MONEY MARKET IN INDIA

PRESENTED BY :ANJALI RAIROLL NO - 07MPMIR 1ST SEM

Money market

•Money market is the market for lending and borrowing of short term funds(364 days).

•It comprises of the short term credit instruments, institutions and individuals who participate in the lending and borrowing process.

•Like a reservoir it collects and augments the resources and channelises it to the various needed areas.

As per RBI definitions “ A market for shortAs per RBI definitions “ A market for short

terms financial assets that are close substitute terms financial assets that are close substitute for money, facilitates the exchange of money for money, facilitates the exchange of money in primary and secondary market.”in primary and secondary market.”

““A segment of financial market in which A segment of financial market in which financial instruments with high liquidity and financial instruments with high liquidity and very short maturities are traded.”very short maturities are traded.”

Money market in India is just about two decades old . how ever its presence has been there but restricted to use for government only. It was chakravartthy committee (1985) which for the first time underline it .

Vahul committee (1987)

Narsimhan committee(1991)

Treasury billsTreasury billsCertificates of depositCertificates of depositCommercial paperCommercial paperCommercial billCommercial billCall money marketCall money market

Started in 1986, issued by GOI, sold by RBI, Started in 1986, issued by GOI, sold by RBI, bought by commercial banks and other financial bought by commercial banks and other financial institutions to fulfill short term capital institutions to fulfill short term capital requirements.requirements.

Gives no interest , sold at discount for 91 days, Gives no interest , sold at discount for 91 days, 182 days and 364 days.182 days and 364 days.

It is issued in a form of promissory note. The It is issued in a form of promissory note. The necessity of this arises because of periodic necessity of this arises because of periodic nature of receipts of government while the nature of receipts of government while the government expenditure is on a continuing government expenditure is on a continuing basis.basis.

A Certificate of deposit is a receipt for a A Certificate of deposit is a receipt for a deposit of money with bank and financial deposit of money with bank and financial institutions.institutions.

It started from march 1989.It started from march 1989. It is issued for a big amount and its is It is issued for a big amount and its is

freely negotiable.freely negotiable.The minimum size of investment is 5 lacs The minimum size of investment is 5 lacs

and it may be for 3 to 12 months.and it may be for 3 to 12 months.

Commercial paper is a short-term Commercial paper is a short-term promissory note with fixed maturity , issue promissory note with fixed maturity , issue by creditworthy and highly rated by creditworthy and highly rated corporations.corporations.

It was introduced in January 1990.It was introduced in January 1990. must have working capital not less than 5 must have working capital not less than 5

crore, should be listed in stock exchange, crore, should be listed in stock exchange, and must have been certified by credit and must have been certified by credit rating agency approved by RBI.rating agency approved by RBI.

Started in 1990, used to facilitate credit Started in 1990, used to facilitate credit sales.sales.

Can be discounted with banks and the Can be discounted with banks and the banks, when they are in need of funds, banks, when they are in need of funds, may rediscount them in the money may rediscount them in the money market.market.

Commercial bill market is very limited in Commercial bill market is very limited in India.India.

Inter bank market where funds are lend or Inter bank market where funds are lend or borrowed for 1 – 14 days.borrowed for 1 – 14 days.

Interest rate in call money market is high Interest rate in call money market is high rather than other instrument of money rather than other instrument of money market but controlled by RBI.market but controlled by RBI.