To
All-India Financial Institutions, Insurance Companies
and select Mutual Funds

Dear Sirs

Please refer to MPD Circular No.MPD.BC.242/07.01.279/2003-04 dated November 5, 2003. Non-bank participants at present, are allowed to lend, on average in a reporting fortnight, up to 60 per cent of their average daily lending in call/notice money market during 2000-01.

2. In this connection, a reference is invited to paragraphs 98 and 99 of the Governor’s annual policy Statement for the year 2004-05 (copy of the paragraphs enclosed).

3. In view of further market developments as also to move towards a pure inter-bank call/notice money market, it has been decided that effective from the fortnight beginning June 26, 2004, non-bank participants would be allowed to lend, on average in a reporting fortnight, up to 45 per cent of their average daily lending in call/notice money market during 2000-01.

4. However, in case a particular non-bank institution has genuine difficulty in deploying its excess liquidity, RBI may consider providing temporary permission to lend a higher amount in call/notice money market for a specific period on a case by case basis.

5. To facilitate monitoring of your operations in call/notice money market on a daily basis, you are requested to continue to submit the daily return on time to the Principal Monetary Policy Adviser, MPD, RBI as per the extant practice.

6. Kindly acknowledge receipt.

Yours faithfully

Encl.: as above

98. At present, non-bank entities could lend, on average in a reporting fortnight, up to 60 per cent of their average daily lending in call/notice money market during 2000-01. In view of further market developments as also to move towards a pure inter-bank call/notice money market, it is proposed that:

• With effect from the fortnight beginning June 26, 2004, non-bank participants would be allowed to lend, on average in a reporting fortnight, up to 45 per cent of their average daily lending in call/notice money market during 2000-01.

99. However, as indicated in the earlier policy Statements, in case a particular non-bank institution has genuine difficulty in developing proper alternative avenues for investment of excess liquidity because of its size, RBI may consider providing temporary permission to lend a higher amount in call/notice money market for a specific period on a case by case basis.