RBI panel suggests longer call money hours, extended repo timings

A working group formed by the Reserve Bank of India has recommended extending the timing for the call money market by two hours to 7:00 PM amidst changing dynamics on liquidity management with cash withdrawals happening online 24X7.

Availability of funds through the call money market till 7.00 pm will increase reliance on this market, which is regulated by the RBI, experts said.

Usually, most banks keep extra cash in case there are sudden outflows because payment systems are operational 24×7. But in the absence of the interbank call money market, they are parking surplus cash in a central bank window – standing deposit facility or SDF, losing out up to a quarter percentage point more that they may have earned lending in the call market instead, ET reported on April 15.

According to bank treasury officials, the extension of operating hours for the Call Money, TREPS (Tri-party Repo Dealing System), and Market Repo segments has been long-standing demands from market participants.

The working group, chaired by Radha Shyam Ratho, Executive Director of RBI, also recommended unifying and extending the timings of market repo and TREP trading hours till 4:00 PM. Currently, it closes at 3:00 PM.

“This demand has gained renewed urgency following the implementation of RTGS 24×7, which has made it challenging for banks to manage sudden and large fund flows after 5:00 PM. In such situations, banks are often left with no option but to rely on the RBI’s MSF (marginal standing facility) or SDF,” said VRC Reddy, head of treasury, Karur Vysya Bank.The RBI said that final view will be taken on the recommendations made by the working group. The last date for submission of comments is May 30.TREPS is an anonymous order matching system facilitating borrowing and lending of funds against government securities. Usually, mutual funds are the lenders in this market.

According to the group’s report, TREP segment accounts for the largest share in the overnight money market with 69% of daily average volume in the market followed by market repo at 29%.

The share of call money has gradually come down from 13% in 2014-15 to about 2% in recent years. Though it is an important barometer because according to the RBI’s current policy framework, the central bank aims at aligning the weighted average call rate with the repo rate.

The working group has recommended maintaining the current timings for the bond and foreign exchange markets.

However, it has recommended permitting post onshore market hours transactions in government securities with non-residents during a time window of 5:00 PM to 11:30 PM. Such transactions must be reported to NDS-OM, an RBI-owned trading platform, on T+1 day between 7:00 AM – 8:30 AM, with settlement on a T+2 basis.

Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, said that the extension of bond market timing for foreign portfolio investors has been the long pending demand for international banks as it would give easy access to their clients. “US markets open after the Indian trading timings are over. The working group’s proposal would give them the opportunity to take exposure to Indian bonds, especially if some geopolitical event unfolds or some crucial macroeconomic data is out after India market hours,” he said.