195002065 Money Market Instruments.

8/19/2019 195002065 Money Market Instruments.

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ORGANISED INSTRUMENTS

1. Call money market

2. Treasury Bills

. Commer!ial "a#ers$. Certi%i!ate o% De#osits

&. Re#o ' Re(erse re#o

). MMM*s

+. D*,I-. A*

/. CBO

prof. Nandini Katti

MONEY MARKET INSTRUMENTS

UNORGANISED

INSTRUMENTS

1. In0ienous Bankers

2. Cit %un0s. Ni00is

$. Money len0ers

&. *inan!e !om#anies


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It is a market %or o(ernit to sort term %un0s an0

instruments a(in a maturity #erio0 o% one or less tan one

year.. Te money market !onstitutes a (ery im#ortant sement o%

te In0ian %inan!ial system Te a(erae turno(er o% te money market in In0ia is o(er

Rs. $3333 !rores 0aily Tis im#lies tat 2 4 o% annual GD" o% In0ia ets tra0e0 in

te money market in 5ust one 0ay6 an0 ten trou te moneymarket it is many times larer tan te !a#ital market6 it is not

e(en a %ra!tion o% te 0aily tra0in in 0e(elo#e0 markets.

prof. Nandini Katti

INTRODUCTION


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Te !all money market is a market %or (ery sort term %un0s

re#aya7le on 0eman0 an0 8it a maturity #erio0 (aryin

7et8een one 0ay to a %ortnit

No !ollateral se!urity is re9uire0 to !o(er tese transa!tions.

Te !all money market is a ily li9ui0 market6 It is ily

risky.

Commer!ial 7anks 7orro8 money %rom oter 7anks to

maintain a minimum !as 7alan!e kno8n as te !as reser(e

re9uirement :CRR;. Tis inter 7ank 7orro8in as le0 to te

0e(elo#ment o% te !all money market. Te interest rate #ai0

on !all loans is kno8n as te to>0ay our>to>our. It is (ery sensiti(e

to !ane in te 0eman0 %or an0 su##ly o% !all loans. ?itin

one %ortnit rate are kno8n to a(e mo(e0 %rom 1>2 #er!ent

to (ary 1$34prof. Nandini Katti

Call/Notice Money market


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Treasury 7ills are sort term instruments issue0 7y teReser(e Bank on 7eal% o% te o(ernment to ti0e o(er sort

term li9ui0ity sort%alls.

Tis instrument is use0 7y te o(ernment to raise sort>term

%un0s to 7ri0e seasonal or tem#orary a#s 7et8een its

re!ei#ts :Re(enue an0 !a#ital; an0 e@#en0iture.

Tey %orm te most im#ortant sement o% te money market

not only in In0ia 7ut all o(er te 8orl0 as 8ell.

T – Bills are reai! at ar on mat"rity. Te 0i%%eren!e

7et8een te amount #ai0 7y te ten0er at te time o% #ur!ase.

:8i! is less tan te %a!e (alue; an0 te amount re!ei(e0 on

maturity re#resent te interest on T 7ills an0 is kno8n as te

0is!ount. Ta@ 0e0u!te0 at sour!e :TDS; is not a##li!a7le on T

7ills.prof. Nandini Katti

Treas"ry Bills


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#eat"res o$ T – %ills&

Tey are neotia7le se!urities.

Tey are ily li9ui0 as tey are o% sorter tenure an0 tereis a #ossi7ility o% te inter7ank re#os in tem.

Tere is an a7sen!e o% 0e%ault risk.

Tey a(e an assure0 yiel0 lo8 transa!tion !ost6 an0 are

elii7le %or in!lusion in te se!urities %or SR #ur#oses. Tey are not issue0 in s!ri# %rom. Te #ur!ases an0 sales are

e%%e!te0 trou te su7si0iary eneral le0er :SG; a!!ount.

At #resent tere are /1 0ays6 1-2 0ays an0 )$ 0ays. T 7ills

in (aue. Te /1 0ays T 7ills au!tione0 7y te RBI e(ery*ri0ay an0 te )$ 0ays T 7ills e(ery alternate ?e0nes0ay

i.e. te ?e0nes0ay #re!e0in te re#ort on *ri0ay.

Minimum amount o% %a!e (alue Rs.1 la! an0 in multi#les

tereo%. Tere is no s#e!i%i! amountlimit on te e@tent to

8i! tese !an 7e issue0 or #ur!ase0.prof. Nandini Katti

Treas"ry Bills


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Te 8orkin Grou# on Money Market in 1/-+sueste0 te intro0u!tion o% te !ommer!ial #a#er

:C"; in In0ia.

Te Reser(e Bank intro0u!e0 !ommer!ial #a#ers in

anuary 1//3 . A !ommer!ial #a#er is an unse!ure0 sort>term

#ermission rate6 neotia7le an0 trans%era7le 7y

en0orsement an0 0eli(ery 8it a %i@e0 maturity

#erio0. It is enerally issue0 at a 0is!ount 7y te

lea0in !re0it 8orty an0 ily rate0 !or#orate to

meet teir 8orkin !a#ital re9uirements.

prof. Nandini Katti

Commercial aer


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De#en0in u#on te issuin !om#any6 a !ommer!ial

#a#er is also kno8n as a %inan!e #a#er6 in0ustrial #a#er6

or !or#orate #a#er.

It is also kno8n as %inan!e #a#er6 in0ustrial #a#er or!or#orate #a#er.

All In0ia %inan!ial institution !an also issue C"=s.

It !an also 7e issue0 in interest 7earin %orm.

prof. Nandini Katti

Commercial aer


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'"i!elines Relatin( to C)s > Te maturity #erio0 is a minimum %or +

0ays an0 ma@imum u#to one year. %urter 7rout 0o8n to +0ays in A#ril

233$. Te minimum sie o% te C" is Rs.& lak an0 in multi#les o% it.

Eli(i%ility& * Cor#orate6 #rimary 0ealers an0 all In0ia %inan!es institutions

are elii7le to issue a C". *or a !or#orate to 7e elii7le6 it soul0 a(e

tani7le net 8ort o% Rs. $ !rores an0 a san!tione0 8orkin !a#ital limit

%rom a 7ank or a %inan!ial institution an0 te 7orro8er a!!ount is a

stan0ar0 asset.

Ratin( Re+"irement& Te minimum !re0it ratin sall 7e "2 o% CRISI

or su! e9ui(alent ratin 7y oter a##ro(e0 aen!ies.

In,estment in C)s& in0i(i0uals6 7anks6 !or#orate 7o0ies6 NRIs6 *IIs are

elii7le to in(est.

Iss"in( - )ayin( A(ent .I)A; only a s!e0ule0 !ommer!ial 7ank !an a!t

as an I"A.

prof. Nandini Katti

Commercial aer


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A !ommer!ial 7ill is a sort term6 neotia7le an0 sel%>

li9ui0atin instrument 8it lo8 risk.

It enan!es te ia7ility to make #ayment on a %i@e0

0ate 8en oo0s are 7out on !re0it.

A!!or0in to te In0ian Neotia7le Instruments A!t6

1--16 a 7ill o% e@!ane is a 8ritten instrument!ontainin on un!on0itional or0er sine0 7y te

maker6 0ire!tin to #ay a !ertain amount o% money

only to a #arti!ular #erson6 or to te 7earer o% te

instrument. Bills o% e@!ane are neotia7le instrument 0ra8n

7y te seller :0ra8er; on te 7uyer :0ra8ee; %or te

(alue o% te oo0s 0eli(ere0 to im. Su! 7ills are

!alle0 tra0e 7ills prof. Nandini Katti

Commercial Bills


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When trade bills are accepted by commercialbanks, they are called commercial bills.

The bank discounts these bills by keeping acertain margin and credits the proceeds.

Banks when in need of money can also getsuch bills rediscounted by nancial institutionssuch as L!, "T, #!, !! and $B.

The maturity period of the bills %aries from &'days, (' days or )' days depending on thecredit e*tended in the industry.

prof. Nandini Katti

Commercial Bills


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Certi%i!ates o% 0e#osit :CD; are unse!ure06 neotia7le6

sort term instruments in 7earer %irm6 issue0 7y!ommer!ial 7anks an0 0e(elo#ment %inan!ial

institutions.

Certi%i!ates o% 0e#osit 8ere intro0u!e0 in une6 1/-/.

Only s!e0ule0 !ommer!ial 7anks e@!isin Reional

Rural Banks an0 lo!al Area Banks 8ere allo8e0 to issue

tem initially.

