275714115 Indian Money Market (1)

8/19/2019 275714115 Indian Money Market (1)

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ROLE OF INDIAN MONEY MARKET IN BANKS


N.G. ACHARYA AND D.K. MARATHE COLLEGE


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Executive Summary

In India the money market plays a vital role in the progress of economy. But, it is not well developed

when compared to American and London money markets. In this market short-term funds are borrowed

and lent among participants permitted by RBI.

oney arket ensures that institutions which have surplus funds earn certain returns on the surplus.

!therwise these funds will be idle with the institutions. "imilarly, the money market ensures funds for

the needy at reasonable interest. #his way li$uidity position is assured by money market operations.

Let us now discuss the various money market instruments in India. In India the oney arket is

regulated by RBI. %ence, the instruments traded and the players in the market re$uire to be approved

by RBI



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#%& "#'() !* I*(IA* !*&) AR+

Table of Content

Sr.no Particulars Pg.no

1. Introduction 1

2. Meaning of Money Market

2.1. efinition of Money Market

2.2. !istory of Indian Money Market

2.". Ty#es of Money Market Instruments

2.$. Structure of Indian Money Market

2.%. Primary ealers

2.&. T'e (ole of ()I

2.*. T'e +ro,t' of Money Market in India

2.-. Sco#e of Indian Money Market

"

$

%

-

2%

2*

"/

"2


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#%& "#'() !* I*(IA* !*&) AR+


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#%& "#'() !* I*(IA* !*&) AR+

Sr.no Particulars Pg.no

". 0eatures C'aracteristics of Indian Money Market

".1. Partici#ants in t'e Money Market".2. Im#ortance of Indian Money Market

".". )enefits dvantages of Money Market

".$. efects ra,backs of Indian Money Market

"$

"&$1

$%

$&

$. 0indings 3 Suggestions

$.1. 0indings

$.2. Suggestions

%/

%/

%1

%. Conclusion %"

&. 4ebliogra#'y %$

*. )ibliogra#'y %%

Table of Content


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1. Introduction

#he seventh largest and second most populous country in the world, India has long been

considered a country of unrealied potential. A new spirit of

economic freedom is now stirring in the country, bringing

sweeping changes in its wake. A series of ambitious economic

reforms aimed at deregulating the country and stimulating

foreign investment has moved India firmly into the front ranks of

the rapidly growing Asia acific region and unleashed the latent

strengths of a comple and rapidly changing nation.

India/s process of economic reform is firmly rooted in a political consensus that spans her diverse

political parties. India/s democracy is a known and stable

factor, which has taken deep roots over nearly half a century.

Importantly, India has no fundamental conflict between its

political and economic systems. Its political institutions have

fostered an open society with strong collective and individual

rights and an environment supportive of free economic

enterprise.

Long term investments. #hese include a free and vibrant

India/s time tested institutions offer foreign investors a transparent environment that guarantees

the security of their press, a 0udiciary which can and does overrule the government, a

sophisticated legal and accounting system and a user friendly intellectual infrastructure. India/s

dynamic and highly competitive private sector has long

been the backbone of its economic activity. It accounts for

over 123 of its 4ross (omestic roduct and offers

considerable scope for 0oint ventures and collaborations.

N.G.ACHARYA AND D.K. MARATHE COLLEGEPage 1


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#oday, India is one of the most eciting

emerging money markets in the world.

"killed managerial and technical manpower

that match the best available in the world and

a middle class whose sie eceeds the

population of the '"A or the &uropean

'nion, provide India with a distinct cutting

edge in global competition. #he average

turnover of the money market in India is over

Rs. 56,666 crores daily. #his is more than 7

percents of the total money supply in the

Indian economy and 8 percent of the total

funds that commercial banks have let out to

the system. #his implies that 9 percent of the

annual 4( of India gets traded in the money

market in 0ust one day. &ven though the

money market is many times larger than the

capital market, it is not even fraction of the

daily trading in developed markets.



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2. Meaning of Money Market

oney market refers to the market where money and highly li$uid marketable securities are

bought and sold having a maturity period of one or less than one year. It is not a place like the

stock market but an activity conducted by telephone. #he money market constitutes a very

important segment of the Indian financial system. #he highly li$uid marketable securities are

also called as : money market instruments; like treasury bills, government securities, commercial

paper, certificates of deposit, call money, repurchase agreements etc.

