RBI missive to banks and primary dealers on shortage of funds

Mumbai, Sep 22 (UNI) The Reserve Bank of India today cautioned Banks and Primary dealers that they would attract penal provisions if they fail to provide sufficient funds to meet obligations against primary auction subscriptions.

In a circular issued today, the Apex Bank said that primary dealers were not meeting the fund requirements in time for smooth settlement of primary auction allotment and often they are depending on their receivables from the secondary market settlement of securities through CCIL.

RBI told the Banks and dealers ''you may note that the primary auction settlement is independent from the secondary market settlements and therefore has to be funded separately on the same day sale of allotted stock permitted vide our circular dated October 6, 2000. This was to facilitate distribution of the stock and minimise the risk on the part of the allottees of the securities and not to meet the fund requirement of primary market settlements.

Banks and primary dealers were advised to make arrangements to provide sufficient funds in their current account with the RBI on the auction settlement days before 1500 hrs to meet obligations against the subscriptions in the primary auctions, failing which the shortage will be treated as an instance of 'SGL bouncing' and will be subjected to the applicable penal provisions, effective from today.

UNI VK OBB NP1822