The Money market in India is the money market for short-term and long-term funds with

maturity ranging from overnight to one year in India including financial instruments that are
deemed to be close substitutes of money.
[1]
Similar to developed economies the Indian money
market is diversified and has evolved through many stages, from the conventional platform
of treasury bills and call money to commercial paper, certificates of deposit, repos, forward rate
agreements and most recently interest rate swaps
The Indian money market consists of diverse sub-markets, each dealing in a particular type of
short-term credit. The money market fulfills the borrowing and investment requirements of
providers and users of short-term funds, and balances the demand for and supply of short-term
funds by providing an equilibrium mechanism. It also serves as a focal point for the central
bank's intervention in the market.
The Indian money market consists of the unorganised sector: moneylenders, indigenous bankers,
chit funds; organised sector: Reserve Bank of India, private banks, public sector banks,
development banks and other non-banking financial companies (NBFCs) such as Life Insurance
Corporation of India (LIC), the International Finance Corporation, IDBI, and the co-operative
sector.
Instruments[edit]
Call money market[edit]
The call money market deals in short term finance repayable on demand, with a maturity period
varying from one day to 14 days. S.K. Muranjan commented that call loans in India are provided
to the bill market, rendered between banks, and given for the purpose of dealing in the bullion
market and stock exchanges.
[2]
Commercial banks, both Indian and foreign, co-operative banks,
Discount and Finance House of India Ltd.(DFHI), Securities trading corporation of India (STCI)
participate as both lenders and borrowers and Life Insurance Corporation of India (LIC), Unit
Trust of India(UTI), National Bank for Agriculture and Rural Development (NABARD)can
participate only as lenders. The interest rate paid on call money loans, known as the call rate, is
highly volatile. It is the most sensitive section of the money market and the changes in the
demand for and supply of call loans are promptly reflected in call rates. There are now two call
rates in India: the Inter bank call rate'and the lending rate of DFHI. The ceilings on the call rate
and inter-bank term money rate were dropped, with effect from May 1, 1989. The Indian call
money market has been transformed into a pure inter-bank market during 200607.
[3]
The major
call money markets are in Mumbai, Kolkata, Delhi, Chennai, Ahmedabad.
Treasury bill market[edit]
Treasury bills are instrument of short-term borrowing by the Government of India, issued as
promissory notes under discount. The interest received on them is the discount which is the
difference between the price at which they are issued and their redemption value. They have
assured yield and negligible risk of default. Under one classification, treasury bills are
categorised as ad hoc, tap and auction bills and under another classification it is classified on the
maturity period like 91-days TBs, 182-days TBs, 364-days TBs and two types of 14-days TBs. In
the recent times (200203, 200304), the Reserve Bank of India has been issuing only 91-day
and 364-day treasury bills. the auction format of 91-day treasury bill has changed from uniform
price to multiple price to encourage more responsible bidding from the market players.
[4]
the bills
are two kinds- Adhoc and regular. The adhoc bills are issued for investment by the state
governments, semi government departments and foreign central banks for temporary investment.
They are not sold to banks and general public. The treasury bills sold to the public and banks are
called regular treasury bills. They are freely marketable. commercial bank buy entire quantity of
such bills issued on tender. They are bought and sold on discount basis. Ad-hoc bills were
abolished in April 1997.
Ready forward contract (Repos)[edit]
Repo is an abbreviation for Repurchase agreement, which involves a simultaneous "sale and
purchase" agreement.
[5]
When banks have any shortage of funds, they can borrow it
from Reserve Bank of India or from other banks. The rate at which the RBI lends money to
commercial banks is called repo rate, a short term for repurchase agreement. A reduction in the
repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing
from RBI becomes more expensive.[1].
Money market mutual funds
Money market mutual funds invest money in specifically, high-quality and very short maturity-
based money market instruments. The RBI has approved the establishment of very few such
funds in India. In 1997, only one MMMF was in operation, and that too with very small amount
of capital.
[6]

Reserve Bank of India[edit]
The influence of the Reserve Bank of India's power over the Indian money market is confined
almost exclusively to the organised banking structure.It is also considered to be the biggest
regulator in the markets. There are certain rates and data which are released at regular intervals
which have a huge impact on all the financial markets in INDIA. The unorganised sector, which
consists mostly of indigenous bankers and non-banking financial companies, although occupying
an important position in the money market have not been properly integrated with the rest of the
money market.
[7]

Reforms[edit]
The recommendations of the Sukhmoy Chakravarty Committee on the Review of the Working of
the Monetary system, and the Narasimham Committee Report on the Working of the Financial
System in India, 1991, The Reserve Bank of India has initiated a series of money market reforms
basically directed towards the efficient discharge of its objectives. The bank reduced the ceiling
rate on bank advances and on inter-bank call and short-notice money. There has been a
significant lowering of the minimum lending rate of commercial banks and public sector
development financial institutions from 18% in 199091 to 10.5% in 200506.
[8]

Reforms made in the Indian Money Market are:- Deregulation of the Interest Rate : In recent
period the government has adopted an interest rate policy of liberal nature. It lifted the ceiling
rates of the call money market, short-term deposits, bills rediscounting, etc. Commercial banks
are advised to see the interest rate change that takes place within the limit. There was a further
deregulation of interest rates during the economic reforms. Currently interest rates are
determined by the working of market forces except for a few regulations. Money Market Mutual
Fund (MMMFs) : 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 individuals. The upper limit of 50 crore investments has
also been lifted. Financial institutions such as the IDBI and the UTI have set up such funds.
Establishment of the DFI : The Discount and Finance House of India (DFHI) was set up in April
1988 to impart liquidity in the money market. It was set up jointly 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) : Through the LAF, the RBI remains in the
money market on a continue basis through the repo transaction. LAF adjusts liquidity in the
market through absorption and or injection of financial resources. Electronic Transactions : In
order to impart transparency and efficiency in the money market transaction the electronic
dealing system has been started. It covers all deals in the money market. Similarly it is useful for
the RBI to watchdog the money market. Establishment of the CCIL : The Clearing Corporation
of India limited (CCIL) was set up in April 2001. The CCIL clears all transactions in government
securities, and repose reported on the Negotiated Dealing System. Development of New Market
Instruments : The government has consistently tried to introduce new short-term investment
instruments. Examples: Treasury Bills of various duration, Commercial papers, Certificates of
Deposits, MMMFs, etc. have been introduced in the Indian Money Market.