#he ma0or player in the money market are Reserve Bank of India inance

%ouse of India %I=, banks, financial institutions, mutual funds, government, big corporate

houses. #he basic aim of dealing in money market instruments is

to fill the gap of short-term li$uidity problems or to deploy the

short-term surplus to gain income on that.

• #he money market is a market for lending and borrowing

of short-term funds.

• oney market deals in funds and financial instrument having a maturity period of one

day to one year.

• #he instruments in the money market are close substitutes for money as they are of short-

term nature and highly li$uid.



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2.1 efinition of Money Market

According to the c4raw %ill (ictionary of odern &conomics, ?money market is the term

designed to include the financial institutions which handle the purchase, sale, and transfers of

short term credit instruments. #he money market includes the entire machinery for the

channeliing of short-term funds. @oncerned primarily with small business needs for working

capital, individual;s borrowings, and government short term obligations, it differs from the long

term or capital market which devotes its attention to dealings in bonds, corporate stock and

mortgage credit.

>ollowing definitions will help us to understand the concept of money market.

According to the Reserve Bank of India, ?money market is the centre for dealing, mainly of short

term character, in money assets it meets the short term re$uirements of borrowings and provides

li$uidity or cash to the lenders. It is the place where short term surplus investible funds at the

disposal of financial and other institutions and individuals are bid by borrowers; agents

comprising institutions and individuals and also the government itself.

According to Cro,t'er, C#he money market is a name given to the various firms and

institutions that deal in the various grades of near money.C

#hese definitions help us to identify the basic characteristics of a money market. A money

market comprises of a well organied banking system. Darious financial instruments are used for

transactions in a money market. #here is perfect mobility of funds in a money market. #he

transactions in a money market are of short term nature.



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2.2 !istory of Indian Money Market

#ill EF72, when the RBI was set up the Indian money market remained highly disintegrated,

unorganied, narrow, shallow and therefore, very backward. #he planned economic development

that commenced in the year EF2E market an important beginning in the annals of the Indian

money market. #he nationaliation of banks in EF8F, setting up of various committees such as

the "ukhmoy @hakravarty @ommittee


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Suk'moy C'akravarty Committee

#he call money market for India was first recommended by the "ukhmoy @hakravarty

.@ommittee was set up in EFG9 to review the working of the monetary system. #hey felt thatallowing additional non-bank participants into the call market would not dilute the strength of

monetary regulation by the RBI, as resources from non-bank participants do not represent any

additional resource for the system as a whole, and their participation in call money market would

only imply a redistribution of eisting resources from one participant to another. In view of this,

the @hakravarty @ommittee recommended that additional nonbank participants may be allowed

to participate in call money market.

T'e 5ag'ul Committee

#he Daghul @ommittee


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T'e 6arasim'am Committee

#he *arasimham @ommittee II


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F!a!"a#$a%&e'

M(!e)

$a%&e'

Ca*'a#

$a%&e'

2." T7PES 80 M86E7 M(9ET I6ST(:ME6TS.

2.$ Structure of Indian Money Market ; C'art

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#he entire money market in India can be divided into two parts. #hey are organied money

market and the unorganied money market. #he unorganied money market can also be known

as an unauthoried money market. Both of these components comprise several constituents. #he

following chart will help you in understanding the organiational structure of the Indian money

market.

Structure

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#he Indian money market consists of two main sectorsJ

E= 8(+6ISE SECT8(<

•#he RBI is the ape institution that controls and monitors all the organiations in the

organied sector.

• Also, the organied money market is composed of various componentsH instruments that

are highly li$uid in nature.

• #he instruments traded are call money, treasury bills, commercial bills, certificate of

deposits, commercial papers, repos etc.

• #he organied money market is further diversified with the establishment of the (iscount

and finance %ouse of India, and oney market utual >unds.

T'e Instruments of t'e 8rgani=ed Money Market re> M86E7 6

68TICE M86E7 M(9ET<

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• #he call money market is the most important segment of the Indian money market. It is

also called as inter-bank call money market.

• 'nder call money market, funds are transacted on an over-night. 4enerally, banks rely on

call money market where they raise funds for a single day.

• #he notice money market funds are transacted for a period of 9 to E5 days. #he loans are

to be repaid at the option of either the

lender or the borrower.

• #he rate at which funds are borrowed H

lent in this market is called the call

money rate.