*inan!ial institutions 8ere #ermitte0 to issue!erti%i!ates o% 0e#osit 8itin te um7rella limit %i@e0 7y

te Reser(e Bank in 1//2.

prof. Nandini Katti

Certi$icates o$ Deosit:


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Certi%i!ates o% 0e#osit are time 0e#osits o% s#e!i%i! maturity

similar to %i@e0 0e#osits :*D;. Te 7iest 0i%%eren!e 7et8een te t8o is tat CDs6 7ein in

7earer %orm6 are trans%era7le an0 tra0a7le 8ile *Ds are not.

ike oter time 0e#osits6 CDs6 are su75e!t to SR an0 CRR

re9uirement. Tere is no !eilin on te amount to 7e raise0 7y

7anks.

Te 0e#osits attra!t stam# 0uty as a##li!a7le to neotia7le

instruments.

Tey !an 7e issue0 to in0i(i0uals. Cor#orations6 !om#anies6

trusts6 %un0s6 asso!iates6 an0 oters.

. Non>Resi0ent In0ians :NRIS; may also su7s!ri7e to CDs6 7ut

only on a non>re#atria7le 7asis 8i! soul0 7e !learly state0

on te !erti%i!ate su! CDs !annot en0orse0 to anoter NRI in

te se!on0ary market. prof. Nandini Katti

Certifcates o Deposit:


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Te D*,I 8as set u# in A#ril6 1/-- 7y te Reser(e Bank 8it

te o75e!ti(e o% 0ee#enin an0 a!ti(atin te money market. It!ommen!e0 its o#erations %rom uly2-6 1/--.

It is a 5oint sto!k !om#any in %orm an0 is 5ointly o8ne0 7y

te Reser(e 7ank6 #u7li! se!tor 7anks an0 all In0ia %inan!ial

institutions 8i! a(e !ontri7ute0 to its #ai0 u# !a#ital o%Rs.233 !rore in te #ro#ortion o% &2. In a00ition re%inan!e

%a!ility 8it te Reser(e 7ank an0 !re0it o% Rs. 133 !rore %rom

2- #u7li! se!tor 7anks on a !onsortium 7asis are te !ourses

o% its %un0s.

Te role o% te D*,I is to %un!tion as a s#e!ialie0 money

market interme0iary %or stimulatin a!ti(ity in money market

instruments an0 0e(elo# se!on0ary markets in tese

instruments.

prof. Nandini Katti

!isco"nt an! #inance o"se o$ In!ia .D#I0&


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It also un0ertakes sort term 7uy 7a!k o#eration in

te o(ernment an0 a##ro(e0 0ate0 se!urities

Te D*,I mo7ilies %un0sresour!es %rom

!ommer!ial!oo#erati(e 7anks %inan!ial institutions6an0 !or#orate entities a(in resour!es to len0 8i!

are #oole0 an0 lent in te money market.

Te t8o 8ay reular 9uotes in money market

instruments #ro(i0e0 7y te D*,I ser(e as a 7ase to 7roa0en te se!on0ary market an0 i(e an assure0

li9ui0ity to te instruments.

prof. Nandini Katti

!isco"nt an! #inance o"se o$ In!ia

.D#I0&


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Money Markets Mutual *un0s :MMM*; 8ereintro0u!e0 in A#ril 1//1 to #ro(i0e an a00itional

sort term a(enue %or in(estment an0 7rin money

market in(estment 8itin te rea! o% in0i(i0uals.

Tese mutual %un0s 8oul0 7e in(este0 e@!lusi(elyin money market instruments.

MMM* 7ri0es te a# 7et8een small in0i(i0ual

in(estors an0 te money market. MMM* mo7ilies sa(ins %rom small in(estors an0

in(est tem in sort term 0e7t instruments or money

market instruments

prof. Nandini Katti

Money market MutualFunds:


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Base0 on te re!ommen0ations o% te task %or!e6 a

0etaile0 s!eme o% MMM* 8as announ!e0 7y te

Reser(e Bank in A#ril 1//2.

Te MMM* #ort%olio !onsists o% sort term money

market instruments. An in(estor in(estin in MMM*

ets a yiel0 !lose to sort term money market rates

!ou#le0 8it a0e9uate li9ui0ity.

prof. Nandini Katti

Money market MutualFunds:


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Te Narsiman Committee on Bankin Se!tor Re%orms

:Re#ort II6 1//-; re!ommen0e0 tat te Reser(e Bank #ro(i0e

su##ort to te market trou an A* s!eme.

Tis %a!ility 8oul0 el# in a0e9uate li9ui0ity.

Te interim A*6 intro0u!e0 in A#ril 1///6 #ro(i0e0 a

me!anism %or li9ui0ity manaement trou a !om7ination

o% re#os6 e@#ort !re0it re%inan!e6 su##orte0 7y OMO at setrates o% interest.

Te interim A* 8as ra0ually !on(erte0 into a %ull>%le0e0

A* s!eme.

It 8as im#lemente0 in tree #ases6 in te %irst #ase6 teAC* %or 7anks an0 #rimary 0ealers6 in te se!on0 stae te

C" %or 7anks an0 #rimary 0ealer 8as re#la!e0 7y (aria7le

re(erse re#o 9uestionsF an0 in te %inal stae6 te A* 8ill 7e

o#erate0 at 0i%%erent timins on te same 0ay in ne!essary.prof. Nandini Katti

Liquidity Adjustment Facility:


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Te ma5or %un!tion o% te money market is to #ro(i0e

li9ui0ity.

To a!ie(e tis %un!tion an0 to e(en out li9ui0ity !anes6 te

Re(erse Bank uses re#os.

Re#o is a use%ul money market instrument ena7lin te

smoot a05ustment o% sort>term li9ui0ity amon (arie0

market #arti!i#ants su! as 7anks an0 %inan!ial institutions. Re#o re%ers to a transa!tion in 8i! a #arti!i#ant a!9uires

imme0iate %un0s 7y sellin se!urities an0 simultaneously

arees to te re#ur!ase o% te same or similar se!urities a%ter

a s#e!i%ie0 time at a s#e!i%ie0 #ri!e. Re#o is also re%erre0 to as a rea0y %or8ar0 transa!tion as it is

a means o% %un0in 7y sellin a se!urity el0 on a s#ot 7asis

an0 re#ur!asin te same on a %or8ar0 7asis.

prof. Nandini Katti

Reos& *


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te o##osite o% re#o> a #arty 7uys a se!urity %rom

anoter #arty 8it a !ommitment to sell it 7a!k to telatter at a s#e!i%ie0 time an0 #ri!e.

In oter 8or0s6 8ile %or one #arty te transa!tion is

re#o6 %or anoter #arty it is re(erse re#o.

A re(erse re#o is un0ertaken to earn a00itional in!ome

on i0le !as. In In0ia6 re#o transa!tions are 7asi!ally

%un0 manaementSR manaement 0e(i!es use0 7y

7anks

prof. Nandini Katti

Re,erse reo


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Te !learin !or#oration o% In0ia imite0 :CCI;

laun!e0 a ne8 #ro0u!t !ollateralie0 Borro8in an0

len0in o7liation :CBO; on anuary 236 233 to

#ro(i0e li9ui0ity to non>7ank entities it 7y

restri!tions on a!!ess to te !all money market.

Te minimum or0er lot %or au!tion market is

Re.&lak an0 in multi#les o% Rs.& lak tereo%. Te

minimum or0er lot %or normal market is %i@e0 at Rs &lak an0 in multi#le o% Rs. &lak tereo%

prof. Nandini Katti

Collateralized Borrowin andLendin !"liation #CBL!$:


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Dic1otomy Str"ct"re

E2istence o$ t1e Unor(ani3e! Money Market

A%sence o$ Inte(ration

Di,ersity in Money Rates o$ Interests Seasonal Strin(ency o$ Money

A%sence o$ t1e Bill Market

4ess n"m%er o$ Dealers

A,aila%ility o$ cre!it instr"ments

A%sence o$ a 5ell* or(ani3e! Bankin( System

prof. Nandini Katti

Features and Deects o t%e &ndian money market'


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It is a sini%i!ant as#e!t o% te In0ian money

market. It as a simultaneous e@isten!e o% 7ot te

oranie0 money market as 8ell as unoranie0

money markets. Te oranie0 money market !onsists o% RBI6 all

s!e0ule0 !ommer!ial 7anks an0 oter

re!onie0 %inan!ial institutions. ,o8e(er6 te unoranie0 #art o% te money

market !om#rises 0omesti! money len0ers6

in0ienous 7ankers6 tra0er6 et!.

prof. Nandini Katti

Dic%otomy (tructure


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Te oranie0 money market is in %ull !ontrol o% te

RBI.

,o8e(er6 unoranie0 money market remains outsi0e

te RBI !ontrol.

