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
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