Money Market Instruments  

The company is an active player in the short term money market instruments.
The:

Call/ Notice/ Term Money

Repo/ Reverse Repo
Inter Corporate Deposits
Commercial Paper
Certificate of Deposit
Bills Rediscounting

Call/ Notice/ Term Money

Call money market is that part of the national money market where the day to day surplus of funds,
of banks and primary dealers, are traded in.Call/ Notice/ term money market ranges between one
day to 15 days borrowing and considered as highly liquid. Other key feature is that the borrowings
are unsecured and the interest rates are very volatile depending on the demand and supply of the
short term surplus/ defeciency amongst the interbank players.

The average daily turnover in the call money market is around Rs. 12000-13000 cr every day and
the market is active between 9.30 to 2.30 every working day and 9.30to 12.30 every Saturday.

Repo/ Reverse Repo

It is a transaction in which two parties agree to sell and repurchase the same security. Under such
an agreement the seller sells specified securities with an agreement to repurchase the same at a
mutually decided future date and a price. Similarly, the buyer purchases the securities with an
agreement to resell the same to the seller on an agreed date in future at a predetermined price.
Such a transaction is called a Repo when viewed from the prospective of the seller of securities (the
party acquiring fund) and Reverse Repo when described from the point of view of the supplier of
funds. Thus, whether a given agreement is termed as Repo or a Reverse Repo depends on which
party initiated the transaction.

The lender or buyer in a Repo is entitled to receive compensation for use of funds provided to the
counterparty. Effectively the seller of the security borrows money for a period of time (Repo period)
at a particular rate of interest mutually agreed with the buyer of the security who has lent the funds
to the seller. The rate of interest agreed upon is called the Repo rate. The Repo rate is negotiated
by the counterparties independently of the coupon rate or rates of the underlying securities and is
influenced by overall money market conditions.

The Repo/Reverse Repo transaction can only be done at Mumbai between parties approved by RBI
and in securities as approved by RBI (Treasury Bills, Central/State Govt securities).

Uses of Repo
It helps banks to invest surplus cash
It helps investor achieve money market returns with sovereign risk.
It helps borrower to raise funds at better rates
An SLR surplus and CRR deficit bank can use the Repo deals as a convenient way of adjusting
SLR/CRR positions simultaneously.
RBI uses Repo and Reverse repo as instruments for liquidity adjustment in the system.

Inter Corporate Deposits

For short term cash management of the rich corporates, the company offers to borrow through
Inter corporate deposits. The company has P1+ credit rating (Highest Rating in its category) for an
amount of Rs. 250 crores.

The company offers two variables of the Inter Corporate Deposits:

Fixed Rate ICD : the quantum/ rates/ term to maturity of the ICD are negotitaed by the two parties
at the beginning of the contract and remains same for the entire term of the ICD. As per the RBI
guidelines the minimum period of the ICD is 7 days and can be extended to peiod of 1 year. The
rates are generally linked to Interbank Call Money Market Rates.

Floating Rate ICD : Corporates interested in using the daily volatility of the call money market are
offered Floating Rate ICD which may be benchmarked/ linked to either NSE Overnight Call/ Reuters
Overnight Call rates. The corporates are also given Put/ Call option after 7 days for managing their
funds in the event of uncertainity of availability of idle funds.

Commercial Paper

It is a short term money market instrument comprising of unsecured, negotiable, short term usance
promissory note with fixed maturity, issued at a discount to face value. CPs are issued by
corporates to mpart flexibility in raising working capital resources at market determined rates. CPs
are actively traded in the secondarymarket since they are issued in the form of Promissory Notes
and are freely transferable in demat form.

Certificate of Deposit

Certificates of Deposit (“CD”) were introduced in 1989 following the acceptance of the Vaghul
Working Group of Money Market. These are also usance promissory notes issued at a discount to
the face value and transferable in demat form. They attract stamp duty. CDs are issued by
scheduled commercial banks and it offers them an opportunity to mobilise bulk resources for better
fund management. To the investors they offer better cash management opportunity with market
related yield and high safety.

Bills Rediscounting

The bills rediscounting scheme was introduced by RBI in November 1970 under which all licensed
scheduled commercial banks were eligible to rediscount with RBI genuine trade bills arising out of
sale/ purchase of goods. In November 1981 RBI stopped rediscounting bills but permitted banks to
rediscount the bills with one another as well as with approved Financial institutions. To augment
facilities for this activity and also make a larger pool of resources available, RBI has been
progressively enlarging the number of institutions eligible for bills rediscounting including primary
dealers.