RESEARCH PROJECT REPORT

ON
“A Study on India Money Market”

Submitted in partial fulfillment of the requirement

For the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Dr. A.P.J. Abdul Kalam Technical University, Lucknow

SESSION
(2023-2024)
SUBMITTED BY
Name: Kishan Gupta
Class: MBA-2nd year
University roll no. - 2202160700048

IIMT COLLEGE OF ENGINEERING, GREATER NOIDA

(Affiliated to Dr. A.P.J. Abdul Kalam Technical University, Lucknow)
 CERTIFICATE

This is to certify that the Project Report titled “A Study on India

Money Market” submitted by Mr. Kishan Gupta in partial fulfilment
of the requirement for the award of degree of Master of Business
Administration of Dr. A.P.J. Abdul Kalam Technical University,
Lucknow, is a record of candidate’s own work carried out by him
under my guidance. This has not been submitted to any other
University or Institution for the award of any
degree/diploma/certificate.

Date: Signature of the guide

Assistant Prof. Amit Kumar
 CERTIFICATE

This is to certify that Mr. Kishan Gupta, University Roll No:- 2202160700048
is a regular student of MBA 2nd year, and had completed his Research project
report on “A Study On Indian money market for partial fulfillment of the
curriculum for the award of the degree of Masters of Administration from DR .
A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY, LUCKNOW, is an
original work done by him.

Mr. Amit Kumar Verma Dr. Ambrish Sharma

Assistant Professor H.O.D
 DECLARATION

I, the undersigned Kishan Gupta the student of department of master of business

administration, IIMT college of engineering, greater Noida hereby decline that
this research report is my own work carried out under supervision and guidance
of Mr. Amit Kumar Verma .

This report has not been published anywhere. His has been undertaken for the
purpose of partially fulfilment of Dr. A.P.J. Abdul Kalam and technology
university requirement for the award of the degree of Master of Business
administration.

Kishan Gupta
 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and
assistance from many people, and I am extremely privileged to have got this all
along the completion of my project. All that I have done is only due to such
supervision and assistance and I would not forget to thank them.

I respect and thank Mr. Amit Kumar Verma for providing me with an opportunity
to do the project work in Indian money market and giving us all support and
guidance, which made me complete the project duly. I am extremely thankful to him
for providing such nice support and guidance, al thoughhe had a busy schedule.

I owe my deep gratitude to our bank staff who took a keen interest in our project
work and guided us all along, till the completion of our project work by providing
all the necessary information for developing a good system.

No project report ever reflects the efforts of a single individual. The report owes its
existence to the constant support and guidance of a number of people. I am grateful
to all of them.

I would like to thank all the respondents for giving their valuable time and providing
useful information.

I am also grateful to all those who have either directly or indirectly contributed
towards the completion of the project, for their support and encouragement.

Kishan Gupta

5|P a g e
 ABSTRACT: -
In India the money market plays a vital role in the progress of economy. But it is not
well developed when compared to American and London money markets. In this
market short-term funds are borrowed and lent among participants permitted by RBI.
Money Market ensures that institutions which have surplus funds earn certain
returns on the surplus. Otherwise these funds will be idle with the institutions.
Similarly, the money market ensures funds for the needy at reasonable interest. This
way liquidity position is assured by money market operations.
Let us now discuss the various money market instruments in India. In India the
Money Market is regulated by RBI. Hence, the instruments traded and the players in
the market require to be approved by RBI.

India's time-tested institutions offer foreign investors a transparent environment that

guarantees the security of their long-term investments. These include a free and
vibrant press, a judiciary which can and does overrule the government, a
sophisticated legal and accounting system and a user-friendly intellectual
infrastructure. India's dynamic and highly competitive private sector has long been
the backbone of its economic activity. It accounts for over 75% of its Gross
Domestic Product and offers considerable scope for joint ventures and
collaborations.

