Challenges of money market mkt in india essay

Call money market in india

They will be freely transferable by endorsement and delivery. The unit banking system: This system has led inevitably to striking differences between money market arrangements in the United States and those of other countries. Banks will neither be allowed to grant loans against CDs, nor can they buy their own CDs. Therefore, they seriously restrict the Reserve Bank's control over the money market, 3. The central bank of the country — the Reserve Bank of India RBI has always been playing the major role in regulating and controlling the India money market. In , the stringent conditions in the money market induced the bankers to mobilise a good amount of resources through CDs. Every year, a portion of treasury bills are converted into long-term bonds. Following are some and defects: i Lack of Adequate Integration: There is lack of adequate integration in the Indian money market. Being cash surplus entities, they do not borrow in the money market. Participants 7.

But, these treasury bills are not popular with the non-bank financial institutions, corporations, and individuals mainly because of absence of a developed treasury bill market.

Participants in Money Market: A large number of borrowers and lenders make up the money market.

suggestions to remove the defects of indian money market

This House will normally buy bills and short term papers from different banks and financial institutions in order to invest all of their idle funds for short periods. DFHI, which commend its operations from April 25, deals in short-term money market instruments.

characteristics of indian money market

Besides the Reserve Bank, some treasury bills are held by commercial banks, state government and semi-government bodies. The instruments that are generally traded in the money market constitute: treasury bills, short-term central bank and government bonds, negotiable certificates of deposits, bankers acceptances and commercial papers like the bills of exchange and promissory notes, mutual funds etc.

For example, there is little contact between the money markets in the bigger cities, like, Bombay, Madras, and Calcutta and those in smaller towns.

structure of indian money market pdf

The purpose for issuing a commercial bill is simply to reimburse the seller as and when the buyer delays payment. Absence of Bill Market: The existence of a well-organized bill market is essential for the proper and efficient working of money market.

InDay Treasury Bills were introduced and the auction of Day Bill has been discontinued. The company issuing CP will have to obtain every six months a specified rating from an agency approved by the Reserve Bank.

Features of indian money market

Wasteful Competition: Wasteful competition exists not only between the organised and unorganised sectors, but also among the members of the two sectors. Most developing countries, except those having socialist systems, have the encouragement of money markets as a policy objective, if only to provide outlets for short-term government securities. Absence of Bill Market: The existence of a well-organised bill market is essential for the proper and efficient working of money market. They charge high rate of interest and they are not influenced by bank rate policy of the Reserve Bank of India. Thirdly, the sub-markets like acceptance market and the commercial bill market are non-existent in Indian money market. Population per bank office in India was 12, persons in as compared to that of only 1, persons in USA. The availability of capital in the money market is insufficient to meet the needs of industry and trade in the country. Unfortunately, in spite of the serious efforts made by the Reserve Bank of India, the bill market in India has not yet been fully developed. Constituents 5. It makes T-bills unpopular. However, the experts feel that unless the cash credit system is discouraged this government decision to remit the stump duty is not going to favour the prevailing bill system. There are many other small players like non-banking finance companies, primary dealers, provident funds and pension funds. Shortage of Capital: Indian money market generally suffers from the shortage of capital funds. The short-term bills form a much smaller proportion of the bank finance in India as compared to that in the advanced countries. There are various sub-markets such as Call money market, Bill market, etc.
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