Indian Money Market

INDIAN
MONEY
MARKET
PRESENTATION ON
INDIAN MONEY
MARKET
Presented To: Mr. ARUN THANVI
Presented By:
SIDDHI A. PATIL
KANCHAN H. THAKUR
BHUSHAN V. PATIL
CONTENTS:
 What is Money Market?

 Objective of Money Market?
 Features of Money Market?
 History of Money Market?
 Importance of Money Market?

CONTINUED…
 Instrument of Money Market?
 Structure of Indian Money Market?
 Disadvantage of Money Market?
 Characteristic features of a developed Money
Market?
 Recent development in Money Market?
1! WHAT IS MONEY MARKET?
As per RBI definitions “ A market for short
terms financial assets that are close substitute for
money, facilitates the exchange of money in
primary and secondary market”.
The money market is a mechanism that deals
with the lending and borrowing of short term
funds (less than one year).
 A segment of the financial market in which
financial instruments with high liquidity and
very short maturities are traded.
MONEY MARKET
CONTINUED…..
It doesn’t actually deal in cash or money but

deals with substitute of cash like trade bills,
promissory notes & government papers
which can converted into cash without any
loss at low transaction cost.
It includes all individual, institution and

intermediaries.
2 ! OBJECTIVE OF MONEY
MARKET?
To provide a reasonable access to users of short-

term funds to meet their requirement quickly,
adequately at reasonable cost.
To provide a parking place to employ short term
surplus funds.
3 ! FEATURES OF MONEY
MARKET?

Transaction have to be conducted without the help of
brokers.
 Short-term funds are borrowed and lent.
 It is not a single homogeneous market, it comprises of
several submarket like call money market, acceptance &
bill market.
 Financial assets being converted into money with ease,
speed, without loss and with minimum transaction cost.
 In Money Market transaction can not take place formal
like stock exchange, it is through oral communication,
relevant document and written communication transaction
can be done.
4 ! IMPORTANCE OF MONEY MARKET?
 Development of trade & industry.
 Development of capital market.
 Smooth functioning of commercial banks.
 Effective central bank control.
 Formulation of suitable monetary policy.
 Non inflationary source of finance to

government.
5 ! INSTRUMENT OF MONEY
MARKET?
A variety of instrument are available in a developed
money market. In India till 1986, only a few
instrument were available.
They were:
 Treasury bills
 Money at call and short notice in the call loan
market.
 Commercial bills, promissory notes in the bill
market.
NEW INSTRUMENT ARE:
Now, in addition to the above the following new

instrument are available:
 Commercial papers.
 Repurchase agreement
 Certificate of deposit.
 Inter-bank participation certificates.
 Repo instrument
 Banker's Acceptance
 Money Market mutual fund
COMMERCIAL PAPER (CP)
 CP is a short term unsecured loan issued by a corporation

typically financing day to day operation.
 CP is very safe investment because the financial situation of

a company can easily be predicted over a few months.
 Only company with high credit rating issues CP’s.

TREASURY BILLS (T-BILLS)
 (T-bills) are the most marketable money market security.

 They are issued with three-month, six-month and one-year
maturities(extend period).
 T-bills are purchased for a price that is less than their
par(face) value; when they mature, the government pays the

holder the full par value.
 T-Bills are so popular among money market instruments
because of affordability to the individual investors.

CALL MONEY MARKET
 Call and notice money market refers to the market for short -term
funds ranging from overnight funds to funds for a maximum tenor of
14 days. Under Call money market, funds are transacted on overnight
basis and under notice money market, funds are transacted for the
period of 2 days to 14 days.
Participants in the Call Money Market:
As lenders and borrowers: Banks and institutions such as commercial

banks, both Indian and foreign, State Bank of India, Cooperative
Banks, Discount and Finance House of India ltd. (DFHL) and
Securities Trading Corporation of India (STCI).
As lenders: Life Insurance Corporation of India (LIC), Unit Trust of
India (UTI), General Insurance Corporation (GIC), Industrial
Development Bank of India (IDBI), National Bank for Agriculture and
Rural Development (NABARD), specified institutions already
operating in bills rediscounting market, and entities/corporate/mutual
funds.

REPURCHASE AGREEMENT (REPOS)
Repo is a form of overnight borrowing and is used by

those who deal in government securities.
They are usually very short term repurchases
agreement, from overnight to 30 days of more.
The short term maturity and government backing
usually mean that Repos provide lenders with extremely

low risk.
Repos are safe collateral for loans.
6 ! STRUCTURE OF INDIAN MONEY
MARKET?
I :- ORGANISED STRUCTURE
1. Reserve bank of India.
2. DFHI (discount and finance house of India).
3. Commercial banks
i. Public sector banks
SBI with 7 subsidiaries
Cooperative banks
20 nationalized banks
ii. Private banks
Indian Banks
Foreign banks
4. Development bank
IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI
etc.
CONTINUED…..
II. UNORGANISED SECTOR

1. Indigenous banks
2 Money lenders
3. Chits
4. Nidhis
III. CO-OPERATIVE SECTOR

1. State cooperative
i. central cooperative banks
Primary Agri credit societies
Primary urban banks
2. State Land development banks
central land development banks
Primary land development banks
7 ! DISADVANTAGE OF MONEY
MARKET
Purchasing power of your money goes down, in case
of up in inflation.
Dichotomized and loosely integrated
Irrational structure of interest rates
Highly volatile market
Seasonal stringency of loan able funds
Lack of funds in the money market
Inadequate banking facilities

8 ! CHARACTERISTIC FEATURES OF A
DEVELOPED MONEY MARKET?
Highly organized banking system
Presence of central bank
Availability of proper credit instrument
Existence of sub-market
Ample resources
Existence of secondary market
Demand and supply of fund

9 ! RECENT DEVELOPMENT IN MONEY
MARKET
Integration of unorganized sector with the organized sector
Widening of call Money market
Introduction of innovative instrument
Offering of Market rates of interest
Promotion of bill culture
Entry of Money market mutual funds
Setting up of credit rating agencies
Adoption of suitable monetary policy
Establishment of DFHI
Setting up of security trading corporation of India ltd.

(STCI)

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INDIAN

 What is Money Market?

 Features of Money Market?

 History of Money Market?

 Importance of Money Market?

 Disadvantage of Money Market?

 Characteristic features of a developed Money

It doesn’t actually deal in cash or money but

It includes all individual, institution and

To provide a reasonable access to users of short-

 Smooth functioning of commercial banks.

 Effective central bank control.

 Formulation of suitable monetary policy.

 Non inflationary source of finance to

 Money at call and short notice in the call loan

Now, in addition to the above the following new

 CP is a short term unsecured loan issued by a corporation

 CP is very safe investment because the financial situation of

 Only company with high credit rating issues CP’s.

 (T-bills) are the most marketable money market security.

par(face) value; when they mature, the government pays the

because of affordability to the individual investors.

As lenders and borrowers: Banks and institutions such as commercial

Repo is a form of overnight borrowing and is used by

usually mean that Repos provide lenders with extremely

II. UNORGANISED SECTOR

III. CO-OPERATIVE SECTOR

Irrational structure of interest rates

Highly volatile market

Seasonal stringency of loan able funds

Lack of funds in the money market

Inadequate banking facilities

Availability of proper credit instrument

Existence of secondary market

Demand and supply of fund

Introduction of innovative instrument

Offering of Market rates of interest

Promotion of bill culture

Entry of Money market mutual funds

Setting up of credit rating agencies

Adoption of suitable monetary policy

Setting up of security trading corporation of India ltd.

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