Correlation Money market in India for short-term funds with maturities ranging from overnight to one year in India including financial instruments deemed to be a substitute for close money. Similar to developed countries, the Indian money market is diversified and has grown through many stages, from the conventional platform of treasury bills and money calls to commercial papers, certificates of deposit, repo, advanced rate agreements and latest interest rate swaps
The Indian money market consists of various sub-markets, each dealing with certain types of short-term credit. Money markets meet loan and investment terms from short-term providers and users, and balance short-term fund demand and supply by providing a balance mechanism. It also serves as a focal point for central bank intervention in the market.
Video Money market in India
Structure
The Indian money market consists of unorganized sectors: loan sharks, native bankers and unregulated non-bank Financial Intermediaries (eg Finance companies, Chit funds, Nidhis); organized sectors: Reserve Bank of India, private banks, public sector banks, development banks and other non-banking financial companies (NBFC) such as India Life Insurance Company (LIC), International Finance Corporation, IDBI, and sector cooperatives.
Maps Money market in India
Instruments
1. Call/Notice/Term money market 2. Repurchase Agreement (Repo & amp; Repo Repo) pasar 3. Treasury bill market 4. Commercial Bill market 5. Pasar kertas komersial 6. Sertifikat pasar deposito 7. Reksadana Pasar Uang. 8. Cash Management Bill (CMB).
Call money market
Money market transactions calls in short-term finance are paid on demand, with periods ranging from one day to 14 days. S.K. Muranjan commented that loan calls in India are provided for market bills, granted between banks, and granted for the purpose of dealing in bullion and stock exchange markets. Commercial banks, both private and foreign banks, cooperative banks, Discount and Finance House of India Ltd. (DFHI), Indian Securities trading company (STCI) participates both as lender and borrower and Life Insurance Corporation of India (LIC), Unit of Trust India (UTI), National Bank for Agriculture and Rural Development (NABARD) can participate only as a giver loan. The interest rate paid on call money loans, known as call rates, is highly volatile. This is the most sensitive part of the money market and changes in demand and supply loan calls are immediately reflected in call rates. There are now two call rates in India: interbank call rates and DFHI loan rates. Ceiling on call rates and interbank money rates was dropped, with effect from May 1, 1989. The Indian call money market has turned into a pure interbank market during 2006-07. The main call money markets are in Mumbai, Kolkata, Delhi, Chennai, Ahmedabad.
State bond market
Treasury bills are short-term lending instruments by the Government of India, which are issued as discount letters. The interest received on them is a discount, which is the difference between the price at which they are issued and the value of their redemption. They have ensured the results and risks of failure that can be ignored. Under one classification, treasury bills are categorized as ad hoc, tap and auction bills. Under the others, it is classified at a maturity period such as 91-day TB, 182-day TB, 364-day TB and also 10-day TB that has two types. Recently (2002-03, 2003-04), the Reserve Bank of India only issued treasury bills for 91 days and 364 days. The 91-day Treasury Bill's auction format has changed from a uniform price to multiple prices to encourage more responsible bidding from market participants. The bill consists of two kinds - Adhoc and regular. Adhoc bills are issued for investment by state governments, semi-government departments and foreign central banks for temporary investments. They are not sold to banks and the general public. Treasury bills are sold to the public and banks are called regular treasury bills. They are easy-to-sell and commercial banks buying the entire amount of such bills, issued on tenders. They are bought and sold at a discount. The ad hoc bill was abolished in April 1997.
Ready-forward contract (Repo)
Repo is an abbreviation for Repurchase agreement, which involves a "sale and purchase" agreement simultaneously. When a bank has a shortage of funds, they can borrow it from the Reserve Bank of India or from another bank. The rate at which RBI lends money to commercial banks is called a repo rate, short-term for repurchase agreements. Decrease in the repo rate will help banks earn money at cheaper rates. When the repo rate increases the loan from RBI becomes more expensive. [1].
Money market funds
Money market funds invest money specifically, high-quality, very short-term maturity-based money market instruments. The RBI has agreed to establish very little of these funds in India. In 1997, only one MMMF operated, and that too with very little capital.
Reserve Bank of India
The influence of the Reserve Bank of India's strength on the Indian money market is limited almost exclusively to an organized banking structure. It is also considered to be the largest regulator in the market. There are certain tariffs and certain data released periodically that have a major impact on all financial markets in INDIA. The unorganized sector, which consists mostly of indigenous bankers and non-banking finance companies, although it occupies an important position in the money market has not been well integrated with other financial markets.
Reform
Recommendations from the Sukhmoy Chakravarty Committee on the Monetary System Review, and Report of the Narasimham Committee on Financial System Work in India, 1991, The Reserve Bank of India has embarked on a series of money market reforms that are basically directed towards efficient expenditure of its objectives. Banks reduce the ceiling rate on bank advances and on interbank calls and short notice money. There has been a significant reduction of the minimum lending rate of commercial banks and financial institutions of public sector development from 18% in 1990-91 to 10.5% in 2005-06.
Reforms made in the Money Market of India are: - Deregulation of Interest Rates: In the last period, the government has adopted a liberal interest rate policy. This raises the ceiling rate of the money market calls, short term deposits, discounted reissues, etc. Commercial banks are advised to see changes in interest rates that occur within limits. There is further interest deregulation during economic reforms. Currently the interest rate is determined by the work of market forces except for some rules. Money Market Mutual Fund (MMMFs): In order to provide additional short-term investment income, RBI encouraged and established Money Market Mutual Funds (MMMFs) in April 1992. MMMF was allowed to sell units to companies and individuals. The upper limit of 50 investment crore has also been revoked. Financial institutions such as IDBI and UTI have prepared the funds. DFI Establishment: Discount and Finance House of India (DFHI) was established in April 1988 to instill liquidity in the money market. These are jointly formed by the RBI, public sector Banks and Financial Institutions. DFHI has played an important role in stabilizing the Indian money market. Liquidity Adjustment Facility (LAF) Ã,: Through LAF, RBI stays on the money market on a sustainable basis through repo transactions. LAF adjusts liquidity in the market through absorption and/or injection of financial resources. Electronic Transactions: To provide transparency and efficiency in money market transactions, electronic transaction systems have begun. It covers all transactions in the money market. Similarly it is useful for RBI to oversee the money market. CCIL Establishment: Clearing Corporation of India Limited (CCIL) was established in April 2001. CCIL removes all transactions in government securities, and repurchase agreements reported in the Negotiated Transaction System. Development of New Market Instruments: Governments are consistently trying to introduce new short-term investment instruments. Example: Treasury Bills with various durations, Commercial papers, Certificate of Deposit, MMMF, etc. It has been introduced in the Indian Money Market.
See also
- Commercial paper
- Commercial paper in India
- Certificate of deposit
References
Source of the article : Wikipedia
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