• #he main participants in the call money

market are commercial banks


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ii= T(ES:(7 )I>>S M(9ET<

• #reasury bills are short-term securities issued by the RBI on behalf of the 4overnment of

India.

• #reasury bills are of three typesJ FE day treasury bills, EG9 days treasury bills and 785 day

treasury bills.

• "ince these bills are issued through auctions, interest rates on all types of treasury bills

are determined by market forces.

• #reasury bills are highly li$uid and are readily available.

• #hey give assured yields at a low transaction cost.

• #reasury Bills are eligible for inclusion in the "LR.

• oreover, they have negligible capital depreciation.

• #reasury Bills are available for a minimum amount of Rs 92666 and in multiples of R"

92666.

•

#reasury Bills are traded in the secondary market. @ommercial banks, rimary (ealers,

utual >unds, @orporate, and >inancial Institutions, rovident H ension funds and

Insurance companies participate in the treasury Bills arket.

• %owever #reasury Bills arket in India is very narrow and undeveloped.



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iii= C8MME(CI> )I>>S<

A commercial bill is a short- term, negotiable, selfKli$uidating instrument drawn by the seller on

the buyer for the value of goods delivered by him.

• "uch bills are called trade bills H bills of echange and when they are accepted by banks,

they are called commercial bills.

• 4enerally the bill is payable at a future date Is like &I bank, "I(BI, I(BI, etc.

• #hus, commercial bills are very important for providing short-term credit to trade and

commerce.

iv= CE(TI0ICTES 80 EP8SITS< ?Cs@

• @ertificates of (eposits are unsecured, negotiable promissory notes issued by commercial

banks and development financial institutions.

• @(s are marketable receipts of funds deposited in a bank for a fied period at a specified

rate of interest.

• #hey are highly li$uid and riskless money market instruments.

• @(s were originally introduced in India to enable commercial banks to raise funds from

the market.



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#he RBI has modified its original scheme for @(s. the following are the recent guidelines for the

issue of @(sJ-

a. E>I+I)I>IT7


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e. I65EST8(SIT7 PPE(S<



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• @ommercial paper is an unsecured, highly li$uid money market instrument in the form of

a promissory note H a dematerialied form through any of the depositories registered with

"&BI.

• It has fied maturity whereby the purchaser is promised a fied amount at a future date.

• @ommercial papers are issued by leading nationally reputed manufacturing and finance

companies


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• &very issuer must appoint an IA


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• #he RBI achieves the function of maintaining li$uidity in the money market through

R&!" H R&D&R"& R&!".

• #he repo H reverse repo is a very

important money market

instrument to facilitate short-term

li$uidity ad0ustment among banks,

financial institutions and other

money market players.

• A repo H reverse repo is a

transaction in which two partiesagree to sell and repurchase the

same security at a mutually

decided future date and price.

• >rom the seller;s point of view, the transaction is called a repo whereby the seller gets

immediate funds by selling the securities with an agreement to repurchase the same at a

future date.

• "imilarly, from the buyer;s point of view, the transaction is called a reverse repo,

whereby the purchaser buys the securities with an agreement to resell the same at a future

date.

• #he RBI, commercial banks and primary (ealers deal in the repos and reverse repo

transactions.

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• #he financial institutions can deal only in the reverse repo transactions i.e. they are

allowed only to lend money through reverse repos to the RBI, other banks and rimary

dealers.

• #he maturity date varies from E day to E5 days.

• #he two types of repos areJ

a. Inter-bank repos %I=.

b. RBI repos


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vii= ISC8:6T 6 0I66CE !8:SE 80 I6I ?0!I@

• • #he (iscount and >inance %ouse of India is 0ointly owned by the RBI, the public

sector banks and all India financial institutions.

• #he (>%I helps in developing and stabiliing the money

market by stimulating activity in the money market

instruments and developing secondary market in those

instruments.

• #he (>%I deals in treasury bills, commercial bills

certificates of deposits, commercial papers, short term

deposits, call money market and govt securities. It also

participates in repo operations.

• #hus, the (>%I has helped corporate entities, banks and

financial institutions to invest their short-term surpluses in

money market instruments.

viii= M86E7 M(9ET M:T:> 0:6S< ?MMM0s@<



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• #he

RBI introduced oney arket utual >unds to enable small investors to participate in

the money market. #hus, >s mobilies saving of mutual funds and invest them in

such money market instruments that mature in less than one year.

