Intra-day repo, call facilities proposed to make RTGS a success

 There is also another proposal for allowing banks to opt for intra-day call money lending and borrowing among themselves to take care of very short-term liquidity management.

 RTGS is expected to bring about a paradigm shift in all kinds of settlement systems among banks.

 Being an online system, it is expected to pose problem of liquidity mismanagement as many banks might not be not be well-equipped with sufficient cash to meet the requirement.

 These problems might crop up acutely for banks with small capital base and are net borrowers of funds in the market.

 As for the proposed scheme, the facility could be used by banks only through exchange of government securities portfolio whereby each bank will earmark, on a daily basis, the relatively illiquid government securities and keep them aside for this facility.

 The funds will be lent at flat rates. As per the proposal, there could be 5 per cent margin for government securities ranging from one year to five years and 10 per cent margin for securities exceeding 5 years and up to 10 years.

 However, a firm view is yet to be taken as the proposal is under consideration of the central bank.

 The inter-bank intra-day call money lending and borrowing will last for few hours and not overnight as is the usual practice.

 The interest rates for such borrowing will be purely market related and it will be left to the discretion to choose between reverse repo with RBI or interbank borrowing, sources said.

 The intra-day repo facility will be over and above the usual inter-bank money market operations and liquidity adjustment facilities.

 Therefore, the banks will have to set aside liquid securities for trading and illiquid ones for drawing refinance from the RBI.

 As per the requirement of funds, banks could enter into a liquidity availing facility with the RBI, technically referred to as reverse repo. The facility will open for small time period