Today, India is one of the most exciting emerging money markets in the world.
Skilled managerial and technical manpower that match the best available in the
world and a middle class whose size exceeds the population of the USA or the
European Union, provide India with a distinct cutting edge in global competition.
The average turnover of the money market in India is over Rs. 40,000 crores
daily. Thisis more than 3 percent of the total money supply in the Indian economy
and 6 percent of the total funds that commercial banks have let out to the system.
This implies that 2 percent of the annual GDP of India gets traded in the money
market in just one day. Even though the money market is many times larger than the
capital market, it is not even fraction of the daily trading in developed markets.

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 Index
SR.NO CHAPTERS NAME PAGE NO.

1. INTRODUCTION 8

Meaning and definitions 9

Objectives of money market 10
Characteristic of money market 11-13
Efficient money market History 14-17
18
Participants
Type of money market instruments 19-33
Evolution of money market in India 34-42
Measure of reforms in Indian money 43-44
market
Needs for imbibing debt to the market 45-48
Obstacles to development of IRS in 49
India
Present scenario of Indian money 50-52
market
2. REVIEW OF LITREATURE 53-59

3. RESEARCH METHODOLOGY 60

Sample unit Type of Research Sample 60

ObjectiveSample 61
Size Sample design 61
Data collection 62
Data analysis 63
Limitation of study 63
Objective of study 64
Hypothesis 64-65
4. DATA ANALYSIS & Interpretation 66-75
5. Findings 76
6. Suggestion 77
7. CONCLUSION 78
8. BIBLIOGRAPHY 79

9. APPENDIX 80-82

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 Chapter 1

Introduction: -

By convention the term 'Money market' refers to the market for short term requirement
and deployment of funds. Money market is the instrument which have less than one year
as a maturity period. The most active part of money market is the overnight call money
and term money between the Banks, Financial Institutions, as well as Call Money market
transaction. Call money or Repo are the two short term money market products.
The below mentions instruments are the money market instruments:
The financial markets where instruments are highly liquidating and are of shot maturity
period which are traded in the market is called as money market. It is a generic definition.
The player who indulge or who trade for short term for several days to less than a year. It
is generally use for borrowing and lending for a short period. Due to high liquidate nature
of security and short maturities, money market is placing to are recognized as a safe place
to lock in money i.e. to invest in money market.
The participants in financial market are of thin line, differentiating between capital market
and money market.
Capital market refers to stock market where the stock is being traded in market and bond
markets where the bonds are being issued and traded. This is the sharp contrast to money
market which provide the short-term debt financing and investment. In money market,
there is borrowing and lending for periods of a year or less. There are seven type of
money market instruments: -
1) Certificate of deposit (CD)
2) commercial paper (C.P)
3) Treasury Bills
4) Inter Bank Participation certificates
5) Bill Rediscounting
6) Inter Bank Term Money

8|P a g e
 Meaning and Definition: -

Money market refers to the market where money and highly liquid marketable
securities are bought and sold having a maturity period of one or less than a year. It
is not like stockMarket, but an activity conducted by telephone.
The market constitutes a very important segment of the Indian financial system.
The highly liquid marketable Securities are also called as 'money market
instruments' liketreasury bills, government securities, commercial paper, certificate
of deposit, call moneyand repurchase agreement etc.
The players in the money market are Reserve Bank of India (RBI), Discount and
Finance House of India (DFHI), banks, financial institutions, mutual funds,
government, big corporate houses. The basic aim of dealing in money market
instruments is to fill the gap between the short-term liquidity problems or to use the
Short-term surplus to gain incomeon that.

Definition of money market: -

According to the Reserve Bank of India, “money market is the center for dealing,
mainly of short-term character, in money assets; it meets the short-term
requirements of borrowings and provides liquidity or cash to the lenders. It is the
place where short term surplus investible funds at the disposal of financial and other
institutions and individuals are bid by borrowers’ agents comprising institutions and
individuals and the government itself.”
According to the Geoffrey, “money market is the collective name given to the
various firms and institutions that deal in the various grades of the near money.

