The Hindu Business Line : Non-bank players, except PDs, to be off money market from Aug 6

STATE governments will raise money directly from the market, as per the recommendations of the Twelfth Finance Commission. The Reserve Bank of India, in its Annual Monetary Policy,stated it will implement the recommendations in consultation with the Central Government.

The Centre will no longer act as a financial intermediary for lending to States. In case some fiscally weak States are unable to raise funds from the market, the Centre will borrow for on-lending to such States.

RBI will also facilitate smooth transition of the process in consultation with the Centre and the state governments.

RBI also announced some measures for the money market. One measure is, beginning from June 11, non-bank participants except primary dealers will be allowed to lend, on average in a reporting fortnight up to 10 per cent of their average daily lending in the call/notice money market during 2000-01.

Another measure is that from August 6, non-bank participants, except PDs, will be completely phased out from the money market.

According to a primary dealer, RBI wants institutions such as mutual funds and non-banking financial companies to stay out of the market. He added that over a period of time, RBI wants only banks to remain in the inter-bank call money market.

From April 30, the benchmark limit for banks to fix limits on their exposure to call money market will be linked to the sum of their Tier I and Tier II capital. This essentially means that banks with more funds can afford to take additional risk, said a dealer.

All Negotiated Dealing System members will have to report their term money deals on the NDS platform starting from April 30, 2005.

A screen-based negotiated quote-driven system for all dealings in call and term money market transactions too has been proposed. This too is something that dealers have been asking for, since long, as it will bring more transparency to the deals.

In the government securities trading, RBI has announced measures such as an electronic trading platform for market repo operations and allowing urban co-operative banks and listed companies having gilt accounts with scheduled commercial banks to participate in the repo facility.

The minimum maturity period of certificates of deposit (CDs) has been reduced from 15 days to seven days. Further recommendations to widen the CP market by the introduction of assed-backed commercial paper and additional intra-day Liquidity Adjustment Facility to stabilise short-term interest rates too are being considered.

Measures for the forex market include allowing cancellation and rebooking of all eligible forward contracts, irrespective of tenor, extending the time of forex market by one hour to 5 pm, dissemination of additional information include trading volumes for derivatives such as foreign currency-rupee options to the market and allowing banks to approve proposals for commodity hedging in international exchanges from their corporate customers.

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