• #he following are the important features of >sJ-

a. >s can be set by scheduled commercial banks and public finance institutions.

b. Individuals, corporates, etc can invest in >s.

c. the lock-in period has been reduced to E2 days.

d. >s are under the regulation of "&BI.

e. *RIs and !verseas @orporate Bodies can invest in >s s are ideal for investors seeking low-risk investment for short-term surpluses.

9= :68(+6ISE SECT8(<



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• #he unorganied Indian money market mainly comprises of indigenous bankers, money

lenders and unregulated non-banking financial intermediaries.

• #hough they may eist in urban centers, their activities are mainly concentrated in rural

areas. In fact, 783 of rural households depend on these for their financial re$uirement.

• #he main components of unorganied money market areJ

i= I6I+E68:S )69E(S<

• #hese financial intermediaries operate as banks by

receiving deposits, giving loans and dealing in :hundies;


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• #heir interest rates are very high

• Loans are given to agricultural labourers,

marginal and small farmers, artisans,

factory workers, etc for unproductive

purposes.

• #heir services are prompt, informal and

fleible.

iii= :6(E+:>TE 686)69 0I66CI> I6TE(MEI(IES

M C'it funds<

a. #hey are saving institutions wherein members make regular contribution to the fund.

b. #he fund is given to some member by bids H draws.

c. @hit funds are famous in +erala and #amil *adu.

M6id'is<

a. #hey are mutual benefit funds as loans are given to members


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b. #hey attract deposits by offering high rate of interest and other incentives.

c. Loans are also given at a very high rate of interest E(S



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• #he system of rimary (ealers %I was set up by RBI in arch EFGG to activate the oney arket.

• It got the status of rimary (ealer in >ebruary EFF8. !ver a period of time, RBI divested

its stake and (>%I became a subsidiary of "tate Bank of India


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• 2. Lending in @allH *oticeH #ermH RepoH @BL! market.

• 8. Investment in @ommercial apers.

• 1. Investment in @ertificates of (eposit.

• G. Investment in debt mutual funds where entire corpus is invested in debt securities.

2.& T'e (ole of (eserve )ank of India

#he Reserve Bank of India is the most important constituent of the money market.

#he market comes within the direct preview of the Reserve Bank of India regulations.

#he RBI intervenes in the call money indirectly in two ways-

• By providing lines of financeHadditional funding to the (>%I and other call money

dealers.



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• By conducting repo auction Additional funding is provided through R&! auctions

which increase li$uidity in the market and

bring down call money rates. RBI;s reverse

repo auction absorbs ecess li$uidity in the

economy and push up the call rates.

T'e aims of t'e (eserve )ankDs o#erations in t'e money market are<

• #o ensure that li$uidity and short term interest rates are maintained at levels

@onsistent with the monetary policy ob0ectives of maintaining price stability.

• #o ensure an ade$uate flow of credit to the productive sector of the economy and to bring

about order in the foreign echange market.

• #he Reserve Bank of India influence li$uidity and interest rates through a number of

operating instruments - cash reserve re$uirement swap operations.

Ste#s taken by ()I<

• Both the borrowers and the lenders are re$uired to

have current accounts with the Reserve Bank of India.

• #his will facilitate $uick and timely debit and credit

operations.

• #he call market enables the banks and institutions to

even out theirday to day deficits and surpluses of money.



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• Banks especially access the call market to borrowHlend money for

ad0usting their cash reserve re$uirements


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hile the need for long term financing is met by the capital or financial markets, money market is

a mechanism which deals with lending and borrowing of short term funds. ost reforms period in

India has witnessed tremendous growth of the Indian money markets. Banks and other financial

institutions have been able to meet the high epectations of short term funding of important sectors

like the industry, services and agriculture.

>unctioning under the regulation and control

of the Reserve Bank of India


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In addition to the lending by the banks and the financial institutions, various companies in the

corporate sector also issue fied deposits to the public for shorter duration and to that etent

become part of the money market mechanism selectively. #he maturities of the instruments issued

by the money market as a whole, range from one day to one year. #he money market is also

closely linked with the >oreign &change arket, through the process of covered interest arbitrage

in which the forward premium acts as a bridge between the domestic and foreign interest rates.



