All Quiet On The Inter-bank Markets Front

Mumbai, Aug 30: | Updated: Aug 31 2002, 05:30am hrs
Orderly conditions prevailed in the financial markets during 2001-02 with brief bouts of uncertainly associated with extraordinary events in September to December 2001, including September 11 terrorist attacks on the World Trade Center in the US.

The year is also marked by introduction of negotiated dealing system (NDS) and launch of settlement operations by Clearing Corporation of India Ltd (CCIL) in government securities (G-Secs) market, emergence of Liquidity Adjustment Facility (LAF) as the prime instrument for managing market liquidity, phasing out of corporates from the call money market, setting prudential norms for lending and borrowing by primary dealers (PDs), re-introduction of floating rate bonds etc.

Market reactions to the September 11, 2001 event were calmed by injections of liquidity through reverse repos, a series of open market purchases of government securities to support the gilt (G-Sec) market and foreign exchange sales, RBI said.

RBI conducted a series of open market purchases aggregating to Rs 5,084 crore during September 18 to October 10, 2001 to support the G-Sec market in the wake of falling prices.

Barring these episodes, the call money market remained stable and generally range-bound within the informal repo-reverse repo corridor. The foreign exchange market experienced comfortable supply conditions. Yields fell across all maturities in government securities market, accompanies by significant rise in turnover, the report said.

Orderly market conditions were engendered by the active management of liquidity in the money, foreign exchange and gilts markets.

The RBI absorbed sizeable liquidity on a continuous biases through repos.

The advent of NDS and operationalisation of CCIL from February 2001 have heralded screen-based trading in G-Secs in the country.

As on August 5, 2002, there were 138 statutory general ledger (SGL) accountholders. They had reported 526 deals daily on an average during the year ended June 2002, of which 473 deals for Rs 11,668 crore were ready for settlement during the quarter ended June 2002.

The settlement of G-Sec trades through the CCIL constituted 91.3 per cent of total trades on NDS. All repo transactions have to mandatorily be put through the CCIL.

While all outright transactions have to be settled through the CCIL, the option to settle outright transactions in G-Secs above the face value of Rs 30 crore either directly with the RBI or through CCIL is available to NDS members.

There were 141 members for CCIL.

The proportion of settlement of outright transactions through CCIL to those settled through Public Debt Office (PDO) of the RBI improved significantly from 44.7 per cent in April 2002 to 79.1 per cent in June 2002.

The rise in settlement of the first leg of repo transactions through CCIL had also been significant from 24.4 per cent to 67.2 per cent of the total repo settlement in PDO.