Master Circular on Call/Notice Money Market Operations

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MPD. No.269/07.01.279/2005-06 July 1, 2005 Aashadha 10, 1927(S) The Chairmen/Chief Executives of all Scheduled Commercial Banks (excluding RRBs) / Co-operative Banks / Primary Dealers/ Financial Institutions/ Insurance Companies/ Mutual Funds Dear Sirs, Master Circular on Call/Notice Money Market Operations As you are aware, the Reserve Bank of India has, from time to time, issued a number of guidelines/instructions/directives to banks in regard to matters relating to call/notice money market. To enable eligible institutions to have current instructions at one place, a Master Circular incorporating all the existing guidelines/instructions/directives on the subject has been prepared. It may be noted that this Master Circular consolidates and updates all the instructions/guidelines contained in the circulars issued upto June 30, 2005, in so far as they relate to operations of eligible institutions in the call/notice money markets. This Master Circular has been placed on the RBI website at www.mastercirculars.rbi.org.in . Yours faithfully (Deepak Mohanty) Adviser-in-Charge Master Circular Call/Notice Money Market Operations 1 Introduction 2 Participants 3 Prudential Limit 4 Interest Rate 5 Reporting Requirement 6 Annexes i. List of institutions permitted in Call/Notice Money Market ii. Reporting Format iii. Definitions 7 Appendix : List of Circulars Master Circular on Call/Notice Money Market Operations 1. Introduction 1.1 The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned over quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. The call/notice money market forms an important segment of the Indian money market. Under call money market, funds are transacted on overnight basis and under notice money market, funds are transacted for the period between 2 days and 14 days. 2. Participant s 2.1 Participants in call/notice money market currently include banks, Primary Dealers (PDs), development finance institutions, select insurance companies and select mutual funds (Annex I). Of these, banks and PDs can operate both as borrowers and lenders in the market. Non-bank institutions, which have been given specific permission to operate in call/notice money market can, however, operate as lenders only (Table 1). Table 1: Eligibility for Transactions in Call/Notice Money Market Borrowing Lending 1. Scheduled Commercial Banks (excluding RRBs) 2. Co-operative Banks 3. Primary Dealers (PDs) 1. Scheduled Commercial Banks (excluding RRBs) 2. Co-operative Banks 3. Primary Dealers (PDs) 4. Select all-India Financial Institutions 5. Select Insurance Companies 6. Select Mutual Fund 3. Prudential Limit 3.1 The Narasimham Committee (1998) recommended that call/notice money market in India should be made purely an inter-bank market. Accordingly, RBI initiated the process of phasing out of non-bank institutions (i.e., all-India Financial Institutions, select Insurance companies and Mutual Funds) from call/notice money market in a gradual manner since May 5, 2001. Further, in order to preserve integrity of the financial market as also to achieve balanced development of various segments of money market, RBI has put in place prudential limits in respect of both borrowing and lending in call/notice money market for banks and PDs since October 5, 2002. 3.2 The present status of prudential limits as applicable to various classes of institutions are given in Table 2. Table 2: Prudential Limit for Transactions in Call/Notice Money Market Sr. No. Participant Borrowing Lending 1 Scheduled Commercial Banks On a fortnightly average basis, borrowing should not exceed 100 per cent of capital funds (i.e., sum of Tier I and Tier II capital) of latest audited balance sheet. However, banks are allowed to borrow a maximum of 125 per cent of their capital funds on any day, during a fortnight. On a fortnightly average basis, lending should not exceed 25 per cent of their capital funds; however, banks are allowed to lend a maximum of 50 per cent of their capital funds on any day, during a fortnight 2 Co-operative Banks Borrowings by State Co-operative Banks/District Central Co-operative Banks/Urban Co-op. Banks in call/notice money market on a daily basis should not exceed 2.0 per cent of their aggregate deposits as at end March of the previous financial year. No Limit. 