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Anirban Nag
Mumbai, Apr 28: The Reserve Bank of India (RBI) has announced a new scheme of bidding for treasury bills and payment of underwriting fee to primary dealers (PDs). The objective is to create more depth in the secondary money and debt markets.
The apex bank has launched a new liquidity support for PDs wherein rates of support are based on bidding commitments made by the dealers at primary issues on an annual basis and also the business done on outright basis in the previous year in the secondary market.
"This move to give us liquidity support against outright transactions in the secondary market fixed at 2 per cent will help in adding depth to the secondary securities market," a source in a PD said.
The RBI has fixed the rates of liquidity support against treasury bills at 7.50 per cent and dated securities and secondary market business at 2 per cent. The fixing of rates for liquidity support follows the RBI decision to fix liquidity support against collateral of government securities based on biddingcommitment and other parameters at bank rate with the amounts remaining constant throughout the year. However, each drawal will be subject to the usual restriction of repayment within 90 days.
"The liquidity support will be provided at bank rate for level-I of the exercise as determined by the Reserve Bank and at bank rate plus two percentage points for level-II of the exercise for the remaining portion of the liquidity support as admissable for each PD. Liquidity support under level-II against collateral of Government securities will be provided to PDs for periods not exceeding two weeks at a time," the RBI guidelines said.
The RBI has fixed the commission for all the successful bids in the auction of treasury bills at 1 paise for 14 day T-bills, 3 paise for 91 day T-bills, 6 paise for 182 day T-bill and 11 paise for 364 day T-bills.
The Reserve Bank in the credit policy announced on April 20 said that it has been decided to obtain a minimum bidding commitment from each PD for the auction of treasurybills so that together they absorb 100 per cent of the notified amount. It has also decided to offer an enhanced underwriting option to PDs for the entire notified amount in auctions of dated securities.
"This effectively means that the RBI has made an exit from the treasury bill market and PDs will have to take all devolvements. The commission has also been fixed at the beginning of the year so there will be no scope of any variation during the year," a source in a PD said.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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