However, it has been decided to take all actions that will enable, in due course, to replace the present general refinance facility. The export credit refinance will continue as a separate scheme and reviewed independently. The most important of them is the initiative taken in April 1997 whereby inter-bank liabilities were exempted from the maintenance of reserve requirements. It is expected that term money market will develop once banks put in place proper ALM systems. A reassuring feature has been that some agencies have already developed call money linked reference rates.
Product development is an integral part of improving market efficiency.
Some banks have proposed that interest rate swaps may be permitted with a view to enabling them to hedge against interest rate risk arising out of asset-liability mismatches. With a view to further deepen the money market as also to enable banks, primary dealers and all-India financial institutions to hedge interest rate risks, the Reserve Bank has decided, in principle, to create an environment that would facilitate introduction of interest rate swaps. The Government securities market constitutes the principal segment of the debt market and serves as the benchmark for pricing corporate papers of varying maturities. With the objectives of broadening the market with a diversified investor base and imparting greater liquidity and turnover, concerted efforts have been made by Government of India and the Reserve Bank in the direction of instrument development, institutional development and towards improving market efficiency and transparency. The most significant steps were the introduction of the auction system and of innovative products as well as the setting up of a system of primary and satellite dealers.