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companies, etc.)
Financial markets (money market, capital market, forex market,
etc.)
Regulated by …(RBI, SEBI, IRDA,PRDA, PDMA,
IBRI)
Financial assets/instruments
Enable channelizing funds from surplus units to
deficit units
Instruments for savers such as deposits, equities,
mutual fund units, etc.
Instruments for borrowers such as loans, overdrafts,
etc.
Like businesses, governments too raise funds through
issue of bonds, Treasury bills, etc.
Instruments like PPF, KVP, etc. are available to savers
who wish to lend money to the government
Financial
Institutions
Includes institutions and mechanisms which
Affect generation of savings by the community
Mobilization of savings
Bond Market
Money Market Instruments
Call money- money borrowed/lent for a day. No
collateral. Notice Money---2-14 days
Inter-bank term money- Borrowings among
banks for more than 7 days
Treasury Bills- short term instruments issued by
the Union Govt. Issued at a discount to the face
value
Certificates of Deposit- Issued by banks/FI.
Minimum value is Rs. 1 lakh, tradable in the
market. CDs issued by banks/FIs
Money Market Instruments
Commercial Paper (CPs) issued by corporate to raise
short term money
1. Issued in multiple of Rs. 5 lakhs, (by companies with a
net worth of at least Rs. 5 crores)
2. CP an unsecured promissory note privately placed
with investors at a discount rate to face value.
3. The maturity …3 and 6 months
Stop for a while
Promissory Notes
Legal instrument as a promise to pay a specific amount
at specific date for specific reason to specific person.
Organized Money Market
Call money market
Bill Market
Treasury bills
Bank loans (short-term)
Participants: RBI, banks (commercial and co-
operative)
Call money market
Deals with one-day loans (overnight) ….. call
loans or call money
Participants are mostly banks. Also called inter-
bank call money market.
The borrowing limited to banks, temporarily
short of funds.
On the lending side, besides banks with excess
cash and as special cases few FIs like LIC.
Call money market
Call loans ……made on a clean basis- i.e. no collateral
is required
Function ….to redistribute the pool of day-to-day
surplus funds of banks among other banks in
temporary deficit of funds
Helps banks to earn interest and yet improve their
liquidity
Highly competitive and sensitive market
Acts as a good indicator of the liquidity position
How? What is the trend in the last year?
Bill Market
Treasury Bill market- Also called the T-Bill
market
1. Short-term liabilities (91-day, 182-day, 364-
day) of the Government of India
2. Promise to pay the stated amount on
maturity
3. Issued at discount and redeemed at face value
4. The rate of discount and the corresponding
issue price by auction.
Calculation of Return of T bills
FV = Rs 100
Price = Rs 98
Liquidity Liquidity
Injection Absorption
M3 M3
increase decreases
Cont.
Monitor through the movement of
interest rates,
inflation rates,
money supply,
credit,
exchange rate,
trade, capital flows,
fiscal position, agricultural outputs
Cont.
Direct Instruments to control
CRR
SLR
Refinance Facilities
Indirect Instruments to control
Liquidity Adjustment Facility
Repo/Reverse Repo rate
Open Market Operations
Marginal Standing Facility
Bank rate
Market Stabilization Scheme
CRR ( Cash Reserve Ratio)
Quantum of cash that bank is required to keep with
RBI as a proportion of their net demand and time
liabilities.
No interest paid on it by RBI
How much Today ? And Trend ?
It is maintained on daily basis. In case of default of
CRR requirement on a daily basis, penal interest will
be levied for the day at the rate of 3% per annum
above the bank rate on the calculated shortfall. If
continues on second day, 5% ………………….
Key rates today ( 14th July,
2022)
CRR: 4.5%
SLR: 18.00%
Policy Repo Rate: 4.9%
Reverse Repo Rate: 3.35%
Marginal Standing Facility Rate: 4.65% ( RBI will lend
banks in emergency situation but banks have to
pledge Govt securities)
Bank Rate: 5.15% (RBI will lend to banks at this rate)
Statutory Liquidity Ratio (SLR)
It is the share of net demand and time liabilities that
banks must maintain in safe and liquid assets such as
Govt. securities, cash and gold.
Penalty rules are similar to CRR
How much today and trend?
Other Instruments
Sector Specific Refinance Facilities
Provided to Banks
But we will check the facilities availed by SCB
stock market)
The Indian Capital Market
Development Financial Institutions
Industrial Finance Corporation of India (IFCI)
State Finance Corporations (SFCs)
Financial Intermediaries
Merchant Banks ( advisor, underwriter, fund raiser, market maker)
Mutual Funds ( pool fund and invest on behalf of clients)
trajectory firms)
Industrial Securities Market
Refers to the market for shares and debentures of old
and new companies
New Issues Market- also known as the primary
market- refers to raising of new capital in the form of
shares and debentures
Stock Market- also known as the secondary market.
Deals with securities already issued by companies
Financial Intermediaries
Mutual Funds- Promote savings and mobilise
funds which are invested in the stock market and
bond market
Indirect source of finance to companies
Pool funds of savers and invest in the stock
market/bond market
Their instruments at saver’s end are called units
Offer many types of schemes: growth fund,
income fund, balanced fund
Regulated by SEBI
Financial Intermediaries
Merchant banking- manage and underwrite new
issues, undertake syndication of credit, advise
corporate clients on fund raising
Subject to regulation by SEBI and RBI
SEBI regulates them on issue activity and
portfolio management of their business.
RBI supervises those merchant banks which are
subsidiaries or affiliates of commercial banks
Have to adopt stipulated capital adequacy norms
and abide by a code of conduct
Conclusion
There are other financial intermediaries such as
NBFCs ( can’t accept deposits), Venture Capital
Funds, Hire and Leasing Companies, etc.
India’s financial system is quite huge and caters
to every kind of demand for funds
Banks are at the core of our financial system and
therefore, there is greater expectation from them
in terms of reaching out to the vast populace as
well as being competitive.
Helpline
Venture Capital Funds…( High risk and high
return….invest in start-ups and small and medium
sized enterprises with huge potential)
Hire and lease……..mode of asset finance for
possession and control of assets
Debenture…..unsecured loan
Bill of exchange…..non interest bearing written order
(signed by creditor and accepted by debtor)
IDR, ADR