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Omtex – classes

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INDIAN MONEY MARKET
A money market is a market for borrowing and lending of short term funds. It is a mechanism
through which short term surplus funds with banks and other financial institutions were borrowed
by firms, individuals and even banks and other institutions.

• Following are the role / objectives of Indian money markets in the economy

➢ It facilitates economic development.


➢ It provides an opportunity to short term investors in the economy.
➢ It helps banks to maintain financial discipline, as they have to follow the RBI’s guidelines relating to
CRR, SLR, CAR, etc.
➢ It facilitates proper implementation of monetary policy of RBI.
➢ It facilitates capital formation.
➢ It encourages savings.
➢ It encourages investments.
➢ It assists in employment generation in various sectors and segments of the economy.

• Following are the features / characteristics of Indian money markets in the


economy

➢ Dichotomy: - The main features of Indian Money Market is the existence of dichotomy (i.e.)
existence of two markets.
 Organised money market
 Unorganised money market
Organised money market consists of RBI, FIs, Commercial banks etc.
Unorganised money market consists of native banks, money lenders, chit funds, unregistered
financial companies and others.
➢ Lack of integration: - It is difficult for the RBI to integrate the organised and unorganised money
sectors. As a result of dichotomy it is difficult to ensure the uniform implementation of the monetary
policy by RBI.
➢ Diversities in interests’ rates: - There is diversities in interest rates in Indian Money Markets.
 Diversities in interests rates between organised money market and unorganised money market. As
unorganised money sector may charge a higher interest rates as compared to organised money
sectors.
 Diversities in interests’ rates within organised monetary sectors, as some banks may charge a high
interest rates, due to deregulation of interest rates.
 Diversities in interests’ rates within unorganised monetary sectors, as different money lenders may
charge a different interest rates.

➢ Absence of an organised bill market:-