9|P a g e
 Objective of money market: -

The following are the important objectives of a money market:

To provide a parking place to employ short-term surplus funds.

To provide room for overcoming short-term deficits.

To enable the Central Bank to influence and regulate liquidity in the economy through its
intervention in this market.

To provide a reasonable access to users of Short-term funds to meet their requirements

quickly, adequately and at reasonable costs.

10 | P a g e
 General Characteristics of Money Market: -

Money market is the short-term money market where financial assets that are the
close substitute of money. Money market can exist anywhere where borrowers and
lenders desires to enter into short term credit transaction as in any other market.
Money market also has three constituents like any other market —
(I) Money market has buyers and sellers in the form of borrowers and lenders.
(2) It has a commodity in the form of instruments like Treasury Bill and
CommercialPaper etc.
(3) It has a price in the form of rate of interest.
The term “Money Market” refers to the various firms and institutions dealing
with several types of “near money”. Near money consists of assets which can be
convertedinto cash without any loss.
One of the features of money market is that it is not a one market but the
collection ofmarkets such as call and notice money market and bill market etc.
All these markets have close inter-relationships.
An ideal money market is one where there are enormous number of
participants.Larger is the number of participants greater is the depth of the
market.
It’s only the money market which solves the problem.
If the problem is that of cash out flow more than cash receipts, they go to the money
market looking for funds. If the problem is that of excess cash inflow, then the
problem isagain set off by money market for temporary fund deployment. Thus, it is
the money market which meets short-term requirements of borrowers and provides
profitable avenues to the lenders.
The term money market is also known as a wholesale market. The volume of funds,
traded in the market, are very large. There are skilled personnel to undertake the
transactions. Trading in the market is attend beyond the telephone followed by
written confirmation from both the borrowers and lenders.
Depending on supply of funds, Indian Money Market is divided into two markets:
(a) The organized money markets

11 | P a g e
 (b) The unorganized money markets.
The participants in the organized money market are the Reserve Bank of India
(RBI), Commercial Banks, Co-operative Banks, Unit Trust of India (UTI), Life
Insurance Corporation of India (LIC), General Insurance Company (GIC). Discount
and Finance House of India (DF HI), Industrial Development Bank of India (IDBI),
National Bank of Agriculture and Rural Development (NABARD), Industrial Credit
Investment Corporation of India (ICICI), Corporate bodies. The RBI has close
links with money

market and it can justly be regarded as an important constituent of money market as

it plays the vital role of controlling the flow of currency and credit in the market.
The unorganized sector consists of indigenous bankers who engage the banking
business on traditional lines. Indigenous bankers follow their own rules of banking
and finance. Attempts have been made by RBI to bring them under the organized
market. But indigenous bankers as an aggregate not accepted the conditions
prescribed by RBI.
The instruments in the money market are call money’, Treasury Bills, Commercial
Bills, Commercial Paper, Certificate of Deposits, Interbank Participation.
Money market has two strata:
(a) the primary market and
(b) the secondary market.
Where the lenders and borrowers directly deal with money or through brokers it is
known as primary market. To make the instruments more liquid, the secondary
market has been built up. Discount and Finance House of India Ltd. has been set
up by the Reserve Bankof India to provide an active secondary market for money
market.

12 | P a g e
 In order to enable the small investors to get access to the money market so as to benefit
from its yields, the Reserve Bank of India has issued broad guidelines to allow banks and
the subsidiaries to set up Money Market Mutual Funds (MMMF) similar to mutual funds
for stock market. MMMFs pool the investors funds through MMMF Unit/deposit account
and invest this fund in money market instruments.
With the liberalization and deregulation process initiated by RBI, several
innovations have been introduced. But even then, the money market is not free
from the followingrigidities:

 Absence of integration

 Disparity of interest rates in different center

 Resistance of the unorganized money market

 High volatility

 Restricted/Limited number of players

 Limited number of instruments

 Absence of transparency in transactions

 Inefficient payment syste

13 | P a g e
 Efficient Money Market: The Conditionalities: -

Political stability in the country.

