Money market

Nirav Panchal
Rajendra Chaudhari

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Money market
• Money market is the market for borrowing and
lending of short term funds.
• It is the place where the short term surplus
investible funds with banks and other financial
institutes are bid by borrowers comprising
companies, individuals and government.
• The money market has two sectors unorganized
and organized.

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 Money market

organized unorganized

Banking Sub-Markets
unregulated Money leaders
bankers
Commercial Cooperative

Public Private
marvadi

SBI INDIAN
gujarati
OTHER FOREIGN

RRB
Call Money Bill market Com.Paper
CDS

Com. Bills T-Bills 3

Unorganized sector
 Roughly, about 30% of total credit in urban
economy is believed to be provided by the
unorganized money market.
 Segments - Trade, several manufacturing
industries, export trade, construction etc.
 A key instrument of credit in this sector is the
hundi or bill of exchange.
 Gujarati shroffs, marvadies etc.

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Organized sector- Banking
 Commercial Banks: Nationalized banks
together with regional rural banks , private
sector commercial banks. (SBI group)
 Cooperative Banks:

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Organized sector-Sub-Markets
(1) Call Money Market
This is the most active sensitive part of the
organized money
Call money market deals in loans for a
period ranging form one to 14 days. The
money that is lent for one day in this market
is known as "Call Money", and if it exceeds
one day (but less than 15 days) it is referred
to as "Notice Money".
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Banks borrow in this market for the following purpose
 To fill the gaps or temporary mismatches in funds
 To meet the CRR & SLR mandatory requirements as
stipulated by the Central bank
 To meet sudden demand for funds arising out of
large outflows.
 80% borrowings – public sector banks, the lenders
of funds are mostly non-bank financial institutes. (lic,
gic)
 From January 1998 the RBI has banned banks from
borrowing in call and trading in the forex market.
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Organized sector-Sub-Markets
(2) Bill market
(a) Commercial bill: commercial bills along with
bank credit are an important source of
finance for the business and industrial
houses.
These bills are also used by RBI in their open
market operations.
However the bill market in in India has still
not developed.
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Organized sector-Sub-Markets
(b) Treasury Bills
These are short term liability of the
government of India.
Treasury bills are basically of two types: ad
hoc and regular.
Ad hoc means “ for the particular end or case
in hand”.
The system of ad hoc t-bills was discontinued
from1998. now, only regular t-bills are issued.
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 91-Day treasury bill: Traditional instrument in
the money market through which the
government raised funds for short term
periods and commercial banks invested their
short term funds.
 From 1993, the government introduced the
system of selling 91-day treasury bills
through weekly auction.

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 182-day treasury bill were discontinued from
may 2001.
 364-day treasury bills being long dated and
relatively risk free, attract investments from
banks and financial institutions.
 In 1997, the RBI introduced two more
treasury bills;
 14-day intermediate and 14-day auction t-bills.

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Organized sector-Sub-Markets
(3) Certificates of Deposits (CDs)
• The scheme of CDs was introduced in 1989 to
enable commercial banks to raise additional funds
by issuing CDs of various maturities.
• They are issued at a discount to the face value.
• CDs are freely transferable after 45 days from the
date of issue.
• CDs can be issued by all scheduled commercial banks
except RRBs, selected all india financial institutions,
permitted by RBI.
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Organized sector-Sub-Markets
(4) Commercial Paper
Through which companies could raise funds.
To safeguard the interest of lenders, only
companies of and above a specified
minimum size and credit worthiness are
allowed to issue CP.
 Denomination: min. of 5 lakhs and multiple thereof.
 Maturity: min. of 7 days and amaximum of upto one year from
the date of issue
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 The tangible net worth of the company, as per the latest
audited balance sheet, is not less than Rs. 4 crore;
 The working capital (fund-based) limit of the company
from the banking system is not less than Rs.4 crore
 The borrowal account of the company is classified as a
Standard Asset by the financing bank/s.
 All eligible participants should obtain the credit rating
for issuance of Commercial Paper.
 The minimum credit rating shall be P-2 of CRISIL or
such equivalent rating by other agencies.

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 Collateralized Borrowing and Lending Obligation
(CBLO)

• It is a money market instrument as approved by RBI, is

a product developed by CCIL. CBLO is a discounted
instrument available in electronic book entry form for the
maturity period ranging from one day to ninety Days (can
be made available up to one year as per RBI guidelines).
In order to enable the market participants to borrow and
lend funds, CCIL provides the Dealing System through:
Indian Financial Network (INFINET), a closed user group
to the Members of the Negotiated Dealing System (NDS)
who maintain Current account with RBI.
Internet gateway for other entities who do not maintain
Current account with RBI.
What is CBLO?
CBLO is explained as under:
An obligation by the borrower to return the money
borrowed, at a specified future date.
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 An authority to the lender to receive money lent, at a
specified future date with an option/privilege to transfer the
authority to another person for value received;
An underlying charge on securities held in custody (with
CCIL) for the amount borrowed/lent Banks, financial
institutions, primary dealers, mutual funds and co-operative
banks, who are members of NDS, are allowed to
participate in CBLO transactions. Non-NDS members like
corporates, co-operative banks, NBFCs, Pension/Provident
Funds, Trusts etc. are allowed to participate by obtaining
Associate Membership to CBLO Segment.

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Repos

• 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
• 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).

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Thank you

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