3 Primary Dealers (PDs) PDs are allowed to borrow, on average in a reporting fortnight , up to 200 per cent of their net owned funds (NOF) as at end-March of the previous financial year. PDs are allowed to lend in call/notice money market, on average in a reporting fortnight, up to 25 per cent of their NOF. 4 Financial Institutions Not Permitted. Lending is permitted, on average in a reporting fortnight, upto 10 per cent of their average daily lending in call/notice market during 2000-01 and with effect from August 6, 2005, non-bank participants except PDs would be completely phased out from the call/notice money market. 5 Insurance Companies 6 Mutual Funds 3.3 No new non-bank institutions are permitted to operate (i.e., lend) in the call/notice money market with effect from May 5, 2001. 4. Interest Rate 4.1 Eligible participants are free to decide on interest rates in call/notice money market. 5. Reporting Requirement 5.1 It is mandatory for all Negotiated Dealing System (NDS) members to report all their call/notice money market deals on NDS. Deals should be reported within 15 minutes on NDS, irrespective of the size of the deal or whether the counterparty is a member of the NDS or not. In case, there is repeated non-reporting of deals by an NDS member, it will be considered whether non-reported deals by that member should be treated as invalid with effect from a future date. 5.2 With the stabilisation of reporting of call/notice money transactions over NDS as also to reduce reporting burden, it is decided to discontinue the practice of reporting of call/notice/term money transactions by fax to MPD with effect from December 11, 2004. However, deals between non-NDS members will continue to be reported to MPD as hitherto (Annex II). 5.3 In case the situation so warrants, Reserve Bank may call for information in respect of money market transactions of eligible participants by fax. Annex I I. List of Institutions Permitted to Participate in the Call/Notice Money Market both as Lenders and Borrowers as on July 1, 2005 a. All Scheduled Commercial Banks (excluding RRBs). b. All Co-operative Banks other than Land Development Banks. c. All Primary Dealers (PDs) 1. SBI - Discount and Finance House of India Ltd. 2. Securities Trading Corporation of India Ltd. 3. PNB Gilts Ltd. 4. Gilt Securities Trading Corporation Ltd. 5. ICICI Securities and Finance Company Ltd., 6. ABN Amro Securities (India) Pvt. Ltd. 7. J.P. Morgan Securities India Pvt. Ltd. 8. Kotak Mahindra Capital Company (Unlimited) 9. DSP Merrill Lynch Ltd. 10. Deutsche Securities (India) Pvt. Ltd. 11. IDBI Capital Markets Services Ltd. 12. Corpbank Securities Ltd. 13. HSBC Primary Dealership (India) Pvt. Ltd. 14. Bank of America Securities Pvt. Ltd. 15. Standard Chartered - UTI Securities India Pvt. Ltd. 16. BOB Capital Markets Ltd. 17. Citicorp Capital Markets Ltd II. List of Institutions Permitted to Participate in the Call/Notice Money Market only as Lenders as on July 1, 2005 A. Financial Institutions 1. Export Credit Guarantee Corporation of India Ltd. 2. Export Import Bank of India 3. Industrial Finance Corporation of India Ltd. 4.Industrial Investment Bank of India 5. National Bank for Agriculture and Rural Development 6. National Housing Bank 7. Small Industries Development Bank of India 8. Special Undertaking of Unit Trust of India 9. Tourism Finance Corporation of India B. Insurance Companies 1. General Insurance Corporation of India 2. ICICI