MONEY MARKET IN INDIA

1.Write about money market in india.

MONEY MARKET IN INDIA:

The Money market in India in India is a correlation for short-term funds with maturity ranging from overnight to one year in India including financial instruments that are deemed to be close substitutes of money. Money market deals in financial securities period of maturity is in the range of one day to one-year money market financial security or asset are near substitute of money in the money market the commercial banks are the major landers of the money the central bank is the controlling authority of the money market.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.
☆ components of Indian money market:.

The Indian money market is divided into two parts namely the organised and the unorganised money market interest rate are different in both the market and there is no relationship what’s over between the two markets. The organised money market is the the formal market for money regulated by the central bank with commercial bank being the main player foreign banks Cooperative Bank discount and Finance house of India Finance Companies provident fund securities Trading Corporation of India PSU and mutual funds are the other Institutions which operate in the formal Indian money market. Bank of India is the Monetary Authority controlling the formal money market.
The unorganised sector consists of indigenous bankers money lenders and un regulated non-bank financial intermediaries such as Finance Company chit funds and nidhis. farmers artians and other small time Producers and traders borrow money from the unorganised money market.
Formal Indian money market is well organised and integrated. Mumbai , Kolkata , Delhi ,Chennai, Ahmedabad and Bangalore are the main centres of the organised sector. out of these the Mumbai money market is the largest.
☆ the organised sector of the Indian money market:
The components of the organised Indian money market are as follows:

1. The call money market.
2. The treasury Bill market.
3. The Repo market.
4. The commercial bill market.
5. The certificate of deposit market.
6. The commercial paper market.
7. Money market mutual funds.
   These components are explained below:
8. The call money market: in this market, borrowing and lending transactions are carried out for one day. These loans are called cal loans. They may not be renewed on the following day.
   It is also called as the inter bank call money market .
   The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned into money quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers.
   The unit Trust of India,The Life Insurance Corporation of India, the General Insurance Corporation of India ,the Industrial Development Bank of India and the National Bank of agricultural and rural development also operate in the Indian money market as lenders.
   The call money market is a mechanism whereby temporary surplus of some of the banks is made available to other who have a temporary deficit. it is a very sensitive market and hence reflects the liquidity conditions of the money market .the Reserve Bank of India monitors the call money market to make day-to-day adjustment in its own monetary policy.
9. The treasury Bill market:

Treasury Bills are the short-term money market instrument, issued by the central bank on behalf of the government to curb temporary liquidity shortfalls. Treasury bills also known as T-bills, have a maximum maturity of a 364 days. Hence, they are categorized as money market instruments. Treasury bills are usually held by financial institutions including banks. Treasury bills are issued for meeting temporary deficits which a government faces due to its excess of of Expenditure over revenue treasury bills are issued at a minimum amount of rupees 25000 and in multiples of rupees 25000 they are issued at a discount to face value and are redeemed at par.
Treasury bills were first issued in India in 1917. They are issued via auctions conducted by the Reserve Bank of India (RBI) at regular intervals. Individuals, trusts, institutions and banks can purchase T-Bills. But they are usually held by financial institutions. They have a very important role in the financial market beyond investment instruments. Banks give treasury bills to the RBI to get money under repo. Similarly, they can also keep it to fulfil their Statutory Liquid Ratio (SLR) requirements. From 1st April 1997 Ad Hoc treasury bills have been replaced by ways and means advances for financing the central government temporary deficits .the treasury Bill market in India is in a state of underdevelopment. The Reserve Bank of India A captive holder of the bills issued by the central government. the Reserve Bank of India rediscounts treasury bills present by the other banks this has resulted in monetization of public debt and has become a cause of expansions of money supply and raise of the prices.

1. The Repo market:

Repo is a a repurchase agreement in which the seller sells a security under an agreement to repurchase at a predetermined date and predetermined rate. It is a money market weather instruments which enables the short term borrowing and lending through sale and purchase operations the Repo was introduced in the year of 1992 the reverse repo was introduced in the year of 1994 by the Reserve Bank of India.
Although an asset is sold outright at the start of a repo, the commitment of the seller to buy back the asset in the future means that the buyer has only temporary use of that asset, while the seller has only temporary use of the cash proceeds of the initial sale. Thus, although repo is structured legally as a sale and repurchase of securities, it behaves economically like a collateralised or secured deposit. Repose helps to manage the conditions of the liquidity they used to provide opportunities to the banks to invest funds generated by the capital inflows during this time of foreign exchange volatility repose have been used to prevent speculative activity as the funds tend to flow from the money market to the foreign exchange market.

