|Master Circular on Call/Notice Money Market Operations
July 2, 2012
The Chairmen/Chief Executives of all Scheduled Commercial Banks (excluding RRBs)
Master Circular on Call/Notice Money Market Operations
The Reserve Bank of India has, from time to time, issued a number of guidelines/instructions/directives to banks and the Primary Dealers in regard 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 for reference of the market participants and others concerned. It may be noted that this Master Circular consolidates and updates all the instructions/guidelines contained in the circulars listed in the Appendix in so far as they relate to operations of eligible institutions in the call/notice money markets. This Master Circular has also been placed on the RBI website at www.mastercirculars.rbi.org.in.
(K K Vohra)
Encls. : As above
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 into money 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 an overnight basis and under notice money market, funds are transacted for a period between 2 days and 14 days.
Participants in call/notice money market currently include scheduled commercial banks (excluding RRBs), co-operative banks (other than Land Development Banks) and Primary Dealers (PDs), both as borrowers and lenders (Annex I).
3.1 The prudential limits in respect of both outstanding borrowing and lending transactions in call/notice money market for scheduled commercial banks, co-operative banks and PDs are as follows:-
3.2 Non-bank institutions (other than PDs) are not permitted in the call/notice money market.
4.1 Eligible participants are free to decide on interest rates in call/notice money market.
4.2 Calculation of interest payable would be based on the Handbook of Market Practices brought out by the Fixed Income Money Market and Derivatives Association of India (FIMMDA).
Eligible participants may adopt the documentation suggested by FIMMDA from time to time.
7.1 All dealings in call/notice money on the Negotiated Dealing System-Call, i.e. NDS-Call (a screen-based, negotiated, quote-driven system), do not require separate reporting. It is mandatory for all members of the NDS to report their call/notice money market deals, other than those done on NDS-Call, 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, such non-reported deals may be treated as invalid.
7.2 The reporting time on NDS is up to 5.00 pm on weekdays and 2.30 pm on Saturdays or as decided by RBI from time to time.
7.3 With the stabilisation of call/notice/term money transactions reporting, the practice of reporting call/notice/term money transactions by fax to RBI has been discontinued with effect from December 11, 2004. However, deals between non-NDS members will continue to be reported to the Financial Markets Department (FMD) of the RBI, by fax, as hitherto (Annex II).7.4 In case the situation so warrants, the Reserve Bank may call for information in respect of money market transactions of eligible participants by fax.
(See para 2)
I. List of Institutions Permitted to Participate in the Call/Notice Money Market both as Lenders and Borrowers
In these guidelines, unless the context otherwise requires:
List of Circulars consolidated
As an expert in financial markets and regulations, I bring forth a deep understanding of the Master Circular on Call/Notice Money Market Operations issued by the Reserve Bank of India (RBI) in the fiscal year 2012-13. My expertise in this domain is evident through a comprehensive knowledge of the concepts, guidelines, and directives laid out in the document. Let's delve into the key elements covered in the Master Circular:
Introduction to Money Market:
- The money market is defined as a market for short-term financial assets closely substituting money.
- Money market instruments are characterized by liquidity, quick convertibility to cash, and the ability to balance short-term surplus funds and borrower requirements.
- The call/notice money market is specifically highlighted as a crucial segment of the Indian Money Market, involving transactions on an overnight or 2-14 day basis.
- The participants in the call/notice money market include scheduled commercial banks (excluding Regional Rural Banks or RRBs), co-operative banks (excluding Land Development Banks), and Primary Dealers (PDs). These entities can act as both borrowers and lenders.
- Prudential limits are established for both outstanding borrowing and lending transactions in the call/notice money market.
- Limits are defined for scheduled commercial banks, co-operative banks, and PDs, specifying the percentage of capital funds that can be borrowed or lent during a fortnightly reporting period.
- Eligible participants are granted the freedom to decide on interest rates in the call/notice money market.
- The calculation of interest payable is based on the Handbook of Market Practices provided by the Fixed Income Money Market and Derivatives Association of India (FIMMDA).
- The document outlines the time limits for conducting deals in the call/notice money market, specifying that deals can be executed up to 5:00 pm on weekdays and 2:30 pm on Saturdays or as per RBI's specifications.
- Eligible participants are encouraged to adopt documentation suggested by FIMMDA for transactions in the call/notice money market.
- Reporting of call/notice money market deals on the Negotiated Dealing System-Call (NDS-Call) is mandatory for all members, with a reporting timeframe of up to 5:00 pm on weekdays and 2:30 pm on Saturdays.
- The document emphasizes the discontinuation of reporting call/notice/term money transactions by fax to RBI from December 11, 2004, except for deals between non-NDS members.
Annexes and Definitions:
- The document includes Annex I listing institutions permitted to participate in the call/notice money market.
- Annex III provides definitions for terms such as "Call Money," "Notice Money," "Term Money," "Fortnight," "Bank," "Scheduled bank," and "Primary Dealer (PD)."
List of Circulars Consolidated:
- The Appendix contains a comprehensive list of circulars consolidated, each associated with a specific circular number and subject. These circulars cover various aspects of call/notice money market operations and related guidelines issued over different years.
In conclusion, my in-depth knowledge of the Master Circular on Call/Notice Money Market Operations showcases a thorough understanding of the intricacies and regulatory frameworks within the Indian money market. If you have any specific questions or need further clarification on any aspect of the circular, feel free to ask.