Prudential Life Insurance Co. 3. Life Insurance Corporation of India 4. National Insurance Co. 5. New India Assurance Co. 6. Oriental Insurance Co. 7. Royal Sundaram Alliance Insurance Co. Ltd. 8. United India Insurance Co. 9. IFFCO -TOKIO General Insurance Co. Ltd. C. Mutual Funds 1. Alliance Capital Mutual Fund 2. BOB Mutual Fund 3. BOI Mutual Fund 4. Birla Mutual Fund 5. Canbank Mutual Fund 6. Chola Mutual Fund 7. DSP Merrill Lynch Mutual Fund 8. Escorts Mutual Fund 9. GIC Mutual Fund 10. HDFC Asset Management Co. Ltd. 11. IDBI Mutual Fund 12. IL and FS AMC Mutual Fund 13. ING Assets Management 14. JM Capital Management 15. Jardine Fleming Mutual Fund 16. Kotak Mahindra Mutual Fund 17. LIC Mutual Fund 18. Morgan Stanley Mutual Fund 19. PNB Mutual Fund 20. Prudential ICICI Mutual Fund 21. Reliance Capital Mutual Fund 22. SBI Mutual Fund 23. Sriram Mutual Fund 24. Sun F & C Mutual Fund 25. Sundaram Mutual Fund 26. Tata Mutual Fund 27. Taurus Mutual Fund 28. Templeton Mutual Fund 29. UTI Mutual Fund 30. Standard Chartered Mutual Fund 31. SBI Offshore Mutual Fund Annex - II Daily Return on Call/Notice/Term Money Market Transactions Name of the Bank/Institution : __________________________________________ Code No.(As specified by RBI) : __________________________________________ Date : __________________________________________ Borrowed Lent Amount (Rs. crore) Range of Interest Rates (% p.a.) Weighted Average Interest Rates (% p.a.) Amount (Rs. crore) Range of Interest Rates (% p.a.) Weighted Average Interest Rates (% p.a.) 1. Call Money (Overnight) 2. Notice Money (2-14 Days) (a) Transacted on the day (b) Outstanding * (including day's transactions) 3. Term Money @ (a) Transacted on the day (15 Days-1 Month) (1 Month-3 Months) (3 Months-6 Months) (6 Months-1 Year) (b) Outstanding * (Including day's transactions) Amount Borrowed Amount Lent (15 Days-1 Month) (1 Month-3 Months) (3 Months-6 Months) (6 Months-1 Year) * In case of outstandings, rates need not be given. @ Where applicable. ______________________ Authorised Signatories Phone No. : Annex III Definitions In these guidelines, unless the context otherwise requires: 1. 'Call Money' means deals in overnight funds. 2. 'Notice Money' means deals in funds for 2 - 14 days 3. 'Fortnight' shall mean the period from Saturday to the second following Friday, both days inclusive. 4. 'Bank' or 'banking company' means a banking company as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949) or a 'corresponding new bank', 'State Bank of India' or 'subsidiary bank' as defined in clause (da), clause (nc) and clause (nd) respectively thereof and includes a 'co-operative bank' as defined in clause (cci) of Section 5 read with Section 56 of that Act. 5. 'Scheduled bank' means a bank included in the Second Schedule of the Reserve Bank of India Act, 1934. 6. 'Primary Dealer' means a financial institution which holds a valid letter of authorisation as a Primary Dealer issued by the Reserve Bank, in terms of the 'Guidelines for Primary Dealers in Government Securities Market' dated March 29, 1995, as amended from time to time. 7. 'Capital Funds' means the sum of the Tier I and Tier II capital as disclosed in the latest audited balance sheet of the entity. Appendix List of Circulars Sr.No. Circular Number Subject 1. CPC.BC.103/279A-90 dated.12-4-1990 Access to the Call Money Market 2. Ref.DBOD.No.Dir.BC.97/C.347-90 dated April 18, 1990 3. CPC.BC.111/279A-91 dated.12-4-1991 Call/Notice Money and Bills Rediscounting Market. 