Non-banks finally exit call mart

The transition of call money market from broad-based to inter-bank on Saturday is expected to be smooth.

The Reserve Bank of India (RBI) had said during its monetary policy statement in April that Friday will be the last day when non-banks, excluding primary dealers, could lend in the call money market.

The phased elimination of non-banks from the call market has been accepted without much resistance. For a while now, not only banks and primary dealers, the only participants in call markets now, but even non-banks have braced themselves with the eventuality of call being a pure interbank market and have moved on to collateralised trade.

"I believe the RBI had, for a long time, wanted to make call market a segment only for banks, as mentioned in the monetary policy this April and the market has kept that in mind since then and acted accordingly," an official with a foreign bank said.

The RBI opted to eliminate non-banks from the call money market as per the recommendations of the Narasimham Committee recommendations made in September 2001.

"The market was prepared long ago and I don't expect any volatility on this account," chief dealer of a private sector bank said. He pointed to the rising volumes in Collateralised Borrowing and Lending Obligations (CBLO).

Daily volumes in CBLO the last fortnight have topped Rs 10,000 crore on several days. Volumes in collateralised borrowing are set to rise further because Clearing Corp of India (CCI), which provides the platform for CBLO trade, will invite more non-banks to trade in the collateralised segment.

There was unanimity that the traditional call market players don't stand to lose after the market becomes a purely interbank one. Non-banks often lent money in the call below the rate charged by banks.

But bankers pointed out that the rates non-banks offered were only slightly lower than the market rates and not the notional floor. The RBI's reverse repo rate, currently at 5%, serves as the notional floor for the call rate.

Moreover, the quantum which non-banks lent, on most occasions, wasn't big enough to ease pressure on the call rate. "Call typically rose when money in the system shrunk. So, at any given time, non-banks didn't have big amounts to lend," a dealer with a state-owned bank said.

All said and done, not only availability of funds will remain a non-issue but also procurement of funds.