Tus 7ot te oranie0 an0 unoranie0 money

market e@ists simultaneously.

prof. Nandini Katti

Dic%otomy (tructure


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Te ma5or 0e%e!t o% te In0ian money market as

al8ays 7een te e@isten!e o% te in0ienous 7ankers8o 0o not 0istinuis 7et8een sort>term an0 lon>

term %inan!e nor e(en 7et8een te #ur#ose o% %inan!e

:as te ,un0i 0oes not in0i!ate 8eter it is a

enuine tra0e Bill or a %inan!ial #a#er.; Many attem#ts 8ere ma0e 7y RBI to 7rin te

in0ienous 7ankers un0er its 0ire!t in%luen!e an0

!ontrol.

Durin te last &3 years6 tere are a 8ole lot o% non>

7ankin %inan!ial !om#anies :NB*C; 8o raise %un0s

o% %rom te eneral #u7li! 7ut 8o are enerally

outsi0e te !ontrol an0 su#er(ision o% RBI.prof. Nandini Katti

)*istence o t%e +noranized Money Market


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An im#ortant 0e%e!t o% te In0ian money market at

one time 8as te 0i(ision o% te money market in tose(eral sements or se!tions6 loosely !onne!te0 to

ea! oter.

Ea! se!tion o% te money market su! as te State

Bank o% In0ia an0 its su7si0iaries te %oreine@!ane 7anks6 te ur7an !o>o#erati(e 7anks an0

in0ienous 7ankers limite0 itsel% 7roa0ly to a

#arti!ular !lass o% 7usiness an0 remaine0 in0e#en0ent

in its o8n s#ere. Moreo(er6 te relations 7et8een te (arious se!tions

o% te Money market 8ere not !or0ial

prof. Nandini Katti

A"sence o &nteration


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Tis is so e(en no8 7et8een In0ian 7anks an0 %orein

7anks. ?it te #assae o% te Bankin Reulation A!t1/$/6 all 7anks a(e 7een treate0 e9ually 7y RBI as

rear0s li!ensin6 o#enin o% 7ran!es6 sare !a#ital6

te ty#es o% loans an0 a0(an!es to 7e i(en6 et!.

A!!or0inly6 te In0ian money market is ettin !loseinterate0. Besi0es RBI ui0es an0 0ire!t tem in teir

len0in #oli!ies an0 reularly ins#e!ts te 7ooks o%

s!e0ule0 !ommer!ial 7anks.

,o8e(er6 RBI=s !ontrol an0 monitorin o% te

!ommer!ial 7ankin se!tors are not %ully e%%e!ti(e. Tis

is !lear %rom ,arsa0 Meta s!an in 1//2 an0 etan

"arek s!an in 2331 prof. Nandini Katti

A"sence o &nteration


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Anoter 0e%e!t o% te In0ian money market relate0 to

te e@isten!e o% too many rest o% interest. Te 7orro8in rate o% te Go(ernment6 te 0e#osit an0

len0in rates o% !ommer!ial 7anks6 0e#osit an0 len0in

rates o% !oo#erati(e 7anks6 te len0in rates are

0i%%erent. Te 7asi! reason %or te e@isten!e o% so many rates o%

interest simultaneously is te immo7ility o% %un0s %rom

one se!tion o% te money market to anoter.

In re!ent years te 0i%%erent money rates o% interest a(e

7een #rom#tly a05ustin to !anes in te 7ank rate.

prof. Nandini Katti

Di,ersity in Money -ates o &nterests


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A (ery strikin !ara!teristi! o% te In0ian money 8as

te seasonal monetary strinen!y an0 i rates o%interest 0urin a #art o% te year 0urin te 7usy

season %rom No(em7er to une 8en %un0s are re9uire0

to mo(e te !ro#s %rom te (illaes an0 u#>!ountry

0istri!ts to te !ities an0 #orts. Durin te o%% season :uly to O!to7er; or sla!k season6

7anks a(e lare sur#lus %un0s an0 te rates o% interest

rea! lo8 le(els.

Tere are e(en no8 8i0e %lu!tuations in te money rates

o% interest %rom one #erio0 o% te year to anoter.

prof. Nandini Katti

(easonal (trinency o Money


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RBI attem#t to lessen te seasonal %lu!tuations in temoney market6 7y #um#in money into te money

market 0urin 7usy seasons an0 8it0ra8in te same

0urin o%% seasons.

Tis %eature o% money market seasonal strinen!y or

lut is #resent e(en no8.

prof. Nandini Katti

(easonal (trinency oMoney


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Anoter 0e%e!t o% te In0ian money market 8as te

a7sen!e o% a !ommer!ial Bill market or a 0is!ount

market %or sort term !ommer!ial 7ills.

A 8ell oranie0 7ill market is ne!essary %or linkin u#

te (arious !re0it aen!ies ultimately an0 e%%e!ti(ely toRBI. 7ill market 8as not mu! 0e(elo#e0 in In0ia 0ue to

reasons su! as te #ra!ti!e o% 7anks kee#in a lare amount o% !as %or

li9ui0ity #ur#oses6 #re%eren!e o% in0ustry an0 tra0e %or 7orro8in rater tan

re0is!ountin 7ills

te im#ro#er 0ra%tin o% te 7aaar un0i

prof. Nandini Katti

A"sence o t%e Bill Market


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te system o% !as !re0it as6 te main %orm o% 7orro8in %rom 7anks6

te #re%eren!e o% !as transitions in !ertain lines o%

a!ti(ity6 te a7sen!e o% 8areousin %a!ilities %or storin

ari!ultural #ro0u!e an0

te i stam# 0uty on eusan!e 7ills.

prof. Nandini Katti

A"sence o t%e Bill Market


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Anoter ma5or 0e%e!t o% te In0ian money market 8as te

a7sen!e o% a 8ell> oranie0 7ankin system. Bran! 7ankin 8as e@tremely slo8 7e%ore 7ank

nationaliation in 1/)/. Tere 8ere only a %e8 7i 7anks

in te !ountry an0 tey !on!entrate0 temsel(es in lare

to8ns an0 man0i to8ns.

Te e@treme sluisness in te mo(ement o% %un0s an0

te e@isten!e o% slo8 7ran! 7ankin in te !ountry.

In s#ite te (arious ste#s taken to strenten te In0ian 7ankin system RBI as %aile0 to really !entral an0 ui0e

it. In tis !onne!tion6 8e may re%er to tree instan!es.

prof. Nandini Katti

A"sence o a .ell/ oranized Bankin (ystem


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,arsa0 Meta enineere0 se!urities s!an in 1//2 7y

usin %un0s %rom 8ell kno8n 7anks6 7ot %orein an0

In0ian.

etan "arek use0 te %un0s o% ur7an !oo#erati(e 7anksan0 tese o% Bank o% In0ia an0 HTI to mani#ulate te

#ri!es o% sares o% a %e8 !om#anies in 8i! e 8as

intereste0. Tis le0 to a (irtual !ras o% te In0ian sto!k

market as a 8ole in 2331F an0 C.M. Aar8al o% ,ome Tra0e use0 te %un0s o% ur7an

!o> o#erati(e 7anks an0 o% #ension %un0s to #lay in te

ilt e0e0 market in Mar! 2332.prof. Nandini Katti

A"sence o a .ell/ oranizedBankin (ystem


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Till 1/-&>-)6 te In0ian money market 0i0 not a(e

a0e9uate sort term #a#er instruments.

A#art %rom te !all money market6 tere 8ere no

s#e!ialist 0ealers an0 7rokers 0ealin in 0i%%erentsements o% te In0ian money market an0 in 0i%%erent

kin0s o% #a#er instruments.

It 8as only a%ter 1/-&>-) tat RBI store0 intro0u!in

ne8 #a#er instruments su! as 1-2 0ays treasury 7ills6 later !on(erte0 to )$ 0ays treasury 7ills6

!erti%i!ates o% 0e#osits :CDs; an0 !ommer!ial #a#er

:C"s;.prof. Nandini Katti

A,aila"ility o creditinstruments


35/121

Tere are #oor num7er o% 0ealers in te sort>termassets 8o !an a!t as me0iators 7et8een te

o(ernment an0 te 7ankin system.

Te less num7er o% 0ealers lea0s to te slo8 !onta!t

7et8een te en0 len0er an0 en0 7orro8ers

prof. Nandini Katti

Less num"er o Dealers

Re$orms o$ t1e In!ian Money Market


36/121

Te In0ian money market as no8 7een !losely knittoeter6 at least in te oranie0 se!tor.

RBI as !onsi0era7ly re0u!e0 te 0i%%eren!es in te

rates o% interest 8i! e@iste0 in 0i%%erent #la!es an0 at

0i%%erent times6 RBI as 7een a7le to re0u!e !onsi0era7ly monetary

strinen!y trou o#en market o#erations an0 te 7ill

market s!eme.

Te In0ian money market is still !entere0 on te !all

money market 7ut a 7einnin as 7een ma0e to

0e(elo# a se!on0ary money market.

prof. Nandini Katti


.6789*:;;


37/121

A ma5or #ro7lem in te !all money market is its i(olatility. In re!ent years6 te 9uantum o% !all money

transition as 7een in!reasin an0 te a(erae !all

money rates a(e 7een risin.