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2.- Sco#e of Indian Money Market

#he India money market is a monetary system that involves the lending and borrowing of short-

term funds. India money market has seen eponential growth 0ust after the globaliation initiative

in EFF9. It has been observed that financial institutions do employ money market instruments for

financing short-term monetary re$uirements of various sectors such as agriculture, finance and

manufacturing. #he performance of the India money market has been outstanding in the past

twenty years.

@entral bank of the country - the Reserve Bank of India


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". 0eaturesC'aracteristics of Indian Money Market

&very money is uni$ue in nature. #he money market in developed and developing countries

differ markedly from each other in many senses. Indian money market is not an eception for

this. #hough it is not a developed money market, it is a leading money market among the

developing countries.

Indian oney arket has the following ma0or characteristicsJ-

• (ichotomic "tructureJ It is a significant aspect of the Indian money market. It has a

simultaneous eistence of both the organied money market as well as unorganied

money markets. #he organied money market consists of RBI, all scheduled commercial

banks and other recognied financial institutions. %owever, the unorganied part of the

money market comprises domestic money lenders, indigenous bankers, trader, etc. #he

organied money market is in full control of the RBI. %owever, unorganied money

market remains outside the RBI control. #hus both the organied and unorganied money

market eists simultaneously.

• "easonalityJ #he demand for money in Indian money market is of a seasonal nature. India

being an agriculture predominant economy, the demand for money is generated from the

agricultural operations. (uring the busy season i.e. between !ctober and April more

agricultural activities takes place leading to a higher demand for money.



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• ultiplicity of Interest RatesJ In Indian money market, we have many levels of interest

rates. #hey differ from bank to bank from period to period and even from borrower to

borrower. Again in both organied and unorganied segment the interest rate differs. #hus

there is an eistence of many rates of interest in the Indian money market.

• Lack of !rganied Bill arketJ In the Indian money market, the organied bill market is

not prevalent. #hough the RBI tried to introduce the Bill arket "cheme


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".1 Partici#ants in t'e Money Market

#he transactions in the money market are of high volume involving large amount. "o, money

market is dominated by a small number of large players.

"ome of the important players in the money market areJ

• Reserve Bank of India.

• (iscount and finance %ouse of India.

• >inancial Institution.

• *on-banking finance companies.

• "ecurities #rading @orporation of India.

• ublic sector undertakings


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#he RBI operates in the money market is to ensure that the levels of li$uidity and short-

term interest rates are maintained at an optimum level so as to facilitate economic growth

and price stability.

RBI also plays the role of a merchant banker to the government.

It issues #reasury Bills and other 4overnment "ecurities to raise

funds for the government.

#he RBI thus plays the role of an intermediary and regulator of

the money market.

+85E(6ME6T<

#he 4overnment is the most active player and the largest borrower in the money market.

It raises funds to make up the budget deficit.

#he funds may be raised through the issue of #reasury Bills


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O)69S<

@ommercial Banks play an important role in the money market.

#hey undertake lending and borrowing of short

term funds.

#he collective operations of the banks on a day to

day basis are very predominant and hence have a

ma0or impact and influence on the interest rate

structure and the li$uidity position.

O0I66CI> I6STIT:TI86S<

>inancial institutions also deal in

the money market.

#hey undertake lending and borrowing of short-term funds.

#hey also lend money to banks by rediscounting Bills of &change.



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"ince, they transact in large

volumes, they have a significant

impact on the money market.

OI6STIT:TI86> P>7E(S<

#hey @onsist of utual >unds, >oreign Institutional layers, Insurance >irms, etc.

#heir level of articipation depends on the regulations.

>or instance the level of participation of the >IIs in the Indian money market is restricted

to investment in 4overnment "ecurities.

N.G.ACHARYA AND D.K. MARATHE COLLEGEPage 3+


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OISC8:6T !8:SES 6 P(IM(7 E>E(S<

#hey are the intermediaries in the money market.

(iscount %ouses discount and rediscount commercial bill and #reasury Bills.

rimary (ealers were introduced by RBI for developing an active secondary market for

4overnment securities.

#hey also underwrite 4overnment "ecurities.