Presence of highly organize 5 commercial banking systems.

Effectiveness of central banking authority.

Existence of demand for temporary surplus funds.

No fixed place for conduct of operations, the transactions can be conducted even on
the phone and therefore, there is an essential need for the presence of well-
developed communications system.
Dealings can be done with or without the help the brokers.
The short-term financial assets that are dealt in are close substitutes for money,
financial assets being converted into money with ease, speed, without loss and with
minimum transaction cost.
Funds are traded for a maximum period of one year.

14 | P a g e
 History of Indian Money Market: -

Till 1935, when the RBI was set up the Indian money market remained
highly disintegrated, unorganized, narrow, shallow and therefore, very backward.
The planned economic development that commenced in the year 1951 market an
important beginningin the annals of the Indian money market. The nationalization of
banks in 1969, setting up of various committees such as the Sukhoi Chakraborty
Committee (1982), the Vague working group (1986), the setting up of discount and
finance house of India ltd. (1988), the securities trading corporation of Improvise
(1994) and the commencement of liberalization and globalization process in 1991
gave a further fillip for the integrated and efficient development of India money
market.
Call money market is the oldest in the history of money market in India which
provides the institutional arrangement for making the temporary surplus of some
banks available toother banks which are temporarily in short of funds. The rate of
interest paid on a call loans is known as the call-rate. The call rate in India was used
to be determined by marketforces till 1973. Due to the credit squeeze introduced by
RBI in May 1973 in the form of raising 'he bank rate and tightening of refinance and
rediscounting facilities, the call rate had reached as high a level as 30% in Dec.
1973. Due to this alarming l*vel of call rate it became necessary to regulate it within
a reasonable a limit.

15 | P a g e
 Therefore, the Indian Bank Association in 1973 fixed a ceiling of 15% on the level
of call rate. Since the IBA has lowered the ceiling of 15% to 12.5% in March 1976,
10% in Jane 1977, 8.65 in March 1978 and 10% in April 1980. In India the call rate
has always exceeded the bank rate except in the freak year 1955-66. The difference
between two ratesincreased as the RBI tightened its refinancing an5 rediscounting
facilities till 1975-76.

In 1980-81, the call rate was much higher than the bank rate. After 1981, call rate
was slightly higher than the bank rate.
After Discount and Finance House of India (D.F.H.I.) commenced its operation in
April 1988, it was permitted by R.B.I. to act as an arranger of funds in the call
market. However, with effect from 28th July 1988, it has been allowed to participate
both as the lender and as borrower in the call notice market. The call rate has seen
freed from administrative ceiling in 2 stages.
Effective from October 1988, the operations of D.F.H.I., in the call market were
exempted from the ceiling on the call rate.
With effect from. 1" May 1989, the callings in the call rate and interbank term
moneyrate were withdrawn. As a result, the call rate ns freely determined by the
forces of demand for and supply of call loan. There are now 2 call rates in India
one is the inter-bank call rate and the other is the lending rate of D. H.I. in the
call market.
The Bill Market Scheme was introduced by RBI in January 1952, before 1952, the
banks were getting additional cash from RBI by selling their government securities.
But now according to bill market scheme, a bank can grant loan to its customers
against their promissory notes and it can use the same promissory notes to borrow
from the Reserve Bank. All that the Bank is required to do is to convert these
promissory notes into usance promissory notes maturing within 90 days. Initially it
was restricted to (a) the schedule bank with a deposit Rs.10 crores and above, (b)
loans with minimum limit of Rs.10 lakhs
(c) individual bills, the minimum value of each being 1 lakh
rupees.The scope of the scheme was broadened from time to
time.

16 | P a g e
  by making more banks eligible to borrow under the scheme

 by reducing the minimum limit ofadvances.

 by reducing the minimum eligibility value of bills.

 by extending the scheme to export bills with minimum usance of 180-Days.

