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FIIs allowed to buy and sell T-bills

With an objective to further broadening the depth of the money markets in terms of volume and participation, the credit and monetary policy announced today by the Reserve Bank of India allows Foreign Institutional Investors to buy and sell treasury bills.

FIIs will now be permitted to deal in treasury bills within the overall approved debt ceilings.

The apex bank's decision is prompted by the recent pronouncement of notified amounts for treasury bills auctions and the exclusion of non-competitive bids from the notified amounts.

Currently, FIIs are allowed to operate in all dated government securities in the primary and secondary markets, including those with remaining maturity of less than one year.

Money market sources, however, discounted the notion that the decision will have any major impact. A senior money market dealer said, ''Earlier, FIIs routed their investments in treasury bills through banks. Therefore, any major effect is unlikely''.

The RBI auctions treasury bills to enable the Union government to bridge the gap between revenue-expenditure mismatches.

The 182-day treasury bills auction on a fortnightly basis has been reintroduced. Also, the periodicity of 364-day treasury bills auctions will be monthly, as against the present practice of fortnightly auctions.

The practice of reverse repos with primary dealers in specified securities has been done away with and instead, liquidity support against the security of holdings in the subsidiary general ledger will be provided.

The apex bank has introduced one-day Repos to enable greater control over liquidity in the system. Currently, three-day and four-day fixed rate repos auction are carried out by the RBI. From now, auction-based repos will co-exist with fixed interest repo auctions.

The RBI has reduced the ceiling on lending by corporate entities through primary dealers in the call money market from Rs 50 million to Rs 30 million. The minimum lock-in period for certificate of deposits and units of money market mutual funds has been lowered from 30 days to 15 days.

UNI