On te re(ie8 o% te 8orkin o% te Monetary System6

an0 te Narasiman Committee Re#ort on te ?orkin

o% te *inan!ial System in In0ia6 1//16 RBI as

initiate0 a series o% money market re%orms

prof. Nandini Katti


.6789*:;;


38/121

As #art o% its anti>in%lationary #oli!y6 RBI a0 %ollo8e0 a stri!t

#oli!y o% interest rate !ontrol an0 reulatin 0e#osit rates o%

7anks6 len0in rates o% 7anks an0 %inan!ial institutions>all kin0s o% interest rates 8ere su75e!t to stri!t !ontrol an0

reulation 7y RBI.,o8e(er %rom 1/--6 RBI took ste#s to re0u!e te !eilin rate

on 7ank a0(an!es on inter7ank !all an0 sort noti!e money. *ollo8in te re!ommen0ations as te Narasimam

Committee in No(em7er 1//16 interest rates 8ere %urter

0ereulate0 an0 7ankin an0 %inan!ial institutes 8ere tol0 to

0etermine an0 a0o#t market relate0 rates o% interest.

prof. Nandini Katti

Rela2ation o$ Interest Rate Re("lations


39/121

Te minimum len0in rate o% !ommer!ial

7anks an0 #u7li! se!tor 0e(elo#ment

%inan!ial institution :D*Is; 0e!line0 stee#ly

%rom 1- #er!ent in 1//3>/1 to 13.& #er!ent

in 233&>3).Te #resent #osition o% interest rate

reulations are

prof. Nandini Katti



40/121

RBI as !ontinue0 to re0u!e te 7ank rate %rom 13 #er!ent in 1//3>/1 to ) #er!ent in 233$>3& 7e!ause o%

im#ro(e0 li9ui0ity #osition 8it te 7ankin system

an0 also 7e!ause o% te nee0 to stimulate te e!onomy.

Interest rates on 0omesti! term 0e#osits a(e 7een

7roa0ly 0e!ontrolle0.

ike8ise rate o% interest on 7ank loans as 7een

0e!ontrolle0 an0 is 0etermine0 7y market %or!es. Inoter 8or0s6 te system o% a0ministere0 interest rates in

In0ia as 7een 0ismantle0.

prof. Nandini Katti



41/121

Te In0ian money market a0 su%%ere0 %romina0e9uately o% sort>term !re0it instruments.

In te #ast6 tere 8ere only /1 0ays 7ills 8i! 8ere

tra0e0 in te In0ian money market.

On te re!ommen0ation o% Haul 8orkin Grou#6 RBI

as intro0u!e0 many ne8 instruments on te money

market

prof. Nandini Katti

Intro!"ction o$ ne= instr"ments in t1e

money market


42/121

68: !ays treas"ry %ills&

Tese 7ills 8it (aria7le interest 7ills an0 8ere sol0

trou %ortnitly au!tions.

Te yiel0 o% tis lon 0ate0 #a#er a0 7e!omeattra!ti(e as a ily li9ui0 instrument.

Tese 8ere re#la!e0 7y )$ 0ays Treasury 7ills.

Tey a(e 7een re>intro0u!e0 0urin 1///>2333.

prof. Nandini Katti

Intro!"ction o$ ne= instr"ments in t1e

money market

>9? !ays Treas"ry Bills@ Tere 8as !onsi0era7le s!o#e %or


43/121

>9? !ays Treas"ry Bills@ Tere 8as !onsi0era7le s!o#e %or

7anks an0 %inan!ial institutions to 7e intereste0 in lon

0ate0 7ills6 as tey 8ere %ar su#erior to teir loan assets an0

in(estments 8i! !oul0 not 7e easily li9ui0ate0 in times o%nee06 8itout in!urrin ea(y losses.

Te )$ 0ays treasury Bills a(e tus 7e!ome an im#ortant

instrument o% o(ernment 7orro8in %rom te market an0

also lea0in money market instrument in te sense tat teiryiel0 is most re%le!ti(e o% market !on0itions.

*inan!ial institutions re!onie te yiel0 rate on )$ 0ay

Treasury Bills as te an!or rate %or %loatin interest rate

instruments.

prof. Nandini Katti


44/121

1$ 0ays interme0iate Treasury Bills %rom A#ril61//+

at a 0is!ount rate e9ui#ment to te rate o% interest on

8ays an0 means a0(an!es to te Go(ernment o% In0ia

tese 7ills !ater to te nee0s o% state o(ernments%orein6 !entral 7anks an0 oter s#e!i%ie0 7o0ies

:tese a(e sur#lus %un0s 8i! !an 7e in(este0 %or

(ery sort #erio0s;

A ne8 !ateory o% 1$ 0ays Treasury Bills6 sol0trou au!tion %or te %irst time in une6 1//+ is

meetin te !as manaement re9uirements o%

(arious a!tions o% te e!onomy.prof. Nandini Katti

-B& introduced two moretreasury "ills in 0112


45/121

Date0 Go(ernment se!urities Te Go(ernment o%In0ia as also 0e!i0e0 to sel% 0ate0 se!urities :o% &

years maturity an0 13 years maturity; on an au!tion

7asis. Te #ur#ose o% tis Go(ernment 0e!ision is To 0e(elo# 0ate0 se!urities as a monetary instrument

8it %le@i7le yiel0s. To #ro(i0e %inan!ial instruments to suit in(estors

e@#e!tations. To meet Go(ernment nee0s 0ire!tly %rom te market.

prof. Nandini Katti

two more treasury "ills in01123'


46/121

Sin!e De!em7er6 1//2 in res#e!t o% !entral Go(ernment 0ate0se!urities6 Re#os are ne8 a reular %eature o% RBIs market

o#erations.I% te 7ankin system e@#erien!es li9ui0ity sortae an0

!onse9uently6 te rate interest are risin6 RBI !omes to assist te

7ankin se!urities 7y re#ur!asin Go(ernment se!urities.?en Go(ernment se!urities are re#ur!ase0 %rom te market6

#ayment is ma0e 7y RBI to !ommer!ial 7anks6 an0 tis a00s to

teir li9ui0ity an0 ena7les tem to e@#an0 teir !re0it to in0ustry

an0 tra0e.Re#os are 0e(elo#in into instruments use%ul %or le(elin out

sar# %lu!tuations in li9ui0ity an0 rate o% interest in te money

market.

prof. Nandini Katti

Reos an! Re,erse Reos&


47/121

Sin!e No(em7er6 1//)6 RBI as intro0u!e0. Re(erseRe#osJ i.e. to sell 0ate0 o(ernment se!urities trou

au!tion at %i@e0 !uto%% rate o% interest.

Te o75e!ti(e is to #ro(i0e sort term re(enue to 7anks

to #ark teir sur#lus %un0s ten tere is !onsi0era7le

li9ui0ity in te money market an0 te !all rate as a

ten0en!y to 0e!line.

prof. Nandini Katti

Reos an! Re,erse Reos&


48/121

Collateralie0 len0in %a!ility :C*; u# to 3.2& #er!ent o% te %ortnitly a(erae outstan0in

areate 0e#osits in 1//+>/-.

C* a(aila7le %or t8o 8eeks at te Bank Rate.

A00itional !ollateralie0 len0in %a!ility :AC*; %or

an e9ui(alent amount o% C* a(aila7le at Bank Rate

#lus 2 #er!entae #oints.

C* an0 AC* %or 7eyon0 t8o 8eeks su75e!t to ana00itional rate o% 2 #er!ent.

prof. Nandini Katti

Interim 4i+"i!ity A!"stment #acility

.I4A#0


49/121

Coolin #erio0 o% t8o 8eeks a%ter C*AC* at #enal rate

:sin!e 0is#ense0 8it 7ase0 on %ee07a!k %rom market

#arti!i#ants;.To %a!ilitate systemati! a05ustment in li9ui0ity6 restri!tion on

#arti!i#ation in money market :0urin te #erio0 o% a(ailinli9ui0ity; 8it0ra8n.S!e0ule0 !ommer!ial 7anks elii7le %or e@#ort !re0it

re%inan!e %a!ility at te Bank Rate 8it e%%e!t %rom A#ril 16

1///.i9ui0ity su##ort aainst te !ollateral o% Go(ernment

se!urities6 7ase0 on 7i00in !ommitment an0 oter #arameters

a(aila7le to "Ds at Bank Rate %or a #erio0 o% /3 0ays.

prof. Nandini Katti


.I4A#0


50/121

A00itional li9ui0ity su##ort aainstGo(ernment se!urities to "Ds %or t8o 8eeks

at te Bank Rate #lus 2 #er!entae #oints.

