What changed
The prudential borrowing limits for outstanding transactions in Call, Notice, and Term Money Markets have been revised. For Scheduled Commercial Banks, the limit for Call and Notice Money is now 100% of capital funds on a daily average basis and 125% on any given day. Co-operative Banks are limited to 2% of aggregate deposits from the previous financial year.
What it means for you
Banks and primary dealers now have clearer, revised caps on short-term borrowing, which helps manage liquidity risk. The limits are based on capital funds or deposits, ensuring borrowing stays aligned with financial strength. This may require banks to adjust their treasury operations to stay within the new thresholds.
What you must do
- Review and update internal borrowing limits for Call, Notice, and Term Money Markets to align with the revised prudential caps.
- Ensure daily average and single-day borrowing for scheduled commercial banks does not exceed 100% and 125% of capital funds respectively.
- For co-operative banks, cap borrowing at 2% of aggregate deposits as per last financial year-end.
- Primary dealers should monitor borrowing against Net Owned Fund limits of 225% on daily average basis in a reporting fortnight for Call and Notice Money, and 225% of NOF for Term Money.
- Communicate changes to treasury and risk management teams for immediate implementation.
Who it affects
Scheduled Commercial Banks (including Small Finance Banks), Payment Banks and Regional Rural Banks, Co-operative Banks, Primary Dealers
What is the new borrowing limit for scheduled commercial banks in Call and Notice Money?
Scheduled commercial banks can borrow up to 100% of capital funds on a daily average basis in a reporting fortnight, and up to 125% of capital funds on any given day.
Are these changes effective immediately?
Yes, the revised directions are applicable with immediate effect from June 25, 2021.
What is the limit for co-operative banks under the new directions?
Co-operative banks are allowed to borrow up to 2% of their aggregate deposits as at the end of the previous financial year in Call, Notice, and Term Money Markets.