The document discusses various topics related to money markets in India, including: 1. Money market instruments such as treasury bills, repos, CBLOs, certificates of deposit, commercial paper, commercial bills, and money market derivatives. 2. Money market loans such as call money, interbank participatory certificates, and banker's acceptances. 3. Key developments and reforms in the Indian money market that have increased liquidity, participants, and regulation over time.

1. Dr Raju Indukoori 1

2. Dr Raju Indukoori
MONEY MARKET
It is the market for short term demand for
and supply of capital which flows through
financial instruments or loans.
The word ‘money’ doesn’t refer to
monetary instruments like paper currency,
coins, etc.
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3. Dr Raju Indukoori
Major developments in Money market
1985: Sukamoy Chakravarthy committee appointed to review
monetary system. It suggested to develop money market
instruments.
1987: Vagul committee suggested for institutional set up.
1988
• RBI, Commercial banks and financial institutions promoted,
Discount Finance House of India (DFHI) to promote liquidity.
• Call rate moved from fixed to free rate.
• 182 Treasury Bills (TBs), Certificate of Deposit (CD), and inter
bank participatory certificates (PCs).
• NSE launched MIBID / MIBOR
1989: All money market rates were made to be market driven.
1990: Commercial Paper (CP).
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4. Dr Raju Indukoori
Contd..
1991: Narasimham committee on financial system.
1995: Primary dealers.
1997: Bank rate reactivate.
1998
 NSE launched MIBID and MIBOR are introduced by SEBI
 Private placement, open market operations (OMO) and auction are
combined.
2000: Liquidity adjustment facility (LAF).
2002: Negotiations Dealing System (NDS).
2003: Collateralized Borrowing and lending obligation (CBLO).
2004: Credit Clearing Corporation of India Ltd (CCIL).
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5. Dr Raju Indukoori
Out comes of Money Market Reforms
1. More liquidity with introduction of new
instruments.
2. More participants.
3. Simple operational procedures.
4. Technology based system.
5. Growth size of the markets.
6. Strong regulation.
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6. Dr Raju Indukoori
Types of Money Market
1. Money Market Instrument.
2. Money Market Loans.
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7. Money Market Instruments
1. Treasury bill (TB).
2. Repos.
3. Collateralized Borrowing and Lending Obligation (CBLO).
4. Commercial paper (CP).
5. Commercial Bill (CB).
6. Certificate of deposit (CD).
7. Money Market Derivatives.
8. Hundis
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8. Money Market Loans
1. Call Money.
2. Inter bank Participatory Certificate (IBPC).
3. Banker’s Acceptance.
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9. MONEY MARKET INSTRUMENTS
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1. Treasury bill
 Issued by RBI on behalf of Government of India
(GOI). It is further rediscounted in the secondary
market.
 Issued at discount and Redeemed at Par.
 Introduced in India in 1917.
 Issued at discount and redeemed at par.
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11. Dr Raju Indukoori
Importance of Treasury bill
 Risk Free.
 Marketability.
 Serve as bench mark yields
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12. Dr Raju Indukoori
Types of Treasury bills
Based on the tenure
 On tap Bills
 Adhoc Bills
 Auction Bills
Based on the tenure
 14 and 45 Days auction on Friday.
 91, 182 and 364 days auction on alternate week Wednesday.
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14. Dr Raju Indukoori
2. Repo
Instrument for borrowing funds by selling securities
with an agreement to repurchase the securities on a
mutually agreed future date at an agreed price which
includes interest for the funds borrowed.
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15. Dr Raju Indukoori
Types of Repo
1. Repo: Instrument for borrowing funds by selling securities with an
agreement to repurchase the securities on a mutually agreed future
date at an agreed price which includes interest for the funds borrowed.
2. Reverse repo: Instrument for lending funds by purchasing securities
with an agreement to resell the securities on a mutually agreed future
date at an agreed price which includes interest for the funds lent.