A7sor#tion o% li9ui0ity in te market 8oul0!ontinue to 7e in te %orm o% %i@e0 rate re#os.Te a7o(e mentione0 %a!ilities to 7e

su##lemente0 7y OMOs 7y te RBI. e@#ort !re0it re%inan!e.

prof. Nandini Katti


.I4A#0


51/121

Liquidity Adjustment Facility #LAF$: nthe last one decade, $B has been using$epos and $e%erse $epos as a deliberatepolicy to,

nuence the %olume of li-uidity in themoney market and through it.

tabiles the short term rate of interest or

the call rates.

prof. Nandini Katti

4i+"i!ity A!"stment #acility .4A#0&


52/121

Tis #oli!y o% usin Re#os an0 Re(erse Re#os is no8

!alle0 te i9ui0ity A05ustment *a!ility :A*;.

RBI as a0o#te0 A* as on im#ortant tool %or

a05ustin li9ui0ity trou Re#os an0 Re(erse Re#oson a 0ay to 0ay 7asis.

Sin!e 2333>316 A* as emere0 as a ma5or

instrument o% monetary #oli!y.

prof. Nandini Katti

4i+"i!ity A!"stment #acility .4A#0&

C tif t d it


53/121

CDs are anoter im#ortant money marketinstrument.

Tey 8ere issue0 7y 7anks in multi#le o% Rs.2& laks

to e@#an0 te in(estor 7ase %or CDs te minimum

(alue 8as re0u!e0 an0 is #resently Rs.1 lak.

Te maturity is 7et8een monts an0 one year.

Tey are issue0 at a 0is!ount to te %a!e (alue an0 te

0is!ount rate is %reely 0etermine0 a!!or0in tomarket !on0itions CDs are %reely trans%era7le a%ter $&

0ays a%ter te 0ate o% issue.

prof. Nandini Katti

Certifcates o deposit#CDs$:

C tif t d it


54/121

Te CDs 7e!ame imme0iately #o#ular 8it 7anks %orraisin resour!es at !om#etiti(e rates o% interest.

T=o imortant olicy !ecisions =ere taken %y RBI

re(ar!in( t1e iss"e o$ CDs@ *irst6 RBI raise06 %rom

May6 1//26 te limit %or issue o% CDs 7y s!e0ule0

!ommer!ial 7anks %rom & to + #er!ent o% teir a(erae

areate 0e#osits.

As a 0ire!t result te areate limits %or te 7ankinsystem %or issue o% CDs in!rease0 %rom Rs. +&$3 !rores

to Rs. 236)33 !rores.

prof. Nandini Katti



55/121

Te C" is issue0 in multi#le o% Rs. & laks su75e!t to aminimum issue o% Rs. 1 !rore maturity o% C" is

7et8een to ) monts.

Te C"s is issue0 at a 0is!ount to %a!e (alue an0 te

0is!ount rate is %reely 0etermine0.

Te ma@imum amount o% C" tat a !om#any !an raise

8as limite0 23 #er!ent :no8 raise0 to 3 #er!ent; o%

te ma@imum #ermissi7le 7ank %inan!e.

prof. Nandini Katti

Commercial )aer .C)0&

Certifcates o deposit


56/121

Se!on0 RBI #ermitte0 IDBI6 ICICI6 an0 I*CI as0e(elo#ment %inan!ial institutions to issue CDs 8it a

maturity #erio0 o% more tan one year an0 u# to

years.

Te aim o% te ste# 8as to #ro(i0e %le@i7ility to

0e(elo#ment %inan!ial institutions to raise resour!es

%rom te market.

Des#ite tese ste#s tere 8as la!k o% interest amon 7anks in issuin %res CDs.

prof. Nandini Katti



57/121

In or0er to im#art trans#aren!y an0 e%%i!ien!y in temoney market transa!tion te ele!troni! 0ealin system

as 7een starte0.

It !o(ers all 0eals in te money market.

it is use%ul %or te RBI to 8at! te money market.

prof. Nandini Katti

Electronic Transactions&


58/121

Te Clearin Cor#oration o% In0ia limite0 :CCI; 8asset u# in A#ril 2331.

Te CCI !lears all transa!tions in o(ernment

se!urities6 an0 re#ose re#orte0 on te Neotiate0

Dealin System.

prof. Nandini Katti

Esta%lis1ment o$ t1e CCI4&


59/121

Ca#ital Market is te market %or lon>term %un0s6 5ust as te

money market is te market %or sort>term %un0.

It is a market tat %a!ilities an0 el#s te institutional

manaements %or 7orro8in an0 len0in term %un0s :me0ium>

term an0 lon>term %un0s.; It 0oes not 0eal in !a#ital oo0s 7ut it !on!erne0 8it te

raisin o% money !a#ital %or #ur#ose o% in(estment.

lon>term money !a#ital is 0eman0e0 #re0ominantly 7y

#ri(ate se!tor 6manu%a!turin in0ustries6 ari!ulture an0 7y teGo(ernment 6 larely %or te #ur#ose o% e!onomi!

0e(elo#ment.

prof. Nandini Katti

comosition o$ t1e In!ian Caital Market

iti $ t1 I !i C it l


60/121

te Central an0 State Go(ernments are in(estin notonly on e!onomi! o(erea0 as trans#ortF irriation an0

#o8er 0e(elo#ment 7ut also in 7asi! in0ustries an0

e(en in !onsumer oo0s in0ustries6 tey re9uire

su7stantial amount o% %un0s %rom te !a#ital market. Te su##ly o% %un0s %or te !a#ital market !omes

larely %rom in0i(i0ual sa(ers6 !or#orate sa(ins6

7anks6 insuran!e !om#anies6 s#e!ialie0 %inan!in

aen!ies an0 te o(ernment. Amon institutions6 8e

may re%er to te %ollo8in

prof. Nandini Katti

comosition o$ t1e In!ian Caital

Market@@



61/121

Commercial %anks are imortant in,estors %"tt1ey are lar(ely intereste! in (o,ernment

sec"rities an! to a small e2tent in !e%ent"res o$

comanies

4IC an! 'IC are o$ (ro=in( imortance in t1e

In!ian Caital market t1o"(1 t1eir maor

interest is still in (o,ernment sec"rities

)ro,i!ent $"n!s constit"te a maor me!i"m o$sa,in(s %"t t1eir in,estments too are mostly in

(o,ernment sec"rities

prof. Nandini Katti


Market@



62/121

Secial instit"tions set " since In!een!ence ,i3*I#CI ICICI IDBI UTI etc – (enerally calle!

!e,eloment $inancial instit"tions .D#Is0 – aim at

s"lyin( $"n!s to in,estors@

ike all markets6 te !a#ital market is also !om#ose0

o% tose 8o 0eman0 %un0s :7orro8ers; an0 tose

8o su##ly %un0s :len0ers;

prof. Nandini Katti


Market@


63/121

prof. Nandini Katti

In!ian caital market

In!ianCaitalMarket

'ilt*E!(eMkt

)rimary Secon!ary

In!"strialSec"rities

Mkt

rimarySecon!ary


64/121

T1e (ilt*e!(e! market re%ers to te market %oro(ernment an0 semi>o(ernment se!urities6 7a!ke0 7y

te Re(erse Bank o% In0ia.

Te se!urities tra0e0 in tis market are sta7le in (alue

an0 area mu! sout a%ter 7y 7anks an0 oter

institutions.

prof. Nandini Katti

T1e (ilt*e!(e! market


65/121

t1e in!"strial sec"rities market re%ers to te market %or

sares an0 0e7entures o% ol0 issues an0 ne8 issues te ne8 issue market>o%ten re%erre0 to as rimary market

re%ers to te raisin o% ne8 !a#ital in te %orm o% sares

an0 0e7entures te ol0 issues market !ommonly kno8n as sto!k

e@!ane as sto!k market 0eals 8it se!urities alrea0y

issue0 7y !om#anies.

te ol0 issues market o% te sto!k e@!ane is also kno8n

as secon!ary market. 7ot markets are e9ually im#ortant

prof. Nandini Katti

T1e in!"strial sec"rities


66/121

D#Is s"ly $"n!s $or in,estment& * *inan!ialInterme0iaries like mer!ant 7ankers el# te !or#orate

se!tor to raise %un0s in te !a#ital market.

E In0ustrial *inan!e Cor#oration o% In0ia :I*CI;6

State *inan!e Cor#orations :S*Cs;6 In0ustrial

De(elo#ment *inan!e Cor#oration :ID*C;.

prof. Nandini Katti

D#Is


67/121

#inancial interme!iation !onsists o% !annelin%un0s 7et8een sur#lus an0 0e%i!it aentsJ.

A $inancial interme!iary is a %inan!ial institution tat

!onne!ts sur#lus an0 0e%i!it aents.