The bill market scheme became so popular that the turnover under the scheme
increased from Rs.29 crores in 1951-52 to Rs.228 crores in 1955-56 and to Rs.1354
crores in 1968-
69. In 1970, RBI instituted Narasimha Committee to study the development of the
bill market. In 1970, the new bill market scheme was introduced under sec 17(2) of
the RBI acts.

17 | P a g e
 Participants: -

The money market consists of financial institutions and dealers in money or credit
who wish to either borrow or lend. Participants borrow and lend for short periods,
typically upto twelve months. Money market trades in short-term financial
instruments commonly called "paper". This contrasts with the capital market for
longer-term funding, which is supplied by bonds and equity.
The core of the money market consists of interbank lending—banks borrowing
and lending to each other using commercial paper, repurchase agreements and
similar instruments. These instruments are often benchmarked to (i.e., priced by
reference to)the London Interbank Offered Rate (LIBOR) for the appropriate
term and currency.
Finance companies typically fund themselves by issuing large amounts of asset-
backed commercial paper (ABCP), which is secured by the pledge of eligible assets
into an ABCP conduit. Examples of eligible assets include auto loans, credit card
receivables, residential/commercial mortgage loans, mortgage-backed securities and
similar financial assets. Some large corporations with strong credit rating issue
commercial paper on their own credit. Other large corporations arrange for banks to
issue commercial paper on theirbehalf.
In the United States, federal, state and local governments all issue paper to meet
fundingneeds. States and local governments issue municipal paper, while the U.S.
Treasury issues Treasury bills to fund the U.S. public debt:
Trading companies often purchase bankers' acceptances to tender for
payment tooverseas suppliers.
Retail and institutional money market funds
Banks
Central banks
Cash management programs
Merchant bank

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 Types of Money Market Instruments: -

19 | P a g e
 Structure of Indian Money Market – Chart: -

The entire money market in India can be divided into two parts. They are
organized money market and the unorganized money market. The unorganized
money market can also be known as an unauthorized money market. Both of
these components comprise several constituents. The following chart will help
you in understanding the organizational structure of the Indian money market.

20 | P a g e
 Structure: -

The Indian money market consists of two main sectors: -

1) ORGANISED SECTOR: -

The RBI is the apex institution that controls and monitors all the organizations in
theorganized sector.
Also, the organized money market is composed of various components/
instrumentsthat are highly liquid in nature.
The instruments traded are call money, treasury bills, commercial bills,
certificate ofdeposits, commercial papers, repos etc.
The organized money market is further diversified with the
establishment ofthe Discount and finance House of India, and Money
market Mutual Funds.

21 | P a g e
 The Instruments of the Organized Money Market Are: -

I) CALL MONEY AND NOTICE MONEY MARKET:

 The call money market is the most important segment of the Indian
moneymarket. It is also called as inter-bank call money market.
 Under call money market, funds are transacted on an over-night.
Generally,banks rely on call money market where they raise funds for a
single day.
 The notice money market funds are transacted for a period of 2 to 14 days.
Theloans are to be repaid at the option of either the lender or the borrower.
 The rate at which funds are borrowed / lent in this market is called the

callmoney rate.
22 | P a g e
  The main participants in the call money market are commercial banks
(excludingRRBs), co-operative banks and primary dealers.
 The Discount and finance House of India and non-banking financial
institutionslike LIC, GIC, UTI, NABARD, etc., also participate in the call
money market.
 Call money markets are generally concentrated in large commercial center
likeMumbai, Delhi, Chennai, Kolkata and Ahmadabad.
 The RBI intervenes in the call money market because it is highly sensitive,
and itis the indicator of liquidity position in the organized money market.
 The call money rate (that depends on depends on demand for and
supply offunds) is highly variable from day to day and from center to
center

ii) TREASURY BILLS MARKET:

 Treasury bills are short-term securities issued by the RBI on behalf of
theGovernment of India.
 Treasury bills are of three types: 91-day treasury bills, 182 days treasury
billsand 364-day treasury bills.
 Since these bills are issued through auctions, interest rates on all
types oftreasury bills are determined by market forces.
 Treasury bills are highly liquid and are readily available.
 They give assured yields at a low transaction cost.
 Treasury Bills are eligible for inclusion in the SLR.
 Moreover, they have negligible capital depreciation.

