What changed
RBI reduced the lending limit for non-bank participants (like insurance companies and mutual funds) in the call/notice money market from 45% to 30% of their average daily lending in 2000-01, effective from the fortnight beginning January 8, 2005. The move aligns with the Governor's Mid-term Review of the annual policy for 2004-05 to transition to a pure inter-bank call/notice money market.
What it means for you
Non-bank lenders will have to find alternative investment avenues for excess liquidity as their access to the call/notice money market tightens. Banks may see reduced competition for short-term funds, but could also face less liquidity from non-bank participants. RBI may grant temporary higher limits on a case-by-case basis for institutions facing genuine difficulty due to size.
What you must do
- Review your call/notice money market lending limits to ensure compliance with the new 30% cap from January 8, 2005.
- Develop alternative investment avenues for excess liquidity to reduce reliance on the call/notice money market.
- Continue reporting all call/notice money market transactions on the Negotiated Dealing System (NDS) within 15 minutes of conclusion.
- If facing genuine difficulty due to size, apply to RBI for temporary permission to lend higher amounts, providing justification.
Who it affects
All-India Financial Institutions, Insurance Companies, Select Mutual Funds, Non-bank participants in the call/notice money market
What is the new lending limit for non-bank participants in the call/notice money market?
Effective from the fortnight beginning January 8, 2005, non-bank participants can lend up to 30% of their average daily lending in the call/notice money market during 2000-01, reduced from the previous 45%.
Can non-bank institutions get an exception to this limit?
Yes, RBI may consider temporary permission to lend a higher amount on a case-by-case basis if the institution has genuine difficulty developing alternative investment avenues due to its size.
What reporting requirements remain for call/notice money market transactions?
All transactions must be reported on the Negotiated Dealing System (NDS) within 15 minutes of concluding the transaction, as per existing practice.