Money Market In India


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Money Market In India

  1. 1. Money Market in India By, L Kaushal M LEARNING S Made Simple
  2. 2. Overview of Financial Market L M LEARNING S Made Simple
  3. 3. Six horses What, Why, Who, Which, How and Where? Why: The Need. What: The Definition. Who: The Players. Which & How: The Products & Process. Where: The Resources L M LEARNING S Made Simple
  4. 4. The Need Short term funds by Banks. Need to keep the SLR as prescribed Need to keep the CRR as prescribed Optimize the yield on temporary surplus funds Regulate the liquidity and interest rates in the conduct of monetary policy to achieve the broad objective of price stability, efficient allocation of credit and a stable foreign exchange market L M LEARNING S Made Simple
  5. 5. The Defination Money Market is "the centre for dealings, mainly short-term character, in money assets. Itmeets the short-term requirements of borrower and provides liquidity 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, again comprising Institutions, individuals and also the Government itself" L M LEARNING S Made Simple
  6. 6. The Defination (Cont) Money market refers to the market for short term assets that are close substitutes of money, usually with maturities of less than a year. A well functioning money market provides a relatively safe and steady income-yielding avenue. Allows the investor institutions to optimize the yield on temporary surplus funds. Instrument of Liquidity adjustment by Central Bank. L M LEARNING S Made Simple
  7. 7. The Players Reserve Bank of India SBI DFHI Ltd (Amalgamation of Discount & Finance House in India and SBI Gilts in 2004) Commercial Banks, Co-operative Banks and Primary Dealers are allowed to borrow and lend. Specified All-India Financial Institutions, Mutual Funds, and certain specified entities are allowed to access to Call/Notice money market only as lenders Individuals, firms, companies, corporate bodies, trusts and institutions can purchase the treasury bills, CPs and CDs. L M LEARNING S Made Simple
  8. 8. The Products and Process Certificateof Deposit (CD) Commercial Paper (C.P) Inter Bank Participation Certificates Inter Bank term Money Treasury Bills Call Money L M LEARNING S Made Simple
  9. 9. Certificate of Deposit (CD) CDs are short-term borrowings in the form of a Promissory Notes having a maturity of not less than 15 days up to a maximum of one year. CD is subject to payment of Stamp Duty under Indian Stamp Act, 1899 (Central Act) They are like bank term deposits accounts. Unlike traditional time deposits these are freely negotiable instruments and are often referred to as Negotiable Certificate of Deposits L M LEARNING S Made Simple
  10. 10. Features of CD CDs can be issued by all scheduled commercial banks except RRBs (Regional Rural Banks) Minimum period 15 days Maximum period 1 year Minimum Amount Rs 1 Lakh and in multiples of Rs. 1 Lakh CDs are transferable by endorsement CRR & SLR are to be maintained CDs are to be stamped L M LEARNING S Made Simple
  11. 11. Commercial Papers (CP) Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. Who can issue Commercial Paper (CP) Highly rated corporate borrowers, primary dealers (PDs) and satellite dealers (SDs) and all-India financial institutions (FIs) L M LEARNING S Made Simple
  12. 12. Eligibility to Issue CP a) The tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 Cr. b) The working capital (fund-based) limit of the company from the banking system is not less than Rs.4 Cr. The borrower account of the company is classified as c) a Standard Asset by the financing bank/s. L M LEARNING S Made Simple
  13. 13. Rating Requirement All eligible participants should obtain the credit rating for issuance of Commercial Paper from Credit Rating Agencies are.. › Credit Rating Information Services of India Ltd. (CRISIL) › Investment Information and Credit Rating Agency of India Ltd. (ICRA) › Credit Analysis and Research Ltd. (CARE) › Duff & Phelps Credit Rating India Pvt. Ltd. (DCR India)  The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies L M LEARNING S Made Simple
  14. 14. Maturity CP can be issued for maturities between a minimum of 15 days and a maximum up to one year from the date of issue.  If the maturity date is a holiday, the company would be liable to make payment on the immediate preceding working day. L M LEARNING S Made Simple
  15. 15. To Whom Issued CP is issued to and held by individuals, banking companies, other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs). L M LEARNING S Made Simple
  16. 16. Meaning of Repo Itis a transaction in which two parties agree to sell and repurchase the same security. Under such an agreement the seller sells specified securities with an agreement to repurchase the same at a mutually decided future date and a price The Repo / Reverse Repo transaction can only be done at Mumbai between parties approved by RBI and in securities as approved by RBI (T Bills, Central / State Govt Securities). L M LEARNING S Made Simple
  17. 17. Benefits of Repo Repo helps banks to invest surplus cash. Ithelps investor to achieve money market returns with sovereign risk It helps borrower to raise funds at better rates. Bank can use Repo deals as a convenient way of adjusting SLR / CRR positions. RBI Uses Repo and Reverse Repo as Instruments for liquidity adjustment in the system. L M LEARNING S Made Simple
  18. 18. Call Money Market The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. The loans are of short- term duration varying from 1 to 14 days. The money that is lent for one day in this market is known as "Call Money", and if it exceeds one day (but less than 15 days) it is referred to as "Notice Money". L M LEARNING S Made Simple
  19. 19. Gilt Edge Securities  The Term Government Securities encompass all bonds and T Bills issued by Central Government and State Government.  These Securities are normally referred to as “gilt edged” as repayments of principal as well as interest are totally secured by Sovereign Guarantee L M LEARNING S Made Simple
  20. 20. T Bills  Treasury bills, commonly referred to as T-Bills are issued by Government of India against their short term borrowing requirements with maturities ranging between 14 to 364 days.  All these are issued at a discount-to-face value. For example a Treasury bill of Rs. 100.00 face value issued for Rs. 91.50 gets redeemed at the end of it's tenure at Rs. 100.00. L M LEARNING S Made Simple
  21. 21. Who can Invest in T Bills? Banks, Primary Dealers, State Governments, Provident Funds, Financial Institutions, Insurance Companies, NBFCs, FIIs (as per prescribed norms), NRIs & OCBs can invest in T-Bills. L M LEARNING S Made Simple
  22. 22. The Resources  RBI’ssite  SBI DFHI’s site L M LEARNING S Made Simple
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