3. Tri-party repo: Contract where a third entity (apart from the borrower
and lender), called a Tri-Party Agent, acts as an intermediary between
the two parties to the repo to facilitate services like
 collateral selection
 Payment
 Settlement
 Custody
 management during the life of the transaction.
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16. Dr Raju Indukoori
3. Collateralized Borrowing and Lending Obligation (CBLO)
 Introduction: In 2003 for those who cannot participate in Call
money market.
 Participants: Financial institutions that doesn’t have access to
Call money market.
 Tenure: 1 day to 1 year.
 Transferable.
 Borrowings are fully collateralized safeguarding default risk.
 Repayment of the loan to the lenders is guaranteed by Clearing
Corporation of India Ltd (CCIL).
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17. Dr Raju Indukoori
CBLO Market
 Orders
 Bids and offer with amount and rate.
 Bids be modified or cancelled but offers can’t.
 Timings
 Auction market : 11:15 AM to 12:15 Pm.
 Normal market : 09:00 AM to 03:PM (Saturday 01:30 PM).
 Lot size
 Auction Market : Minimum amount is Rs 50 Lakh and multiples of Rs 5
Lakh.
 Normal Market : Minimum amount is Rs 5 Lakh and multiples of Rs 5
Lakh.
 Clearing and Settlement
 T+0 Day.
 CCIL is the centralized counter party guaranteeing the transactions.
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18. Dr Raju Indukoori
4.Certificate of deposits market
 Issued by Banks for their working capital
Requirements.
 Issued to banks, companies and Institutions.
 Secondary market doesn’t exist.
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19. Dr Raju Indukoori
5. Commercial paper
 It is the unsecured promissory note issued at
discount by a reputed corporation in the money
market for its short term liquidity needs.
 Issued at discount and paid at face value on
maturity.
 It happens that new commercial papers are
issued to write off the maturity date.
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20. Dr Raju Indukoori
Contd..
 Issued by companies for their working capital
requirements.
 Commercial banks, companies and financial
Institutions are the major contributors.
 Secondary market is inactive.
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21. Dr Raju Indukoori
6.Commercial Bills
• Introduced in 1970 by RBI with bank rate as the discount
rate.
• Issued at discount as a credit facility to bank’s customers.
• Provide liquidity for sellers meeting their working capital
requirements.
• It is rediscounted for trades in case the banks need money.
• Improve the quality of short term Lending.
• It is also known as Bill of Exchange and Bill discounted.
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22. Dr Raju Indukoori
Commercial Bill Types
A. Bearer bill vs Order bill
B. Demand vs Usance bill.
C. Clean bill vs Documentary bill.
D. Inland bill and vs foreign bill.
E. Accommodation bill.
F. Derivative usance promissory note.
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23. Dr Raju Indukoori
Commercial Bill market Development
• 1970: Introduced by RBI with bank rate as the discount rate.
• 1989: Interest rate ceiling on the discount rate was removed.
• 1995: Mutual funds are allowed.
• 1996: Primary dealers were allowed.
• 1997: RBI advised banks to ensure 25% of inland credit
purchases through CBs.
• 1988: Discount and Finance House of India (DFHI) formed to
to promote CB Market.
• SEBI allowed mutual funds to participate in BD market.
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24. Dr Raju Indukoori
Commercial Bill Vs Commercial Paper
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Factor Commercial Bill Commercial Paper
Need Credit Sales Working capital
Drawn by Creditor Debtor
Parties Drawer, Drawee, Payee Drawer, Payee
Obligation Order to pay Promise to pay
Need for acceptance Yes No
Transferable Yes Yes
Payable to bearer Yes No

25. Dr Raju Indukoori
7. Money Market Derivatives
1. Interest rate futures (IRF)
2. Forward rate agreements (FRA)
3. Interest rate swaps (IRS)
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26. Dr Raju Indukoori
Interest Rate Swaps
Based on the complexity.
 Plain Vanilla IRS: Simplest form of contract.
