Non-bank Players Call Market Lending To Be Reduced To 75%

Mumbai, Aug 30: | Updated: Aug 31 2002, 05:30am hrs
The Reserve Bank is contemplating to move to the next stage in its plan to phase out non-bank institutions from call/notice money market by bringing down the level of their lending in the market to 75 per cent of 00-01 levels from the present permitted level of 85 per cent. The regulator is also planning to extend repos (outside RBI) to constituent statutory general ledger (CSGL) account holders.

It was announced in April this year that the limit on non-bank lendings in the call money market would be scaled down to 75 per cent of their average daily lendings in the market during 2000-01. But the effective date would be announced when NDS/CCIL becomes fully operational and widely accessed, RBI said in its Annual Report 2001-02, which was released on Friday.

In fact, the move is coming in a bit late going by the time-table for pure inter-bank call money market, according to which it was decided to allow the non-banks to lend in the call market only to the tune of 70 per cent of their their 00-01 average daily lending levels from the time NDS and CCIL are operationalised. Even as six months have elapsed from the day the screen- based trading in G-Secs and repos were operationalised, the norm is yet ot come into force.

In the call money market, in a bid to phase out of non-banking institutions from call/notice money market, they were permitted to lend only 85 per cent of their average daily lending during 2000-01 in a reporting fortnight effective May 5, 2001. Corporates were phased out from lending in the call money market July 1, 2001.

In another two stages the RBI had proposed to bring down this level to 10 per cent of their average daily lendings in the call money market in 2000-01 that too in a phased manner by bringing it down to 40 per cent from 75 per cent in the first stage.

As part of its efforts to define the prudential limits on exposure of banks to the call money market to reduce the chronic reliance of banks on call money market other than for meeting unforeseen mismatches, RBI has announced a two stage plan -- effective October 5 and December 14, 2002 respectively -- on limits on exposures of commercial banks in the call money market.

RBI had issued simplified guidelines for commercial paper and certificate of deposits during 2001-02.

RBI is also ready in talks for extension of repos to CSGL account holders and CCIL may be asked to offer variants to repo products for facilitating liquidity and cash management and enlargement of repos to other participants. RBI has also developed a road map for separate trading for registered and principal of securities.