N.G.ACHARYA AND D.K. MARATHE COLLEGEPage 3,


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".2 Im#ortance of Indian money market

ide-ranging reforms have been undertaken to develop the money market and strengthen its role

in the transmission mechanism of monetary policy. #hree ma0or considerations that have guided

rationaliation of the structure in the money market areJ


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Market evelo#ment

4reater >leibility for articipants in the @all oney arket

In view of the transformation of the call money market into a pure inter-bank market, there is a

need to consider greater fleibility to banks and (s to borrow or lend in this market, provided

they have put in place appropriate risk management systems which would address the asset-

liability mismatches in their balance sheets. In this contet, banks have already started operating

in an environment that re$uires greater harmoniation between sources and deployment of funds

for asset-liability management


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evelo#ment of a 5ibrant Term Money Market

#he term money market has not developed for several reasons. !ne of the ma0or reasons for this

is that market participants have been unable to take a long-term view of interest rates despite

availability of #reasury Bills of varying maturities and a reasonably developed swap market. In

order to enable market participants to take a long-term view on interest rates, it is imperative that

the AL framework is strengthened and greater fleibility is allowed to the personnel managing

treasury operations in banks. #he skewness in li$uidity in the money market in terms of chronic

lenders and borrowers would get corrected as banks develop better AL systems. #he

development of the term money market is vital for strengthening proper linkages between the

foreign echange market and the domestic currency market, which, in turn, would provide an

impetus to the derivative segment.

(elook at Inter;)ank Partici#ation Certificates

Inter-Bank articipation @ertificates, which can be used for evening out short-term li$uidity

mismatches by banks, were introduced in !ctoberEFGG in order to infuse greater degree of

fleibility in their credit portfolios. In view of rapid credit growth in recent years, interest in

IB@s has again arisen. In this contet, since considerable time has elapsed since the guidelines

on the scheme of IB@s were issued, the IB@ scheme with respect to duration, $uantum in

terms of the proportion to the loan amount, eligible participants and transferability of IB@s

needs a thorough review. (epending on the results of such a review, etending the use of this

instrument could also facilitate the asset liability management by banks,

improve day-to-day li$uidity management and help develop a market for credit risk transfer

instruments between banks.

0utures on Policy >inked Interest (ates



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4oing forward, an Indian variant of the >ederal >unds >utures on interest rates linked to the

Reserve Bank;s key policy rates may emerge. #rading in the futures market would reveal

important information about market epectation on the future course of monetary policy. >or

instance, the trading of the >ederal >unds >utures provides key information to the >ederal !pen

arket @ommittee !@= in the '" in formulating its monetary policy.

Promoting 0inancial Stability

(efault risk in the money market has the potential to create a contagion in the financial markets

and, therefore, needs to be mitigated. In this regard, eperiences of developed economies show

that generally the self-regulatory organiations


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"." )enefits dvantages of Money Market

A li$uid money market provides an effective source of long term finance to borrower

A li$uid and vibrant money market is necessary for the development of a capital market, foreign

echange market and market in derivative instruments.

%elps in pricing different floating interest products

It 'el#s in<

evelo#ment of trade 3 industry.

evelo#ment of ca#ital market.

Smoot' functioning of commercial banks.

Effective central bank control.



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0ormulation of suitable monetary #olicy.



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".$. efects or ra,backs of Money Market

#hough the Indian money market is considered as the advanced money market among

developing countries, it still suffers from many drawbacks or defects. #hese defects limit the

efficiency of our market.



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"ome of the important drawbacks of Indian oney arket areJ-

E. M:>TIP>E (TE 80 I6TE(ESTJ In the Indian money market, especially the banks,

there eist too many rates of interests. #hese rates vary for lending, borrowing, government

activities, etc. any rates of interests create confusion among the investors.

9. IC!8T8M7< (ichotomy i.e. eistence of two markets C9 80 I6TE+(TI86< #he RBI finds it difficult to integrate the organied and the

unorganied money market. hile the RBI can control and supervise the working of the

organied sector effectively, the heterogeneous unorganied sector is out of RBI;s control.

#here is no uniformity in the practices and operations of the unorganied money market.

oreover, the interest rates in both the markets are also different. #hus there is lack of

integration in the Indian money market

5. M:>TIP>ICIT7 I6 I6TE(EST (TES< #here is diversity in rates of interest in the

Indian money market. #his multiplicity in the interest rates is due to lack of mobility of funds

from one section of the money market to another. #he rates differ from institution to

institution even for funds of the same duration. Although the wide differences are being

narrowed down, the eisting differences do hamper the efficiency of the money market.

