The Hindu Business Line : Banks to get more leeway in call money market

BANKS may be given more leeway to play in the call money market. A technical advisory committee on money market, constituted by the RBI, has recommended that the benchmark for banks to fix prudential limits for call or notice money market should be linked to capital funds.

As of now, the prudential limit is linked to owned funds, which includes Tier I capital of banks. By linking the prudential limit to capital funds, which is the sum of Tier I and Tier II capital, the lending limit for banks will be higher. So, banks will have more room to manage money in the call market, said the chief treasurer of a bank.

As RBI proposes to pull out financial institutions out of the call market, this move will help to maintain the size of the money market, the bank official added.

The RBI had set up the group in February 2005 to review developments and current status of money market in India and cross-country experience in money market, and to suggest measures for further development of the money market in the country. The RBI had incorporated the suggestions of the group in the monetary policy 2005-06.

Other suggestions of the group include giving banks and primary dealers more freedom in lending in the call/notice market once it is converted into a pure inter-bank one.

Once the Fiscal Responsibility and Budget Management Act 2003 comes into effect, there is a need to broad base the pool of securities that act as collateral for repo and CBLO market.

The group also recommends introduction of asset-backed commercial papers in the Indian market. If asset-backed CPs are introduced, their turnover time will be reduced to seven days, which too will give banks leverage to manage their assets, said the official.

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