(ii) The unorganised market on the indigenous market comprises theindigenous bankers and moneylenders, working both in rural and urban areas. In thismarket, there is no clear demarcation between short-term and long-term finance, nor even between the purposes of finances, inasmuch a there is usually nothing on a
(which is indigenous bill of exchange) to indicate whether it is for financing trade, or for providing financial accommodation; in other words, whether it is a genuine trade bill or afinancial paper. By and large, these bills are accommodation bills.(iii) A somewhat intermediate position between the organized andunorganized sectors of the money market is occupied by the co-operative creditinstitutions. These institutions were set up mainly with a view to supplanting theindigenous sources of rural credit, particularly the moneylenders, since the creditprovided by the moneylenders was subject to many drawbacks, especially high interestrates. While considerable progress has been made in fulfilling this objective in the lastfew years, the total credit requirements of the rural sector have also increasedconsiderably. The Reserve Bank has stepped up substantially the credit assistance tothis sector and to supplement the efforts of the co-operative sector, regional rural banksand commercial banks are also entering the rural economy in a big way. With thenotable increase in the number of commercial bank branches in the rural areas in thelast decade, closer link have been forged between the co-operative credit system andthe organized money market, particularly with the State Bank of India.
Composition of the Organised Market
The organized money market consumeof (i) call money market, (ii) bill market, and (iii) collateral loan market.(i)
comprises dealings primarily among banks. It is the mostsensitive section of the money market. The rates of interest in this market vary fromtime to time according to the volume of transactions, being higher in the busy seasonthan in the slack season.(ii)
comprises dealings in short-term bills of exchange, includinghundis of the indigenous bankers. Bill market in India has developed quite late—it hadits real beginning only after the introduction by the Reserve Bank of its New Bill MarketScheme in 1970. Since then, although this market is developing, it is as yet not a veryprominent feature of the Indian money market.(iii)
Collateral loan market
forms, by and large, the largest and the bestdeveloped section of the money market. It this market, loans are given against thesecurity of government bonds, shares of first class companies, agriculture andmanufactured commodities, and bullion and jewellery.SALIENT FEATURES OF NEW MONEY MARKET INSTRUMENTSThe present position of major money market instruments that are dealt with in theIndian money market is as under:(a)
Call and Notice Money
In this market, funds are borrowed and lent for one day (call) and for a period up to 14days (notice) without any collateral security. However, deposit receipt is issued to the lender whoon recalling the funds, discharges the receipt and gives back to the borrower; upon which theborrower will repay the amount together with interest. The participants in this market arecommercial and co-operative banks, mutual funds and all-India financial institutions approved bythe Reserve Bank of India. From May 1, 1989, the interest rates in the call and notice moneymarket are market-determined. Interest rates in this market are highly sensitive to the demandand supply factors. Within one fortnight, rates are known to move to as high as over 70 per centto as low as 2-3 per cent; intra-day variations are also quite high. Variation of as high as 10percentage points is not uncommon.