The central bank also plans to widen the repo market by allowing corporates and non-banking entities to take refinance from the RBI through repo shortly. This is in line with the recommendations of the second Narasimham Committee.

Both these issues were extensively dealt with at the standing committee report on money market, headed by RBI deputy governor YV Reddy. In a high-level meeting held last week, the committee members--RBI officials and primary dealers--discussed the growing need to deepen the repo market.

According to sources, eligibility criteria for repoable securities will be fixed depending on the rating assigned to the corporatepaper, financial strength of the corporate and state government guarantee attached to the bond.

Although the decision to allow repo transactions in PSU bonds and private corporate debt held in dematerislised format was announced in the April 1997-98 monetary policy, trading in bonds other than government securities has not taken off owing to the inadequate infrastructure facility for conducting such trades.

"With the removal of stamp duty on transactions in debt instrument in dematerialised form announced in the budget, repo trading in debt instruments will commence shortly," sources said.

The central bank is currently working out the modalities for introducing trading in bonds other than specified government securities for repo transactions.

For smooth repo trading of corporate debt, the committee has suggested setting up of a clearing corporation which will function as a legal counterparty in all such transactions.

According to sources, the repo market in India operates under a controlledenvironment in terms of participants and eligible instruments. The group is of the view that in terms of the participants there is need to expand the market to include all entities including corporates while in terms of eligible instruments, it should be possible to make all government securities including those issued by state governments and debt securities issued by PSUs, corporates and financial institution.

Market sources are of the view that if corporate papers are given the status of repoable securities, the focus of the market will shift from government securities--offering lower yield--to corporate bonds offering higher yields.