 Treasury Bills are available for a minimum amount of Rs 25000 and in

multiplesof RS 25000.
23 | P a g e
 Treasury Bills are traded in the secondary market. Commercial banks,
Primary Dealers, Mutual Funds, Corporate, and Financial Institutions,
 Provident / Pension funds and Insurance companies participate in the
treasury Bills Market.

 However, Treasury Bills Market in India is very narrow and undeveloped.

iii) COMMERCIAL BILLS:

A commercial bill is a short- term, negotiable, self–liquidating instrument
drawn bythe seller on the buyer for the value of goods delivered by him.
 Such bills are called trade bills / bills of exchange and when they are
accepted bybanks, they are called commercial bills.
 Generally, the bill is payable at a future date (mostly, the maturity period is
up to90 days).
 During this period, the seller may discount the bill with the banks. The
commercial banks may rediscount these bills with FIs like EXIM bank,
SIDBI,IDBI, etc.
 Thus, commercial bills are very important for providing short-term
credit totrade and commerce.

iv) CERTIFICATES OF DEPOSITS: (CDs): -

 Certificates of Deposits are unsecured, negotiable promissory notes
issued bycommercial banks and development financial institutions.
 CDs are marketable receipts of funds deposited in a bank for a fixed period
at aspecified rate of interest.

 They are highly liquid and riskless money market instruments.

 CDs were originally introduced in India to enable commercial banks to
raisefunds from the market.

The RBI has modified its original scheme for CDs. the following are the recent
guidelines for the issue of CDs: -
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 ELIGIBILITY: CDs can be issued by commercial banks (except RRBs and
Local Area Banks) and financial institutions that have been permitted to raise
short-term loans by RBI.

a. AMOUNT: while banks can issue CDs depending on the requirements,

financialinstitutions can issue CDs within the limit fixed by the RBI.
MINIMUM SIZE: the minimum size of an issue for a single investor is Rs 1
lakhand it can be increased in multiples of Rs 1 lakh.
b. DISCOUNT RATE: CDs are issued at a discount to face value. Bank /
Financialinstitutions are free to determine discount rates on floating rate
basis.
c. INVESTORS: CDs are issued to individuals, corporations, companies,
trusts,etc.
d. TRANSFERABILITY: CDs are freely transferable by endorsements /
delivery. However demitted CDs have to transfer as per specified
procedures. There is nolock-in period for CDs.
e. MATURITY: Commercial banks can issue CDs with a maturity period
between7 days to 1year. Financial institutions can issue CDs with a
maturity period between 1 year to 3 years.

RESERVE REQUIREMENTS: CDs are subject to CRR and SLR since banks
haveto report CDs to RBI.
f. LOANS / BUY-BACK: Commercial banks / FIs cannot give loans against
CDs.Similarly, they cannot buy-back their own CDs before maturity period.
g. FORMAT: Banks /FIs should issue CDs only in the dematerialized
form.However, investors have the option to seek CDs in physical
form.
25 | P a ge Due to absence of a well-developed secondary market in CDs, the size of
CDmarket in India is quite small.
 v) COMMERCIAL PAPERS:
 Commercial paper is an unsecured, highly liquid money market instrument in
theform of a promissory note / a dematerialized form through any of the
depositories registered with SEBI.
 It has fixed maturity whereby the purchaser is promised a fixed amount
at afuture date.
 Commercial papers are issued by leading nationally reputed manufacturing
andfinance companies (Public / private sector).
 They are issued on a discount to face value.
 Commercial papers are issued (by corporate / primary dealers / all India
financialinstitutions) on the following conditions:
a) The tangible net worth of the issuing company should not be less than RS4 crores.
b) The working capital limit of the company has been sanctioned by banks
/financialinstitution.
c) The borrowable a/c of the company is rated as a standard asset by banks
/financialinstitutions.
 All eligible participants should have a minimum rating P2 from CRISIL.
 Commercial Papers have maturity period between 7days and 1year from the
dateof issue.
 CPs are issued in denominations of Rs 5 lakhs (minimum) or multiples of
Rs5lakh