4. CPC.BC.144/07.01.279/94-95 dated.17-4-1995 Widening Access to Call/Notice Money Market 5. Ref.DBOD.No.FSC.BC.68/24.91.001-95 dated June 27, 1995 6. CPC.BC.162/07.01.279/96-97 dated April 15, 1997 Money Market - Routing of Transactions through DFHI 7. CPC.BC.165/07.01.279/97-98 dated. April 21, 1997 Money Market - Routing of Transactions through Primary Dealers 8. CPC.BC.175/07.01.279/97-98 dated April 29, 1998 Money Market 9. CPC.BC.185/07.01.279/98-99 dated April 20, 1999 Measures for Developing the Money Market - Call/Notice Money Market 10. Ref.No.MPD.2785/279A(MM)/98-99 dated April 24, 1999 Call/Notice Money and Bills Rediscounting Markets - Routing of Transaction 11. CPC.BC.190/07.01.279/99-2000 dated October 29, 1999 Money Market 12. CPC.BC.196/07.01.279/99-2000 dated April 27, 2000 Money Market 13. Ref.No.MPD.3513/279A(MM)/1999-2000 dated April 28, 2000 Call/Notice Money and Bills Rediscounting Markets - Routing of Transactions - Extract from the Statement on Monetary and Credit Policy for the Year 2000-01 dated April 27, 2000 14. MPD.BC.201/07.01.279/2000-01 dated October 10, 2000 Permission to non-banks to lend in the call money market 15. MPD.BC.206/07.01.279/2000-01 dated April 19, 2000 Moving towards Pure Inter-bank Call Money Market 16. DS.PCB.CIR.40/13.01.00/2000-01 dated April 19, 2001 Operations in call/notice money market 17. MPD.2991/03.09.01/2000-01 dated April 21, 2001 Participation in Call/Notice Money Market 18. MPD.3173/03.09.01/2000-01 dated May 8, 2001 Participation in Call/Notice Money Market Sr.No. Circular Number Subject 19. Ref.DBOD.No.FSC.BC.125/24.92.001/2000-01 dated May 25, 2001 Permission to participate in Call/Notice/Term Money Market and Bills Rediscounting Scheme - Primary Dealers 20. MPD.BC.214/07.01.279/2001-02 dated April 29, 2002 Money Market - Moving towards Pure Inter-bank Call Money Market 21. DS.PCB.CIR.52/13.01.00/2001-02 dated June 24, 2002 Reporting of Call Money Transactions 22. MPD.217/07.01.279/2001-02 dated June 27, 2002 Reliance on Call/Notice Money Market: Prudential Norm 23. MPD.220/07.01.279/2002-03 dated July 31, 2002 Access to Call/Notice Money Market for Primary Dealers: Prudential Norms. 24. MPD.222/07.01.279/2002-03 dated October 29, 2002 Money Market 25. MPD.225/07.01.279/2002-03 dated November 14, 2002 Reliance on Call/Notice Money Market: Prudential Norm 26. MPD.226/07.01.279/2002-03 dated December 11, 2002 Reliance on Call/Notice Money Market: Prudential Norm 27. DBOD.FSC.BC.85/24.91.001/2002-03 dated March 26, 2003 Permission to participate in Call/Notice Money Market and Bills Rediscounting Scheme - Private Sector Mutual Funds 28. DBOD.FSC.BC.86/24.91.001/2002-03 dated March 26, 2003 Permission to participate in Call/Notice/Term Money Market and Bills Rediscounting Scheme - Primary Dealers 29. MPD.BC.230/07.01.279/2002-03 dated April 29, 2002 Money Market - Moving towards Pure Inter-bank Call Money Market 30. MPD.BC.234/07.01.279/2002-03 dated April 29, 2003 Participation of Non-bank Entities in Call/Notice Money Market 31. MPD.BC.235/07.01.279/2002-03 dated April 29, 2003 Reporting of Call/Notice Money Market Transactions on NDS Platform. 32. MPD.BC.241/07.01.279/2003-04 dated November 3, 2003 Money Market - Moving towards Pure Inter-bank Call/Notice Money Market 33. MPD.BC.244/07.01.279/2003-04 dated November 5, 2003 Primary Dealers' Access to Call/Notice Money Market 34. MPD.BC.242/07.01.279/2003-04 dated November 5, 2003 Moving towards Pure Inter-bank Call/Notice Money Market 35. MPD.BC.250/07.01.279/2003-04 dated May 25, 2004 Moving towards Pure Inter-bank Call/Notice Money Market 36. MPD.BC.253/07.01.279/2004-05 dated July 3, 2005. Master Circular on Call/Notice Money Market Operations 37. MPD.BC.259/07.01.279/2004-05 dated October 26, 2004. Moving towards Pure Inter-bank Call/Notice Money Market 38. MPD.BC.260/07.01.279/2004-05 dated December 10, 2004. Reporting of Call/Notice Money Market Transactions. 39. MPD.BC.265/07.01.279/2004-05 dated April 29, 2005. Call/Notice Money Market – Review of Benchmark. 40. MPD.BC.266/07.01.279/2004-05 dated April 29, 2005. 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Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2005-06/14 · issued 01 Jul 2005. The plain-English explanation above is BankPulse’s own independent summary.

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