I :- ORGANISED STRUCTURE 1. Reserve bank of India. 2. DFHI (discount and finance house of India).3. Commercial banksi. Public sector banks SBI with 7 subsidiaries Cooperative banks 20 nationalized banks ii. Private banks Indian Banks Foreign banks4. Development bank IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.
. UNORGANISED SECTOR 1. Indigenous banks 2 Money lenders 3. Chits 4. NidhisIII. CO-OPERATIVE SECTOR 1. State cooperative i. central cooperative banks Primary Agri credit societies Primary urban banks 2. State Land development banks Central land development banks Primary land development banks
Growth of indian money market
Growth of Indian Money Market in India Rahul Sharma(94) Ratanjeet(96) Rishi Kumar Srivastav(97) Ritesh Jain(98)
What Features Reforms ObjectiveCharacteristic MONEY MARKETS Importance Features Drawbacks Composition Structure Instruments
As per RBI definitions “ A market for short termsfinancial assets that are close substitute for money,facilitates the exchange of money in primary andsecondary market”
Introduction The India money market is a monetary system that involves the lending and borrowing of short- term funds The instruments in the money market are short- term in nature and are highly liquid Money market provides avenues to the players in the market to strike balance between the surplus funds with the lenders and the obligation of funds for the borrowers
Classification • The unorganized sector consists of money lenders, chit funds, and indigenous bankers Money Market • The organized part comprises commercial banks in India bothOrganized Unorganized public sector and private sector Sector Sector banks and foreign banks • The organized money market is in full control of the RBI. However, unorganized money market remains outside the RBI control.
Structure of Indian Money Market ORGANISED CO-OPERATIVE UNORGANISED STRUCTURE SECTOR SECTOR DFHI(Discount Commercial DevelopmentRBI and Finance banks bank house of India Public Sector Private banks banks SBI with 7 Co-Operative 20 nationalized Indian banks Foreign banks subsidiaries banks banks
Continued….. CO- UNORGANISE OPERATIVE D SECTOR SECTOR State LandIndigenous State Money lenders Nidhis Chits development banks cooperative banks Central Central land Primary land cooperative development development banks banks banks Primary Agri Primary urban credit societies banks
Treasury Bills (T-Bills) (T-bills) are the most marketable money market security. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par(face) value; when they mature, the government pays the holder the full par value. T-Bills are so popular among money market instruments because of affordability to the individual investors.
Certificate of deposit (CD) A CD is a time deposit with a bank. Like most time deposit, funds can not withdrawn before maturity without paying a penalty. CD’s have specific maturity date, interest rate and it can be issued in any denomination. The main advantage of CD is their safety. Anyone can earn more than a saving account interest.
Commercial paper (CP) CP is a short term unsecured loan issued by a corporation typically financing day to day operation. CP is very safe investment because the financial situation of a company can easily be predicted over a few months. Only company with high credit rating issues CP’s.
Repurchase agreement (Repos) Repo is a form of overnight borrowing and is used by those who deal in government securities. They are usually very short term repurchases agreement, from overnight to 30 days of more. The short term maturity and government backing usually mean that Repos provide lenders with extreamly low risk. Repos are safe collateral for loans.
Bankers Acceptance A banker’s acceptance (BA) is a short-term credit investment created by a non-financial firm. BA’s are guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market. BA acts as a negotiable time draft for financing imports, exports or other transactions in goods. This is especially useful when the credit worthiness of a foreign trade partner is unknown.
Features of Money Market Dichotomic • Simultaneous existence of both the organized money Structure market as well as unorganized money markets Multiplicity of • Differ from bank to bank from period to period and even Interest Rates from borrower to borrower Limited • Supply of various instruments such as the Treasury Bills, Commercial Bills, Certificate of Deposits, Commercial Instruments Papers, etc. is very limited. High Volatility in • Call money market is a market for very short term money, Institutions such as the GIC, LIC, etc suffer hugeCall Money Market fluctuations and thus it has remained highly volatile. Absence of • Divided among several segments or sections which are Integration loosely connected with each other
REFORMS in Money Market • Government has adopted an interest rate policy of liberal nature • Lifted the ceiling rates of the call money market, short-term deposits, billsDeregulation of rediscounting, etc. the Interest • Further deregulation of interest rates during the economic reforms. Rate • In order to provide additional short-term investment revenue, the RBI encouraged and established the Money Market Mutual Funds (MMMFs) in April 1992 • MMMFs are allowed to sell units to corporate and individualsMoney Market • The upper limit of 50 crore investments has also been lifted. Financial institutions suchMutual Fund as the IDBI and the UTI have set up such funds (MMMFs) • Set up in April 1988 to impart liquidity in the money market. • Set up jointly by the RBI, Public sector Banks and Financial InstitutionsEstablishment of the DFI
Reforms (contd..) • Through the LAF, the RBI remains in the money market on a continue basis through the repo transaction Liquidity • It adjusts liquidity in the market through absorption and or injection of financial AdjustmentFacility (LAF) resources • In order to impart transparency and efficiency in the money market transaction the electronic dealing system has been started. ElectronicTransactions • It is useful for the RBI to watchdog the money market. • Set up in April 2001,it clears all transactions in government securities, andEstablishment repose reported on the Negotiated Dealing System. of the CCIL • GoI consistently tried to introduce new short-term investment instruments. Examples: Treasury Bills of various duration, Commercial papers, Certificates ofDevelopmentof New Market Deposits, MMMFs, etc. have been introduced in the Indian Money Market. Instruments
Drawbacks in Indian Money MarketAbsence of Insufficient Lack of Less numberIntegration Funds or Organized of Dealers• Lack of proper Resources Banking • Poor number of integration • The Indian System dealers in the between economy with its short-term Organized and • Banking system assets who can seasonal suffers from Unorganized structure faces act as mediators segments major between the frequent weaknesses shortage of government and such as the banking financial the NPA, huge recourse. system. losses, poor efficiency
CONCLUSION These are major reforms undertaken in the money market in India. Apart from these, the stamp duty reforms, floating rate bonds, etc. are some other prominent reforms in the money market in India. Thus, at the end we can conclude that the Indian money market is developing at a good speed.