10.7.1 Money market is essentially a market for short-term (up to one-year) funds and financial assets that are close substitutes for money. Money market not only serves as an equilibrating mechanism to even out demand for and supply of short-term funds, but also provides an avenue for central bank intervention for influencing liquidity and the general level of interest rates in the economy. The market falls directly under the regulatory jurisdiction of RBI, which also performs the function of data collection, compilation and regular dissemination of information relating to the money market. An important component of the money market relates to the transactions involving Government securities with either original or residual maturity of up to one year. These would include Treasury bills transactions and Repurchase Agreement (repo) transactions with RBI or between the participants. Thus, there is an overlap between the money market and the Government securities market, both of which are of direct concern to RBI.
10.7.2 Data on call/notice money market are being released daily on RBI website. The daily call money rates as well as the fortnightly average daily turnover are published in the RBI Monthly Bulletin, while average daily turnover and high or low rates on a weekly basis are disseminated through the Weekly Statistical Supplement (WSS) to the Bulletin. Data on certificates of deposit issued by the scheduled commercial banks and commercial paper issued by the companies and financial institutions are released through the WSS and the RBI Monthly Bulletin. At present, data on Forward Rate Agreements and Interest Rate Swaps are not released to the public; though the coverage is complete, their volume is small as of now. The details of auction results as well as data on secondary market transactions of Treasury bills of different maturities are released immediately on the website and are also published in the WSS and in the Monthly Bulletin. Data on Repurchase Agreements as well as secondary market transaction in Treasury bills are also released daily on the website as well as published in the WSS and RBI Bulletin. Time series data on money market instruments are also published in RBI’s annual publications like the Handbook of Statistics on Indian Economy, Annual Report and Report on Trend and Progress of Banking in India. Data on bills rediscounted with financial institutions are published in the WSS and the Monthly Bulletin.
10.7.3 In case of non-Government securities, data are furnished on a fortnightly or monthly basis to the RBI through the postal mode, which results in a considerable lag in data receipt, compilation and subsequently in dissemination to the market. Besides, call, notice and term money market, non-Government securities in the money market include Commercial Paper (CP), Certificates of Deposit (CD), Bills Rediscounting, Inter-bank Participation Certificates, Forward Rate Agreements and Interest Rate Swaps. RBI does not receive and compile any information on the secondary market operations relating to non-Government money market securities. However, National Stock Exchange (NSE) reports secondary market deals relating to CPs and CDs, which have been routed through it.
10.7.4 The RBI has initiated a project for complete automation of the operations of its Public Debt Office (PDO) where the settlement for all Government securities transactions (including money market instruments) takes place. It will provide for connectivity among different PDOs and facilitate on-line screen based execution for trade and settlement. This will also facilitate screen-based negotiated dealing in money market instruments, tendering of screen-based applications in auctions and information dissemination. RBI is separately putting in place real time gross settlement system, which is scheduled to be operational within a year. These initiatives will facilitate on-line dissemination of data on a real-time basis.
10.7.5 Time lag and incomplete coverage of data are essentially technological issues. The operationalisation of Very Small Aperture terminal (VSAT) would help in quick collection of data from the participants. Further, introduction of the depository system for non-Government instruments would also ensure timeliness and complete coverage of data on the primary and secondary market transactions. The introduction of the negotiated dealing screen (NDS) would facilitate availability of information on primary and secondary market transactions of all money market instruments (except bills rediscounting) on a real-time basis. In NDS, financial intermediaries would have connectivity through a terminal and would be able to transact both primary and secondary market deals through a computer screen. Information on volumes and rates relating to these transactions would be available on all the terminals for each of the instruments on a real-time basis. As regards data on call/notice money market, with the upgradation of the data processing system underway, the coverage would be complete.
10.7.6 Arrangements relating to the setting up of a Clearing Corporation are under consideration. This would pave the way for opening up of repo transactions in non-Government securities, as well as widen the number of participants. It is expected that the Clearing Corporation will be operational by June 2001. Besides repo, it would also facilitate dissemination of data on secondary market transactions in money market securities that would pass through the proposed Clearing Corporation.
10.7.7 Data on the money market released by the RBI compare favourably with the best international practices, but there is scope for refinement in tune with developments in financial markets and technological upgradation. Data on call/notice money market released on a daily basis cover about 75-80 per cent of the market. Data on commercial paper, certificates of deposit in the primary market and bills rediscounting are released by the RBI with a considerable time lag, while those related to the secondary market pertain only to those transactions which are routed through the National Stock Exchange.
Conclusions and Recommendations
10.7.8 In the case of the money market, there are no data gaps in term of adequacy and reliability though there is scope for further refinement to facilitate further development of the money market and integration of financial markets. This will be enabled by technological and institutional measures already under way. The Commission recommends the following:
Introduction of the negotiated dealing screen (NDS) system should be operationalised urgently by RBI, so as to enable on-line access to data pertaining to all money market instruments. This would help reduce the time lag in release of data on call/notice money market, Commercial Papers (CPs), Certificates of Deposits (CDs) and bills rediscounting market.
Pending the introduction of NDS, RBI should improve coverage of daily data on call/notice money market transactions and reduce the time lag in data on Commercial Paper, Certificates of Deposit and the bills rediscounting market. This would be facilitated with the full-scale operationalisation of Very Small Aperture Terminal (VSAT), which would connect all the banks amongst themselves and with RBI and there would be inter-connectivity between branches of banks. Such a system would facilitate treasury management and management information system of banks as also reporting to RBI through electronic media. Hence, with faster submission of data by banks to RBI, the time lag in dissemination of data to the market would be greatly reduced.
While the setting up of a Clearing Corporation is a welcome step, efforts should be made to ensure that the Corporation aids the process of comprehensive, timely and reliable data dissemination in regard to secondary market transactions in both money market instruments and Government securities.