26 | P a g e
  Individuals, banks, corporate bodies, NRIs and FIIs can invest in
commercialpapers.
 Every issuer must
appoint anIPA (Issuing
and Paying Agent) for
issuance of commercial
papers. Only a scheduled
commercial bank can act
as an IPA.

vi) REPOS AND

REVERSEREPOS:
The RBI achieves the
function ofmaintaining
liquidity in the money market
through REPOS / REVERSE
REPOS.
The repo / reverse repo is a very important money market instrument to facilitate
short-term liquidity adjustment among banks, financial institutions and other
moneymarket players.

 A repo / reverse repo is a transaction in which two parties agree to sell

andrepurchase the same security at a mutually decided future date and
price.
 From the seller’s point of view, the transaction is called a repo; whereby
theseller gets immediate funds by selling the securities with an
27 | P a g e agreement to repurchase the same at a future date.
 Similarly, from the buyer’s point of view, the transaction is called a reverse
 repo,whereby the purchaser buys the securities with an agreement to resell
the same at a future date.
 The RBI, commercial banks and primary Dealers deal in the repos and
reverserepo transactions.

 The financial institutions can deal only in the reverse repo transactions i.e.
theyare allowed only to lend money through reverse repos to the RBI, other
banks and Primary dealers.
 The maturity date varies from 1 day to 14 days.
 The two types of repos are:
a. Inter-bank repos (the transaction takes place between banks and DFHI).
b. RBI repos (The repos / reverse repos are undertaken between banks and the
RBIto stabilize and maintain liquidity in the market).
 Repos and Reverse Repos are used for following purposes: -
a. for injection / absorption of liquidity.
b. to create an equilibrium between the demand for and supply of short-term funds.
c. to borrow securities to meet SLR requirements.
d. to increase returns on funds.
e. to meet shortfall in cash positions.

vii) DISCOUNT AND FINANCE HOUSE OF INDIA (DFHI): -

The Discount and Finance House of India is jointly owned by the RBI, the
public-sector banks and all India financial institutions.
The DFHI helps in developing and stabilizing the money market by stimulating
activity in the money market instruments and developing secondary market in
thoseinstruments.
The DFHI deals in treasury bills, commercial bills certificates of deposits,
commercial papers, short term deposits, call money market and govt
securities. Italso participates in repo operations.
Thus, the DFHI has helped corporate entities, banks and financial
institutions toinvest their short-term surpluses in money market
28 | P a g e
instruments.
-
viii) MONEY MARKET MUTUAL FUNDS: (MMMFs):

The RBI introduced Money Market Mutual Funds to enable small investors to
participate in the money market. Thus, MMMFs mobilizes saving of mutual
funds and invest them in such money market instruments that mature in less than
one year.

 The following are the key features of MMMFs: -

a. MMMFs can be set by scheduled commercial banks and public
financeinstitutions.
b. Individuals, corporates, etc. can invest in MMMFs.
c. the lock-in period has been reduced to 15 days.
d. MMMFs are under the regulation of SEBI.
e. NRIs and Overseas Corporate Bodies can invest in MMMFs (on
anon- repatriation basis) floated by commercial banks / public
sector financialinstitutions / private
sector financial institutions. However, they do not need separate permission
fromthe RBI.

