With effect from May 5, 2001, lendings by non-bank participants in call/notice money market would be monitored against their respective limits in stage I, on product basis during the reporting fortnight corresponding to scheduled commercial banks. Accordingly, lending in call/notice money market during the reporting fortnight by any non-bank entity should not exceed, on average, 85 per cent of its daily average lending during the year 2000-01 during stage I.

It may be recalled that following the recommendations of Narasimham Committee II, it was decided to move towards a pure inter-bank (including PDs) call/notice money market. With a view to planning a smooth phasing out of these institutions from call/notice money market, as indicated in the Mid-term Review of October 2000, a technical group recommended a strategy for gradually phasing out non-bank participation. In the light of the recommendations of the Group and the feedback received on the recommendations, the Reserve Bank in its Monetary and Credit Policy for 2001-2002 announced a four-stage reduction of access of non-bank participants to the call/notice market. As proposed in the policy, in the first stage, with effect from May 5, 2001, non-banks would be allowed to lend up to 85 per cent of their average daily lendings in call market during 2000-01. These lendings would be monitored on a product basis during the reporting fortnight corresponding to scheduled commercial banks.

For instance, if a non-bank’s average daily lending in call market works out to Rs. 100 crore during 2000-2001, it will be entitled to lend Rs. 85 crore on a daily average basis or Rs. 1190 crore (Rs 85 crore multiplied by 14 days) in a reporting fortnight in stage I. While monitoring the lendings of non-banks on a product basis, the non-bank will be entitled to either lend the entire amount on a single day or it can lend the amount spread over a reporting fortnight as per its view of the market.