1. The commercial bill market:

The commercial bill market is the market for short-term bills of three months duration. It provides short term finance to trade industry the commercial bills are used to finance the transaction of good taking place between different companies.
A Commercial Bill arises out of a genuine trade transaction. A bill of exchange is an important commercial bill which is drawn by the seller on the buyer for the amount due to him. The maturity period of bill may vary from three to six months. The company is who sell the goods can wait till the specified date or can make use of commercial bill of exchange the seller of the goods draws the bill and the buyer accepts it once the bill is accepted it become a marketable instrument the draw the seller of goods can approach a commercial bank and get the bill discounted.

1. The certificate of deposit market:
   The certificate of deposit is a short term money market instrument introduced in the year 1989. Certificate of deposit are issued by the banks against the deposit kept by individual companies and institutions. Certificate of deposits is a safer and more conservative investment than stocks and bonds, offering lower opportunity for growth, but with a non-volatile, guaranteed rate of return.
   Virtually every bank, credit union, and brokerage firm offers a menu of options of certificate of deposit.The top nationally available CD rates are typically three to five times higher than the industry average for every term, so shopping around delivers significant gains.
   Certificate of deposit are marketable and negotiable instrument the certificate of deposit were issued by scheduled commercial banks in multiple of rupees 25 lakh subject to the minimum size of an issue being Rupees 1 crore and the maturity ranged between 3 months and 1 year.
2. The commercial paper market:

Commercial Paper in India was considered the beginning of financial reforms in India. Post liberalization the Indian government introduced many short-term instruments to tackle the various financial needs and situations of financial crisis one of which was Commercial papers. The commercial paper was introduced by the Reserve Bank of India in March 1989 and was made effective in January 1990. Commercial paper were introduced to provide companies with good credit rating as a source of short term borrowing the commercial paper issued in the form of unsecured usance promissory notes by the companies with good credit rating at a discount and the discount rate is market determined there are freely Transferable and negotiable.
Commercial papers are usually issued at a high value. It is unsecured money market instrument issued in the form of a promissory note and transferable between Primary Dealers and the All-India Financial Institutions .
According to the Reserve Bank of India guidelines our company will have to obtain P2 rating from credit rating information services of India Limited or A2 rating for from Investments information and credit rating agency of India Limited maturity period of commercial paper issued by various companies ranged from 3 months to 6 months and effective interest rates were in the range of 9.35 to 20.9 percent per annum.

1. Money market mutual funds:-the scheme of money market mutual funds was introduced by the RBI in April 1 january1992. A money market fund is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are managed with the goal of maintaining a highly stable asset value through liquid investments, while paying income to investors in the form of dividends. the objective of the scheme was to provide one more short term Avenue to the individual investors banks,public and private financial institutions were allowed to set up MMMFs in 1995.
   Resources mobilized by MMMFs are required to be invested in call money, CDs,CPs,commercial Bill’s arising out of genuine trade transactions, treasury bills and government dated securities having an unexpired maturity upto 1 year .
   Banks are now allowed to setup MMMFS only a separate entity in the form of a trust.

■unorganized sector of the Indian money market:-
The constituent of the unorganized sector of Indian money market are as follows:-

1. non banking financial companies:
   These companies assumes that the various forms some of the prominent form of national banking financial companies are loan or Finance Companies chit funds and nidhis. These companies offer loans to retailers wholesale traders 8 iitians and self employed person they charge very high rate of and self employed person they charge very high rate of interest ranking from 36 to 48 percent.
   However they are restricted from taking any form of deposits from the general public. These organizations play a crucial role in the economy, offering their services in urban as well as rural areas, mostly granting loans allowing for growth of new ventures.
   Non banking financial companies are also provide a wide range of monetary advices like chit-reserves and advances. Hence it has become a very important part of our nation’s Gross Domestic Product and NBFCs alone count for 12.5 percent raise in Gross Domestic Product of our country. Most people prefer NBFCs over banks as they find them safe, efficient and quick in assisting with financial requirements. Moreover, there are various loan products available and there is flexibility and transparency in their services.
   2.indigenous bankers:- individual bankers are individuals or private firms that receive deposits and give loans. These bankers have been engaged in the banking business from ancient times.
   However they are restricted from taking any form of deposits from the general public. These organizations play a crucial role in the economy, offering their services in urban as well as rural areas, mostly granting loans allowing for growth of new ventures.

NBFCs also provide a wide range of monetary advices like chit-reserves and advances. Hence it has become a very important part of our nation’s Gross Domestic Product and NBFCs alone count for 12.5% raise in Gross Domestic Product of our country. Most people prefer NBFCs over banks as they find them safe, efficient and quick in assisting with financial requirements. Moreover, there are various loan products available and there is flexibility and transparency in their services.
There are four main subgroups of indigenous bankers:g Gujarati Shroff, or shikarpuri Shroff ,chettires and Marwari kaya. The Gujarati Shroff the most prosperous bankers.

1. Moneylenders– there are three types of money lenders: money lenders, itinerant money lenders like pathans and Kabulis and non professional moneylenders.!