What changed
RBI issued a master circular consolidating all prior guidelines on call/notice money market operations issued up to June 30, 2007. This circular updates and replaces earlier circulars, providing a single reference for eligible institutions. Key prudential limits remain unchanged: scheduled commercial banks can borrow up to 100% of capital funds on a fortnightly average (125% on any day) and lend up to 25% (50% on any day). Co-operative banks face a borrowing cap of 2% of aggregate deposits, with no lending limit. Primary dealers can borrow up to 200% of net owned funds and lend up to 25%.
What it means for you
Banks and primary dealers now have a unified set of rules for overnight and short-term (2-14 day) money market transactions, reducing confusion from multiple circulars. The prudential limits ensure liquidity management is tied to capital strength, preventing excessive leverage. Interest rate freedom allows market-driven pricing, but adherence to FIMMDA practices is expected for calculations. Non-bank institutions remain barred from this market since August 2005.
What you must do
- Review and update internal policies to align with the consolidated master circular, especially prudential limits on borrowing and lending.
- Ensure compliance with the fortnightly average and daily caps for call/notice money transactions based on latest audited capital funds or deposits.
- Adopt FIMMDA's Handbook of Market Practices for interest calculation and documentation.
- Train treasury staff on the dealing session timings (5:00 pm weekdays, 2:30 pm Saturdays) and reporting requirements.
Who it affects
Scheduled commercial banks (excluding RRBs), Co-operative banks (State, District Central, Urban), Primary Dealers
What are the borrowing limits for scheduled commercial banks in the call/notice money market?
On a fortnightly average basis, borrowing cannot exceed 100% of capital funds (Tier I + Tier II). However, on any single day during a fortnight, borrowing can go up to 125% of capital funds.
Are non-bank institutions allowed to participate in this market?
No, non-bank institutions have been prohibited from the call/notice money market since August 6, 2005, as per the master circular.
How are interest rates determined in the call/notice money market?
Eligible participants are free to decide interest rates, but calculation of interest payable must follow FIMMDA's Handbook of Market Practices.