 Exotic IRS : More complicated features.
Based on the interest rates.
 Fixed to floating.
 Floating to fixed.
 Floating .to floating.
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27. Dr Raju Indukoori
8. Hundi
 Hundi is the financial instruments evolved in India to meet
trade and credit transactions.
 It is an unconditional order in writing made by a person
directing another to pay a certain sum of money to a
person named in the order.
 Hundis, being a part of the informal system have no legal
status and are not covered under the Negotiable
Instruments Act, 1881.
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28. Dr Raju Indukoori
Role of Hundi
 Means of remittance instruments to transfer
funds from one place to another in the olden
days.
 Used in trade transactions.
 Used as credit instruments.
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29. Dr Raju Indukoori
Hundi equivalents
Hundis and Checks
 Used as equivalents of checks issued by indigenous bankers.
 Means of remittance instruments to transfer funds from one place
in the olden days.
Hundis and Bills of Exchange (BOE)
 Normally regarded as bills of exchange, they were more often.
 Used in trade transactions equivalent to bills of exchange.
Hundis and Bills of Exchange (BOE)
 Hundis are also credit instruments.
 Equivalent to Commercial bill discounting.
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30. MONEY MARKET LOANS
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31. Dr Raju Indukoori
1.Call money market
 It is the market for very short term lending and borrowing
among the commercial banks.
 The rate of interest charged on call money lending and
borrowing is called as ‘Call rate’.
 Monitored by RBI
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32. Dr Raju Indukoori
Types of Call money market
1. Call Money : 1 day
2. Notice Money : 2 days to 14 days
3. Term Money : > 14 days.
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33. Dr Raju Indukoori
2. Inter Bank Participatory Certificate (IBPC)
Certificates are issued against the loans given in
excess to the priority sectors.
Participants: All commercial banks (Indian and
Foreign). Regional Rural Banks (RRBs) for180 days.
Objective: To provide flexibility in the credit portfolio
and to smoothen the working of consortium
arrangements.
Tenor : Upto 180 days.
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34. Dr Raju Indukoori
Importance of IBPCs
 Banks which buy (invest) in IBPC can
consider as priority sector lending.
 Surplus lending banks issue IBPC to deficit
lending banks.
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35. Dr Raju Indukoori
IBPC Types
I . With Risk Sharing
II. Without risk sharing
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36. Dr Raju Indukoori
3. Banker’s Acceptance (BA)
 It is similar to letter of credit(LC) and bank guarantee (BG) which
are the tools bank credit.
 Unlike LC and BG, BA is tradable.
 BA has risk of systematic Contagion.
 It is a time draft or bill of Exchange drawn on and 'accepted' by a
bank as its commitment to pay a third party.
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37. Dr Raju Indukoori
How does BA work?
 BA is said to be accepted, when a bank writes on the draft its
agreement to pay it on maturity. The bank becomes the primary
obligator of the draft or bill of exchange drawn on and accepted by
it.
 In effect, BA involves substituting bank’s creditworthiness for that
of a borrower.
 The accepted bill bears an irrevocable, unconditional guarantee of
a bank to pay the bill on maturity, in the process creating a
negotiable instrument that is also attractive to investors in short
term paper. .
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38. Dr Raju Indukoori
BA Features
 Inter-bank operating
 Call rate is charged on lending
 Monitored by RBI
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39. Dr Raju Indukoori
BA Participants
 Drawer: The bank’s customer - importer or exporter.
 Acceptor: A bank or an Acceptance House.
 Discounter: A bank which could be the accepting bank itself or a different bank
or a discount house.
 Re-discounter: Another bank, discount house or the Central Bank.
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40. Money Market as on 21st Aug 2019
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41. Dr Raju Indukoori
Thank You
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42. Dr Raju Indukoori
Any Questions
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43. Dr Raju Indukoori
More on RBI website
https://m.rbi.org.in/Scripts/BS_ViewMMO.aspx
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