E Mer!ant Banks6 Mutual *un0s6 easin

Com#anies6 Henture Ca#ital Com#anies

prof. Nandini Katti

#inancial Interme!iaries

T1e 'o,ernment Sec"rities .' – SEC0 market S


68/121

. 0

In!"strial Sec"rities Market

Te Go(ernment Se!urities market6 also kno8n as te ilt e0e0 market 0i%%ers %rom te in0ustrial se!urities market in

many im#ortant res#e!ts• Tere are un!ertainties rear0in yiel0 manaements6

a00itions to !a#ital6 et!. an06 tere%ore6 tere is mu! lesss#e!ulation in tis market.•Te in(estors in o(ernment se!urities are #re0ominantly

institutions 8i! are o%ten !om#elle0 7y la8 to in(est a

!ertain #ortion o% teir %un0s in tese se!urity. Te !ommer!ial

7anks te IC te GIC an0 te #ro(i0ent %un0s !ome un0er

tis !ateory tese are o%ten re%erre0 to as te !a#ti(e market

%or o(ernment se!urities.prof. Nandini Katti

T1 ' t S iti .' SEC0 k t S


69/121

prof. Nandini Katti

T1e 'o,ernment Sec"rities .' – SEC0 market S

In!"strial Sec"rities Market@

•Te a(erae (alue o% te transa!tions in te

o(ernment se!urities market is (ery mu! larer tan

in te !ase o% sares an0 0e7entures o% !om#anies

•o%ten a sinle transa!tion in o(ernment se!urities

many may run into se(eral !rores or e(en un0re0s o%

!rores o% ru#ees.


70/121

prof. Nandini Katti

)rimary market

)rimaryiss"e

)"%licIss"e

I)O #)O

Ri(1tIss"e

)T)lacement

),t )lacement

)re$erential Iss"e

FI)Gs


71/121

It is te market %or ne8 issues. It is te market %or %res !a#ital.

*un0s are mo7ilie0 trou #ros#e!tus6 rit issue6

an0 te #ri(ate #la!ement.

prof. Nandini Katti

)rimary market


72/121

I)O .Initial )"%lic O$$erin(0 It is a o%%erin eiter o%se!urities or an o%%er %or sale o% e@istin se!urities or

7ot 7y an unliste0 !om#any %or te %irst time to te

#u7li!.

#)O It is an o%%erin o% eiter a %res issue o%

se!urities or an o%%er %or sale to te #u7li! 7y an alrea0y

liste0 !om#any trou o%%er 0o!uments

In(estors #arti!i#atin in tese o%%erins take in%orme0

0e!isions 7ase0 on its tra!k re!or0 an0 #er%orman!e.

prof. Nandini Katti

)"%lic Iss"e


73/121

It is te issue o% ne8 sares in 8i! e@istinsareol0ers are i(en #reem#ti(e rits to su7s!ri7e

to te ne8 issue

Te rit is i(en in te %orm o% an o%%er to e@istin

sareol0ers to su7s!ri7e to a #ro#ortionate num7er o%%res issues6 at a #re>0etermine0 #ri!e.

prof. Nandini Katti

Ri(1t Iss"e


74/121

A !om#any !an raise money 7y issuin 0e7tinstruments like 0e7enturesnon !on(erti7le 0e7entures

:NCD; 7y a #u7li! o%%er.

De#en0in on teir nee0 %or money in a sort time

%rame or on 7asis o% !re0it ratin or lo8er !ost6 tey!an also o %or K#ri(ate #la!ementK o% te 7on0NCD

%or raisin money.

prof. Nandini Katti

4ri,ate placements


75/121

It re%ers to te 0ire!t sale o% ne8ly issue0 se!urities 7yte issuer to a small num7er o% in(estors trou>

mer!ant 7ankers.

In(estors

*inan!ial Institutions

Cor#orate

Banks an0 i net 8ort in0i(i0uals.

prof. Nandini Katti

4ri,ate placements


76/121

A #u7li! rits is !um7ersome an0 re9uires!om#lian!e 8it statutory #ro(isions.

,en!e6 many !om#anies o#t %or #re%erential allotment

o% sares %or raisin %un0s.

Su! allotments are ma0e to (arious stratei! rou#s

in!lu0in #romoters6 %orein #artners6 te!ni!al

!olla7orators an0 #ri(ate %un0s.

prof. Nandini Katti

)re$erential Iss"e

5ualifed &nstitutional


77/121

It as emere0 as a ne8 %un0 raisin in(estment %orliste0 !om#anies in In0ia.

Trou LI"=s issue %un0s !an 7e raise0 %rom %orein

as 8ell as 0omesti! institutional in(estors 8itout

ettin liste0 on a %orein sto!k e@!ane6 8i! islenty an0 !um7ersome.

prof. Nandini Katti

5ualifed &nstitutionalplacements #5&46s$


78/121

'DRs ADRs

ECBs #CCBs

prof. Nandini Katti

International Caital market

7lo"al Depositories -eceipts


79/121

GDRs are essentially e9uity instruments issue0a7roa0 7y autorie0 o(erseas !or#orate 7o0ies

aainst sares7on0s o% In0ian !om#anies el0 8it

nominate0 !usto0ian 7anks

Te issue o% GDR !reates e9uity sares o% te

issuin !om#any 8i! is ke#t 8it a 0esinate0

7ank

GDRs are %reely trans%era7le outsi0e In0ia 0i(i0en0 in res#e!t o% te sares re#resente0 7y

GDRs is #ai0 in In0ian ru#ees.

prof. Nandini Katti

7lo"al Depositories -eceipts#7D-s$

#orei(n C"rrency Con,erti%le Bon!s .#CCBs0


80/121

*CCBs are 7on0s issue0 7y In0ian !om#anies an0 su7s!ri7e0

7y a non>resi0ent in %orein !urren!y.

Tey !arry a %i@e0 interest or !ou#on rate an0 are !on(erti7leinto a !ertain num7er o% or0inary sares at a #re%erre0 #ri!e.

Tey are !on(erti7le into or0inary sares o% te issuin

!om#any eiter in 8ole or a #art on te 7asis o% any e9uity>

relate0 8arrants atta!e0 to te 0e7t instruments.

Tese 7on0s are liste0 an0 tra0e0 a7roa0 till !on(ersion6 te

interest is #ai0 in 0ollars.

i% !on(ersion o#tion is not e@er!ise0 ten te re0em#tion is

also ma0e in 0ollars.

Tus %oreiners #re%er *CCBs an0 In0ian !om#anies #re%er to

issue GDRs.

Te rate o% interest is less 7ut te e@!ane risk is more in

*CCBs as interest is #aya7le in %orein !urren!y.prof. Nandini Katti

American Depositor receipts


81/121

ADRs are neotia7le instruments 0enominate0 in 0ollarsan0 issue0 7y te US 0e#ository 7ank.

A Non>US !om#any tat seeks to list in te US 0e#osits

8it a 7ank an0 re!ei(e a re!ei#t 8i! ena7les te

!om#any to issue te Ameri!an 0e#ository sares. Tese ADS ser(e as sto!k !erti%i!ates an0 are use0

inter!anea7ly 8it te ADR 8i! re#resents

o8nersi# o% 0e#osite0 sares.

Tere is no leal or te!ni!al 0i%%eren!e 7et8een a GDR

an0 ADR.

prof. Nandini Katti

American Depository receipts


82/121

In0ian !or#orate is allo8e0 to raise %orein loans %or%inan!in in%rastru!ture #ro5e!ts.

Te In0ian !om#anies are %ree to raise ECBs %rom any

internationally re!onie0 sour!e6 su! as 7ank6 e@#ort

!re0it aen!ies6 su##liers o% e9ui#ments6 %orein!olla7orators6 %orein e9uity ol0ers6 an0 international

!a#ital markets .

ECBs are linke0 to %e0eral reser(e 7oar0 rate 8i! is

4 sin!e A#ril 233&.

prof. Nandini Katti

E2ternal Commercial Borro=in(s


83/121

Te se!on0ary market is a market in 8i! e@istinse!urities are resol0 or tra0e0.

Tis market is also kno8n as te Sto!k market.

In In0ia se!on0ary market !onsist o% re!onie0

Sto!k e@!anes o#eratin un0er rules6 7y>la8s an0

reulation 0uly a##ro(e0 7y te o(ernment.

Tese sto!k e@!anes !onstitute an oranie Sto!k

market 8ere se!urities are issue0 7y te !entral an0State o(ernment6 #u7li! 7o0ies an0 5oint sto!k

!om#anies are tra0e0.

prof. Nandini Katti

8%e secondary market


84/121

A Sto!k e@!ane is 0e%ine0 un0er se!tion 2 :; o% tese!urities !ontra!t :Reulation; A!t6 I/&)6 as any7o0y

o% in0i(i0uals 8eter in!or#orate0 or not6 !onstitute0

to te #ur#ose or assistin6 reulatin or !ontrollin te

7usiness o% 7uyin sellin6 or 0ealin in se!urities

prof. Nandini Katti

T1e secon!ary market

T1 ! k


85/121

T1e In!ian secon!ary market can %e se(re(ate! into t=o&1. Te se!on0ary market %or !or#orate an0 %inan!ial interme0iaries.

