ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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FUND-BANK AND LDCS-High-Cost Adjustment

91 days and the other available through the monthly auctions with variable discount rates and having a currency of 182 days. The accompanying table brings out the performance of auction system so far. It is obvious that the number of bids offered by the investors as well as of those accepted by the Reserve Bank has not been significant Total sales have aggregated Rs 297 crore which formed about 83 per cent of the amount offered. The highest number of tenders submitted was in the first auction while the number of bids accepted as a,proportion of those made was the highest in the ninth auction. The rate of rejection of tenders varied between 100 per cent and 34 per cent The major participants in the auction sales have been foreign commercial banks, a few Indian scheduled banks, notably the Central Bank and the State Bank, and the National Co-operative Development Organisation, which suggests that the market for auction bills is much narrower than that for tap bills Trends in the effective rate of return on the bills indicate that the objective of a flexible rate structure is far from being realised. The rafes have hovered around 8 per cent and have moved within a narrow band of 0.58 percentage points. The rates have been much below the inter-bank call money ceiling rate of 10 per cent. While on paper the discount rate under the auction system should have been determined by competition on the basis of assessment of the availability of short-term funds, the Reserve Bank's policy of fixing a floor price which has made for rigidity in the discount rates, though these rates have shown variation between the conventional busy and slack seasons. To put it differently, the perceptions of the investing public and the Reserve Bank in regard to the availability of short-term funds have been at variance, which also may partially explain the high rate of rejection of tenders.

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