Money Market In India

                     

 The Indian money market is "a market for short-term and Long term funds with maturity ranging from overnight to one year and includes financial instruments that are deemed to be close substitutes of money." It is diversified and has evolved through many stages, from the conventional platform of treasury bills and call money to commercial paper, certificates of deposit, repos, FRAs and IRS more recently.

The Indian money market consists of diverse sub-markets, each dealing in a particular type of short-term credit. The money market fulfills the borrowing and investment requirements of providers and users of short-term funds, and balances the demand for and supply of short-term funds by providing an equilibrium mechanism. It also serves as a focal point for the Central Bank's intervention in the market.

The Indian money market consists of the unorganized sector: moneylenders, indigenous bankers, chit funds; organized sector: Reserve Bank of India, private banks, public sector banks, development banks and other Non Banking Financial Companies(NBFCs) such as Life Insurance Corporation of India (LIC), Unit Trust of India (UTI), the International Finance Corporation, IDBI, and the co-operative sector.

·                  Call money market :-

·                                            The call money market deals in short term finance repayable on demand, with a maturity period varying from one day to 14 days. S.K. Muranjan commented that call loans in India are provided to the bill market, rendered between banks, and given for the purpose of dealing in the bullion market and stock exchanges. Commercial banks, both Indian and foreign, co-operative banks, Discount and Finance House of India Ltd.(DFHI), Securities trading corporation of India (STCI) participate as both lenders and borrowers and Life Insurance Corporation of India (LIC), Unit Trust of India(UTI), National Bank for Agriculture and Rural Development (NABARD)can participate only as lenders. The interest rate paid on call money loans, known as the call rate, is highly volatile. It is the most sensitive section of the money market and the changes in the demand for and supply of call loans are promptly reflected in call rates. There are now two call rates in India: the Interbank call rate ‘and the lending rate of DFHI. The ceilings on the call rate and inter-bank term money rate were dropped, with effect from May 1, 1989. The Indian call money market has been transformed into a pure inter-bank market during 2006–07.  The major call money markets are in Mumbai, Kolkata, Delhi, Chennai, Ahmadabad.

         Treasury bill market  :-

                             Treasury bills are instrument of short-term borrowing by the Government of India, issued as promissory notes under discount. The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default. Under one classification, treasury bills are categorized as ad hoc, tap and auction bills and under another classification it is classified on the maturity period like 91-days TBs, 182-days TBs, 364-days TBs and two types of 14-days TBs. In the recent times (2002–03, 2003–04), the Reserve Bank of India has been issuing only 91-day and 364-day treasury bills. the auction format of 91-day treasury bill has

changed from uniform price to multiple price to encourage more responsible bidding from the market players. the bills are two kinds- Adhoc and regular. the adhoc bills are issued for investment by the state governments, semi government departments and foreign central banks for temporary investment. they are not sold to banks and general public. The treasury bills sold to the public and banks are called regular treasury bills. they are freely marketable. commercial bank buy entire quantity of such bills issued on tender . they are bought and sold on discount basis.

         Ready forward contract (Repos) :-

                                   Repo is an abbreviation for Repurchase agreement, which involves a simultaneous "sale and purchase" agreement. When banks have any shortage of funds, they can borrow it from Reserve Bank of India or from other banks. The rate at which the RBI lends money to commercial banks is called repo rate, a short term for repurchase agreement. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.

·                Money market mutual funds :-

·                           Money market mutual funds invest money in specifically, high-quality and very short maturity-based money market instruments. The RBI has approved the establishment of very few such funds in India. In 1997, only one MMMF was in operation, and that too with very small amount of capital.

         Reserve Bank of India :-

                      The influence of the Reserve Bank of India's power over the Indian money market is confined almost exclusively to the organised banking structure.It is also considered to be the biggest regulator in the markets. There are certain rates and data which are released at regular intervals which have a huge impact on all the financial markets in INDIA. The unorganized sector, which consists mostly of indigenous bankers and non-banking financial companies, although occupying an important position in the money market have not been properly integrated with the rest of the money market