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Reliance on Call/ Notice Money Market: Prudential Norm
MPD.
217- 07.01.279 dated 27th June 2002
Please
refer to Paragraphs 85-88 of the Governor�s Statement on Monetary and Credit
Policy for the Year 2002-03 enclosed with letter No.MPD.BC.214/07.01.279/2001-02
dated April 29, 2002 (copy of the Paragraphs enclosed).
2.
As per the policy announced earlier, and after further consultations with
bankers, it has been decided to stipulate prudential limit on the exposure of
commercial banks in call/notice money market in two stages as indicated below.
(i)
In the first stage, with effect from the fortnight beginning October 5,
2002, lending of scheduled commercial banks in the call/ notice money market, on
a fortnightly average basis, should not exceed 50 per cent of their owned funds
(paid-up capital plus reserves) as at the end of March of the previous financial
year; however, banks are allowed to lend a maximum of 100 per cent of their
owned funds on any day, during a fortnight. Borrowings by scheduled commercial
banks in the call/ notice money market, on a fortnightly average basis, should
not exceed 150 per cent of their owned funds or 2 per cent of aggregate deposits
as at the end of March of the previous financial year, whichever is higher;
however, banks are allowed to borrow a maximum of 250 per cent of their owned
funds on any day, during a fortnight.
(ii)
In the second stage, with effect from the fortnight beginning December
14, 2002, lending of scheduled commercial banks, on a fortnightly average basis,
should not exceed 25 per cent of their owned funds; however, banks are allowed
to lend a maximum of 50.0 per cent on any day, during a fortnight. Similarly,
borrowings by scheduled commercial banks should not exceed 100 per cent of their
owned funds or 2 per cent of aggregate deposits, whichever is higher; however,
banks are allowed to borrow a maximum of 125 per cent of their owned funds on
any day, during a fortnight.
3.
In order to ensure a smooth adjustment to this stipulation without any
disruption in asset-liability management (ALM), you are advised to unwind your
position as borrower and/ or lender in the call/ notice money market in excess
of the prudential limit, as specified for the first stage, by October 4, 2002.
4.
In case you have, for a temporary period, some mismatches in your
liquidity position, RBI, on request, may consider allowing you further access to
call/notice money market. Similarly, if you have put in place a fully functional
ALM system to the satisfaction of RBI, an increased access over the stipulated
norm may be permitted by RBI for a longer period.
5.
You are advised to indicate your latest audited position on owned funds
(paid-up capital plus reserves) and aggregate deposits as at the end of March of
the previous financial year to the Adviser-in-Charge, Monetary Policy Department
(MPD), RBI, Fort, Mumbai�400 001 not later than July 31, 2002.
6.
To facilitate monitoring of your operations in call/notice money market
on a daily basis, you are requested to submit the daily return in time to the
Adviser-in-Charge, MPD, RBI as per the extant practice.
7.
It is also proposed to convene a meeting of the representatives of
selected banks in the second half of November 2002 to review money market
developments.
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