2. )SE6CE 80 8(+6ISE )I>> M(9ET< #he eistence of a well-organied bill

market is essential for effective linking up various credit agencies. It refers to a mechanism

where bills of echange are purchased and discounted by commercial banks H financial

institutions. #he bill market is not yet developed in India due to the following reasonsJ

• Banks keeping large amount of cash.



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• reference for borrowing rather than discounting bills.

• !verdependence on cash H che$ue transactions.

• %igh stamp duty on usance bill, etc.

8. S!8(T+E 80 0:6S ST(I6+E6C7 80 M86E7


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E6. I6E00ICIE6T 6 C8((:PT M6+EME6T< >aulty selection, lack of training,

poor performance appraisal and faulty promotions result in inefficiency and corruption in the

banking sector. #his adversely affects the success and performance of money market. #hese

are some of the ma0or drawbacks of the Indian money market many of these are also the

features of our money market.

$. 0I6I6+S 6 S:++ESTI86S

N.G.ACHARYA AND D.K. MARATHE COLLEGEPage 4,


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$.1. 0I6I6+S

According to the findings I65EST8(S I6 M:T:> 0:6S<

utual funds in India are open to investment by following investorsJ

E. Residents includingJ

a= Resident Indian Individual b= Indian @ompanies

c= Indian trustHcharitable trusts

d= Bankse= *on KBanking >inance companiesf= Insurance companies

g= rovident funds

9. *on Residents IncludingJ

a= *on residents Indians b= !verseas corporate bodies

7. >oreign entitiesJa= >oreign Institutional Investors registered with "&BI.

>oreign citiensHentities are however now allowed to invest in India.

$.2 S:++ESTI86S



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unds should be set up by various banks and institutions.

#his would increase the retail participation in the market.



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%. Conclusions

#he money market is a vibrant market, affecting our everyday lives. As the short-term market for

money, money changes hands in a short time frame and the players in the market have to be alert

to changes, up to date with news and innovative with strategies and products. #he withdrawal of

non-bank entities from the inter-bank call-money market is linked to the improvement of

settlement systems. Any time-bound plan for the evolution of a pure inter-bank callHnotice money

market would be ineffective till the basic issue of settlements is addressed.

In brief, various policy initiatives by the Reserve Bank have facilitated development of a wider

range of instruments such as market repo, interest rate swaps, @(s and @s. #his approach hasavoided market segmentation while meeting demand for various products. #hese developments

in money markets have enabled better li$uidity management by the Reserve Bank



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8. ebliography

• www.google.com

• httpJHHbusiness.mapsofindia.comHindia-marketHmoney.html

• ()Is site --- httpJHHrbi.org.in

• S)I 0!IDs site --- httpJHHsbidfhi.comH

• Indian Institute 8f )anking 3 0inance --- httpJHHwww.iibf.org.in

• httpJHHkalyan-city.blogspot.comH

• httpJHHen.wikipedia.org

• www.rbi.org.inHweekly statistical supplementH various issues.co.in

• www.investopedia.com

• www.bseindia.com

• www.nseindia.com

• www.economics.indiatimes.com

• www.gktoday.in


http://www.google.com/http://business.mapsofindia.com/india-market/money.htmlhttp://rbi.org.in/http://sbidfhi.com/http://www.iibf.org.in/http://kalyan-city.blogspot.com/http://en.wikipedia.org/http://www.rbi.org.in/weekly%20statistical%20supplement/%20various%20issues.co.inhttp://www.investopedia.com/http://www.bseindia.com/http://www.nseindia.com/http://www.economics.indiatimes.com/http://www.gktoday.in/http://business.mapsofindia.com/india-market/money.htmlhttp://rbi.org.in/http://sbidfhi.com/http://www.iibf.org.in/http://kalyan-city.blogspot.com/http://en.wikipedia.org/http://www.rbi.org.in/weekly%20statistical%20supplement/%20various%20issues.co.inhttp://www.investopedia.com/http://www.bseindia.com/http://www.nseindia.com/http://www.economics.indiatimes.com/http://www.gktoday.in/http://www.google.com/


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*. )I)>I8+(P!7

S8:(CE :T!8(

1. Interest (ate S,a#s 6asser Saber

2. Emerging Money Market (.S. ggra,al

". Indian Money Market StructureF o#eration and M.S. +o#alan

evelo#ment

$. 0inancial Management Prasanna C'andra

%. Security nalysis and Portfolio Management P.9. )andgar

Documents

275714115 Indian Money Market (1)