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Anirban Nag
Mumbai, Apr 20: In a wide-ranging move to deepen the money and securities markets, the Reserve Bank has introduced several structural changes in the credit and monetary policy for the first half of fiscal 2000.
Non-bank participants have been allowed to deploy their short-term resources in repos. The objective is to develop the overnight money market purely as an interbank market and at the same time widen the repos market by increasing the number of participants. Accordingly, financial institutions as well mutual funds which till now have been allowed to lend in the money market can also take part in the repos market.
``This measure is expected to give FI and MFs sometime to adjust their asset liablity structure and also help them to deploy their short term surpluses in other money market instruments,'' the RBI credit policy said.
The RBI has also allowed non-bank entities which are currently allowed to undertake reverse repos to borrow money through repos on par with banks and primary dealers. Thecentral bank has removed the restriction on the maximum period for which repos can be undertaken. ``This a very positive step and will go a long way in deepening the money market,'' a dealer in a primary dealer said.
The RBI has also decided that the price auction mechanism will be introduced for government securites. At present, the issuance of government dated securities through auction is on the yield basis. This implies that each time the government enters the market for borrowing, a new loan is issued with a separate nomenclature.
Tuesday's move will facilitate evolving benchmark securitiers and reissuace of the existing government dated securitres which will add to the liquidity of the outstanding loans.
``It has been widely recognised that in order to widen and deepen the government securities market, it is essential to diversify the investor base. In this context, retailing of government securities market assumes critical importance. RBI has already established a system of PDs and SDs andliquidity support by it has been made available to them. Recently, the number of PDs have been increased. The RBI has announced special liquidity support for dedicated gilt funds,'' the RBI governor said.
He added that banks have been allowed to freely buy and sell government securities on an outright basis and retail government securities to non-bank clients without restriction on the period between the sale and purchase. ``In order to further encourage the retail segment of the market, the RBI and government of India would jointly work out a package which include promotion and publicity campaigns,'' Jalan said.
The RBI has also decided to commence auction of 182-day treasury bills consistent with a calendar of issue for treasury bills. Accordingly, it has been decided that the auction of 14- and 91-day treasury bills will be held on a weekly basis and the acution of the 182-day T-bill and 364-day T-bill will be held on a fortnightly basis. The notified amounts in respect of the treasury bill auctionswill be pre-announced for the whole year separately.
It has also allowed the state governments to avail of the special ways and means advances against the collateral of their investments in treasury bills in addition to their holdings in dated GoI securities at present.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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