore by way of CDs (Rs 1500 crore), term money (Rs 400 crore) and term deposits (Rs 200 crore). It has now been raised to Rs 4450 crore. For IFCI, the new limit is pegged at Rs 1635 crore.

The chief executives of IDBI, ICICI and IFCI had a meeting with the RBI Governor C Rangarajan on April 23 about giving more flexibility to FIs in raising short-term resources as the present instrument-wise limits were hampering their fund raising programmes. Rangarajan had accepted the demands raised by the FIs to provide for greater flexibility in raising funds in the context of the recently announced slack season credit policy, macro-economic parameters and the recent developments in the capital markets.

The minimum amount of CDs to be accepted FIs from a single subscriber has been reduced to Rs 10 lakh instead of the earlier Rs 25 lakh. CDs above Rs 10 lakh will be in multiples of Rs five lakh, the RBI said.

The Reserve Bank has cautioned the FIs to ensure that they did not disrupt the financial markets while they mobilised resources. Currently, RBI imposes instrument-wise limits for the FIs and the maturities are fixed at three to six months for term money borrowings, one to three years for CDs.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.