*or tra0in in issues o% !or#orate an0 %inan!ial interme0iaries6

tese are te %ollo8in entities>

.re!onise0 sto!k e@!anes

. National Sto!k E@!ane o% In0ia imite0:NSE;

. O(er te Counter E@!ane o% In0ia :OTCEI;

.Te Inter!onne!te0 Sto!k E@!ane o% In0ia :ISE;

.Te #arti!i#ants on tis market are reistere0 7rokers> 7ot

in0i(i0uals an0 institutions. Tey o#erate trou a net8ork o%

su7>7rokers an0 su7>0ealers an0 are !onne!te0 trou an

ele!troni! net8orkin system.

prof. Nandini Katti

T1e secon!ary market

R l / i i$i $ i l k


86/121

"ro!ess o% !a#ital %ormation in(ol(es ste#s1. SAHINGS

2. MOBIISATION O* SAHINGS

. INHESTMENTS

. A soun0 an0 e%%i!ient !a#ital mkt. %a!ilitates te

#ro!ess o% !a#ital %ormation 8i! !ontri7utes to

e!onomi! 0e(elo#ment

prof. Nandini Katti

Role/si(ni$icance o$ caital market

M %ili ti $ i


87/121

It mo7ilises sa(ins trou (arious instruments '!annelises tem into #ro0u!ti(e areas

Resour!es are 0i(erte0 %rom !onsumtion #ur#ose to

#ro0u!ti(e #ur#oses

Harious a(aila7ility o% %inan!ial assets en!ouraes

sa(ins in !a#ital mkt.

*inan!ial nee0s o% in0ustry6 tra0e ' 7usiness are

%ul%ille0 7y te !a#ital mkt.

prof. Nandini Katti

Mo%ilisation o$ sa,in(s

C1 li i $ $ ! i i


88/121

It raises e%%i!ien!y in te %ollo8in manner 1. Allo!ates resour!es to te most (ia7le #ro5e!ts6 8i!

im#ro(es allo!ation o% resour!es

2. Re0u!es te !ost o% resour!es6 %rom len0ers to

7orro8ers6 relate0 to !ontra!t6 risk o% 0e%ault6 et!.

. It #ro(i0es i returns to sa(ers ' re0u!es te

!ares to 7orro8ers

prof. Nandini Katti

C1annelisation o$ $"n!s into in,estments

I ! t i l ! l t


89/121

It #ro(i0es a0e9uate6 !ea# ' 0i(ersi%ie0 %inan!e to tein0ustrial se!tor %or (arious #ur#oses

"ro(i0es %un0s %or mo0ernisation6 u#ra0ation o% te!.

esta7lisment o% ne8 units

"ro(i0es (ariety o% ser(i!es to entre#reneurs like

un0er8ritin6 #arti!i#ation in e9uity !a#ital6 !re0it

ratin6 !onsultan!y ser(i!es et!. tis stimulates

in0ustrial entre#reneursi#

prof. Nandini Katti

In!"strial !e,eloment

Mo!ernisation - re1a%ilitation o$


90/121

Settin u# o% D*Is in In0ia like I*CI6 IDBI6 ICICI asel#e0 e@istin in0ustries to a0o#t mo0ernisation '

re#la!ement o% o7solete ma!inery

Ena7le0 in0ustrial units to sol(e #ro7lems o% %ore@ 7y

!annelisin %rom I*C

prof. Nandini Katti

Mo!ernisation - re1a%ilitation o$

in!"stries

T 1 i l i t


91/121

Ca#ital mkt. #lays an im#. role in stimulatinin0ustrial entre#reneursi# 7y o%%erin

1. a0(isory ser(i!es

2. I0enti%yin ro8t #otential

. Trainin entre#reneurs in #ro5e!t m=mt

prof. Nandini Katti

Tec1nical assistance

E i t


92/121

Se!on0ary mkt. en!ourae in(estors to in(est inin0ustrial se!urities 7y makin tem li9ui0

It #ro(i0es %a!ilities %or !ontinuous6 reular ' rea0y

7uyin n sellin o% se!urities

In0ustries are a7le to raise su7stantial amount o% %un0s

%rom (arious sements o% te e!onomy

prof. Nandini Katti

Enco"ra(e in,estors

C it l k t $


93/121

)RIMARY MKT RE#ORMS A7olition o% Com#troller o% Ca#ital Issues:CCI;

SEBI

Dis!losure st0.s

*ree0om to 0etermine #ar (alue o% sares

Un0er8ritin o#tional

*IIs #ermitte0

A!!essin lo7al %un0s mkt

prof. Nandini Katti

Caital market re$orms

C it l k t $


94/121

Interme0iaries un0er #ur(ie8 o% SEBI Mer!ant 7ankers #roi7ite0 %rom !arryin %un0 7ase0

a!ti(ities

Cre0it ratin aen!ies

Dis!losure ' in(estor #rote!tion ui0elines %or ne8

issues

prof. Nandini Katti

Caital market re$orms@

A%olition o$ Comtroller o$ Caital


95/121

Com#anies are allo8e0 to a##roa! te !a#ital mkt.8itout #rior o(t. #ermission su75e!t to ettin o%%er

0o!uments !leare0 7y SEBI

Narsiman !omm. Re!ommen0e0 te a7olition o% CCI

an0 8ante0 SEBI to take o(er

prof. Nandini Katti

Iss"es.CCI0

S iti - E 1 B ! $ I !i


96/121

SEBI 8as set u# in 1/--6 it 8as ma0e a statutory 7o0yin 1//2

It as intro0u!e0 (arious ui0elines %or !a#ital issues in

#rimary mkt.

prof. Nandini Katti

Sec"rities - E2c1an(e Boar! o$ In!ia

Disclos"re stan!ar!s


97/121

Com#anies are re9uire0 to 0is!lose all material %a!ts 's#e!i%i! risk %a!tors asso!iate0 8it teir #ro5e!ts

SEBI as intro0u!e0 a !o0e o% a0(ertisement %or #u7.

Issues in or0er to ensure %air ' trut%ul 0is!losures

prof. Nandini Katti

Disclos"re stan!ar!s

)ar ,al"e o$ s1ares


98/121

Te re9uirement to issue sares at a #ar (alue o% Rs 13an0 Rs133 8as 8it0ra8n.

Tis a(e !om#anies te %ree0om to 0etermine a %i@e0

(alue #er sare.

Moreo(er6 te sares !annot 7e issue0 in te 0e!imal o%

a ru#ee.

Te !om#anies 8i! a(e alrea0y issue0 sares at

Rs13 or Rs133 (alue are also elii7le %or s#littin an0

!onsoli0atin te sare (alues.

prof. Nandini Katti

)ar ,al"e o$ s1ares

Un!er=ritin( otional


99/121

To re0u!e te !ost o% issue6 un0er8ritin is ma0eo#tional

It is su75e!t to te !on0ition tat i% an issue 8as not

un0er8ritten ' 8as not a7le to !olle!t /34 o% te

amount o%%ere0 to te #u7li!6 te entire amt. !olle!te08oul0 7e re%un0e0 to te in(estors

prof. Nandini Katti

Un!er=ritin( otional

)ermittin( #IIs


100/121

*IIs su! as mutual %un0s ' #ension %un0s are allo8e0to in(est in e9uity sares ' in 0e7t mkt. as 8ell 8i!

in!lu0es 0ate0 o(t. se!urities ' TBs

prof. Nandini Katti

)ermittin( #IIs

Accessin( (lo%al $"n!s mkt


101/121

In0ian !os. are #ermitte0 to raise resour!es trouissue o% ADRs6 GDRs6 *CCBs ' ECBs

In0ian !os. Can list teir se!urities on %orein sto!k

e@!anes trou ADRGDR issues

In0ian %inan!ial sys. Is o#ene0 u# %or in(estments o%%orein %un0s trou NRIs6 *IIs ' OCBs

prof. Nandini Katti

Accessin( (lo%al $"n!s mkt@

Interme!iaries "n!er "r,ie= o$ SEBI


102/121

Te %ollo8in are un0er te #ur(ie8 o% SEBI1. M*s

2. UTI

. "ort%olio manaers

$. Reistrars to an issue&. Sare trans%er aents

). Un0er8riters

+. De7enture trustees

-. Bankers to an issue/. Custo0ian o% se!urities

13. Henture !a#ital %un0s

prof. Nandini Katti

Interme!iaries "n!er "r,ie= o$ SEBI

)ro1i%itin( merc1ant %ankers


103/121

Mer!ant 7ankers are #roi7ite0 %rom !arryin out%un0 7ase0 a!ti(ities oter tan tose relate0

e@!lusi(ely to !a#ital mkt.

