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Money > Business Headlines > Report April 30, 2002 | 1130 IST |
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Ceiling set on bank call exposureBS Banking Bureau
The central bank said daily lendings of scheduled commercial banks in the call and notice money markets should not exceed 25 per cent of their net owned funds (paid-up capital plus reserves) as at the end of the previous financial year. For borrowers, the upper limit has been fixed at 100 per cent of their owned funds or 2 per cent of aggregate deposits as at the end of the previous financial year, whichever is higher. The RBI has also asked the existing borrowers and lenders to unwind their positions in excess of the prudential limits by the end of August 2002. The apex bank said it was constituting a working group which will recommend, by June 30, 2002, the criteria for fixing the limits for primary dealers in the call and notice money markets. It added that the group will also suggest a roadmap for phasing out the PDs from the call money market. All PDs have been urged to keep their call money lending/borrowing within the prudent limit in relation to their net owned funds. Also, the borrowings of state co-operative banks and district central co-operative banks in the call and notice money market has been capped at 2 per cent of their aggregate deposits as at the end the previous financial year. Earlier the Narasimham Committee-II had recommended that there must be clearly defined prudent limits beyond which banks should not be allowed to rely on call and notice money markets. The central bank had also advised the banks to set a cap on interbank borrowings, especially call market borrowings. "Some banks, however, continue to depend overwhelmingly on call money market for carrying out their banking operations." Earlier, an internal working group constituted by RBI had examined the need to place prudential limits on exposure of banks to call and notice money market. "The group felt that building up of substantial exposure relative to balance-sheet size by some participants on a continuous basis has the potential not only for default and the consequent systemic instability, but also impedes the development of other segments of money market, particularly, the term money market," the RBI said. The apex bank, however, said in case any bank faces a temporary mismatch in liquidity positions, it may consider special allowance to the entity. "Similarly, if any bank has put in place a fully functional asset liability management system to the satisfaction of RBI, an increased access over the stipulated norm may be permitted by RBI for a longer period," the central bank said. ALSO READ:
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