NB*Cs a!ti(ities like a!!e#tin 0e#osits6 leasin6 7ill

0is!ountin et!. are not un0ertaken 7y mer!ant 7ankers

prof. Nandini Katti

)ro1i%itin( merc1ant %ankers

Cre!it ratin( a(encies


104/121

CRISI :1//-;6 ICRA :1//1;6 CARE :1//; 8ere setu# to meet emerin nee0s o% te !a#. mkt.

Tey #ro(i0e assessment o% in(estment 9uality o%

!re0it instruments issue0 7y 7usiness units

In0ire!tly it el#s in(estors ' mer!ant 7ankers6 7rokers6 reulatory autorities et!. to 0is!are teir

%un!tions relate0 0e7t issues

prof. Nandini Katti

Cre!it ratin( a(encies

Disclos"re - in,estor rotection .DI)0


105/121

In or0er to remo(e ina0e9ua!ies6 0e%i!ien!ies6 to #rote!t in(estors ' %or or0erly ro8t an0

0e(elo#ment o% se!urities mkt. SEBI #ut in ui0elines

to o(ern ne8 issues

Cos. issuin !a#ital in #rimary mkt. are re9uire0 to0is!lose material %a!ts ' s#e!i%y risk %a!tors

Issuer as to 0is!lose te #ri!e6 sie o% issue6 ' no. o%

se!urities o%%ere0 to #u7li!

prof. Nandini Katti

Disclos"re - in,estor rotection .DI)0



106/121

SECONDARY MKT RE#ORMS Settin u# o% NSE

OTCEI

S!reen 7ase0 trainin

Co#oratisation ' 0emutulisation o% sto!k e@ s De#ository system

Rollin statement

In(estor #rote!tion measures NSC

Deri(ati(es

prof. Nandini Katti




107/121

NSC Deri(ati(es tra0in

Tra0in in !entral o(t. se!urities

"ermittin *IIs

"AN man0atory

Mutual %un0s

"ermitte0 sto!k e@ s to set tra0in ours

prof. Nandini Katti


Settin( " NSE .677?0


108/121

to #ro(i0e a nation 8i0e tra0in %a!ility %or e9uities60e7t instruments ' y7ri0s

"ro(i0e e9ual a!!ess to in(estors a!ross te !ountry

trou suita7le net8ork

"ro(i0e %or %air6 e%%i!ient ' trans#arent se!uritiestra0in sys. to in(estors

"ro(i0e sorter settlement !y!les ' 7ook entry

settlement

Brin te In0ian sto!k mkt. in line 8it international

mkts.

prof. Nandini Katti




109/121

By te en0 o% 1//+ NSE a0 s#rea0 its 7usiness in 233!ities

As #er no. o% tra0es #er !alen0ar year NSE o!!u#ie0

te IIIr0 #osition in 233)

IIn0 #osition 7y NSE ' Ist 7y NASDAL in 233)

prof. Nandini Katti

Settin( " NSE .677?0@@

OTCEI .677:0


110/121

It is an ele!troni! national sto!k e@!ane listin anentirely ne8 set o% !os. 8i! 8ill not 7e liste0 on

oter sto!k e@!anes

OTCEI !an list !os. 8it issue0 !a#ital %rom Rs. 3

la!s to Rs. 2& !r.

Its main o75e!ti(es are

prof. Nandini Katti

OTCEI .677:0

O%ecti,es


111/121

/ro%ide me0ium ' small enter#rises a!!ess to!a#ital mkt.

"ro(i0e in(estors a !on(enient mo0e o% in(estment

Cater to te nee0s o% !os. ?i! !annot 7e liste0 on

oter o%%i!ial sto!k e@!anes Eliminate #ro7lems o% illi9ui0 se!urities6 0elaye0

settlements ' un%air #ri!es %a!e0 7y in(estors

prof. Nandini Katti

O%ecti,es

(creen "ased tradin


112/121

In0ian sto!k e@!anes 8ere mo0ernise0 7ase0 onSBTS

It !uts 0o8n on time6 risk6 !ost6 %rau06 et!

It allo8s a lare no. o% #arti!i#ants lo!ate0 at 0i%%erent

#la!es to tra0e 8it one anoter simultaneously I0entity o% #arties is not re(eale0

It #ro(i0es !om#lete online mkt. in%ormation

It im#ro(es te 0e#t ' li9ui0ity o% te mkt.

prof. Nandini Katti

(creen "ased tradin

Cororatisation - !em"t"lisation o$ stock


113/121

!or#oritasion 8ill lea0 to sereation o% o8nersi#6m=mt ' tra0in rits %rom ea! oter

Demutulisation o% BSE 8ill turn it into a !om#any

Tis !ane 8ill make BSE a mo0ern6 #ro%essionally

manae0 trans#arent6 !om#etiti(e ' e%%i!ient sto!ke@!ane

prof. Nandini Katti

e2c1an(es

Deository system


114/121

Intro. o% 0e#ository sys. ' s!ri#less tra0in me!anismsin!e 1//)

Tis as erase0 te 0elays6 !ounter%eit s!ri#s6 %ore0

!erti%i!ates6 8ron sinatures et!.

It %a!ilitates trans%er o% o8nersi# 8itout an0linse!urities

S!ri#less tra0in is 0emat o% sares i.e. !on(ertin

#ysi!al se!urity ol0ins 8it 0e#ository into

ele!troni! %orms

2 0e#ositories NSD ' CDS a(e 7een est7lise0

prof. Nandini Katti

Deository system

Rollin( statement


115/121

Te !ane o(er to rollin statement %rom tetra0itional a! #erio0 settlement marks an im#. !ane

in ae ol0 #ra!ti!es

Un0er tis meto0 all tra0es e@e!ute0 on tra0in 0ay

:T; are settle0 a%ter !ertain 0ays :N; Tis is !alle0 TN rollin settlement

Sin!e 233 tra0es are settle0 un0er T2

prof. Nandini Katti

Rollin( statement

In,estor rotection meas"res


116/121

Go(t. as esta7lise0 In(estor E0u!ation ' "rote!tion*un0 :IE"*; 8.e.% 2331

IE"* is !re0ite0 8it amount in un#ai0 0i(i0en0

a!!ounts o% !os.6 ' interest a!!rue0 teron6 i% tey a(e

remaine0 un!laime0 ' un#ai0 %or + yrs %rom te 0ateo% #ayment

prof. Nandini Katti

In,estor rotection meas"res

National Sec"rities Clearin( Cor@ 4t!


117/121

NSC starte0 uaranteein all tra0es in NSE sin!e

1//)

Its !entral %un!tions are !learin6 settelment o% tra0es '

risk m=mt

It !lears All tra0es

Determines o7liation o% tra0in mem7ers

Arranes %or #ay in ' #ay out o% %un0s

Colle!ts ' maintains marins!ollaterls7ase !a#ital

prof. Nandini Katti

National Sec"rities Clearin( Cor@ 4t!

Deri,ati,es tra!in(


118/121

Deri(ati(es tra0in ine9uities starte0 in In0ian in une

2333

At #resent tere are $ e9uity 0eri(ati(e #ro0u!ts in

In0ia

Sto!k o#tion Sto!k %utures

In0e@ o#tions

in0e@ %utures

Deri(ati(es tra0in is allo8e0 on 2 sto!k e@!anes

NSE ' BSE

prof. Nandini Katti

Deri,ati,es tra!in(

Tra!in( in Central 'o,t@ sec"rities


119/121

Tra0in in o(t se! as 7een intro0u!e0 sin!e an2336 to en!ourae #arti!i#ation 7y all in(estors

7elonin to all !lasses

It !arrie0 out on te 7asis o% s!reen 7ase0 tra0in on all

sto!k e@!anes "arti!i#ation in retail mkt. is o#ene0 to in0i(i0uals6

%irms6 !os6 !or#. 7o0ies6 institutions6 trusts ' any oter

e9uity a##ro(e0 7y RBI

prof. Nandini Katti

Tra!in( in Central 'o,t@ sec"rities

#IIs


120/121

*IIs like "ension %un0s

M*s

In(estment trusts

"ort%olio m=mt !os.

are allo8e0 to in(est in In0ian !a#ital mkt. i% tey are

reistere0 un0er SEBI

No. o% reistere0 *IIs stoo0 at 16+1- 7y De!.2313

prof. Nandini Katti

#IIs

Tra!in( 1o"rs


121/121

Sto!k mkt=s tra0in in !as ' 0eri(ati(e sements Te timins are %i@e0 7et. /a.m. to .m.

Tra!in( 1o"rs

195002065 Money Market Instruments.

Documents

Transcript of 195002065 Money Market Instruments.