1) UNORGANISED SECTOR:

 The unorganized Indian money market mainly comprises of indigenous

bankers, money lenders and unregulated non-banking financial
intermediaries.
 Though they may exist in urban centers, their activities are mainly
concentrated in rural areas. In fact, 36% of rural households depend on these
for their financial requirement.
29 | P a ge The main components of unorganized money market are:
 i) INDIGENOUS BANKERS:

 These financial intermediaries operate as banks by receiving deposits, giving

loans and dealing in ‘hundis’ (The hundi is a short-term indigenous bill of
exchange)
 The rate of interest varies from market to market / bank to bank.
 However, they do not solely depend on deposits, they may use their own funds.
 They are called by different names like ‘Kathakalis’, ‘Saraf’, ‘Shroffs’,
‘Chetty’s’, etc.
 They provide loans to trade and industry and agriculture.
 The main advantages of indigenous bankers are simple and flexible
operations, informal approach, personal contact, quick services and
availability of timely funds.
 However, they have their drawbacks like a very high rate of interest (18%to
36%), combining banking with trade, interest in non-banking activities like
general merchants, brokers, etc.
 The RBI introduced Money Market Mutual Funds to enable small investors
to participate in the money market. Thus, MMMFs mobilizes saving of
mutual funds and invest them in such money market instruments that mature
in less thanone year.
 The following are the key features of MMMFs: -
f. MMMFs can be set by scheduled commercial banks and public
financeinstitutions.
g. Individuals, corporates, etc. can invest in MMMFs.
h. the lock-in period has been reduced to 15 days.
i. MMMFs are under the regulation of SEBI.
30 | P a gj.e NRIs and Overseas Corporate Bodies can invest in MMMFs (on
anon- repatriation basis) floated by commercial banks / public
 sector financial

institutions / private sector financial institutions. However, they do not need

separate permission from the RBI.
k. MMMFs are ideal for investors seeking low-risk investment for short-
termsurpluses.

ii) MONEY LENDERS:

 Money lenders predominate in villages and they deal in the business of
lendingmoney.
 Their interest rates are very high
Loans are given to agricultural laborer’s, marginal and small farmers, artisans,
factoryworkers, etc. for unproductive purposes.
Their services are prompt, informal and flexible.

iii) UNREGULATED NON_BANK FINANCIAL INTERMEDIARIES

# Chit funds:
a. They are saving institutions wherein members make regular contribution to the fund.
b. The fund is given to some member by bids / draws.
c. Chit funds are famous in Kerala and Tamil Nadu.

#Nidhi’s:
a. They are mutual benefit funds as loans are given to members (from the deposits
madeby members themselves) at a reasonable rate of intersest.
b. The loans are generally given for purposes like house construction /repairs.
Nidhi’sare prevalent in South India

31 | P a g e
 # Loan companies:
a. Loan Companies (also called as finance companies) have capital in the form
ofborrowings, deposits or owned funds.
b. They attract deposits by offering high rate of interest and other incentives.
c. Loans are also given at a very high rate of interest (36% t0 48% pea).
d. Traders, small-scale industries and self-employed people are the main participants.

iv) FINANCE BROKERS:

 They are found in all major urban markets, especially in cloth market,
commodity market and grain market.
 They are intermediaries between lenders and borrowers.

Primary Dealers: -

 The system of Primary Dealers (PDs) in the Government Securities Market

was introduced by Reserve Bank of India in 1995 to strengthen the market
infrastructure of Government Securities.

 DFHIwassetupbyRBI inMarch1988to activatetheMoneyMarket.

 It got the status of Primary Dealer in February 1996. Over a period of time,
RBIdivested its stake and DFHI became a subsidiary of State Bank of India
(SBI).
 SBI had also set up a subsidiary in 1996 for doing PD business namely SBI
GiltsLimited.
 Both these companies were merged in 2004 to become the largest Primary Dealer in
thecountry.
 PrimaryDealerscanalso be referredto as Merchant Bankersto Governmentof India as
onlytheycanunderwriteprimaryissues of government securities other than RBI
PDs are allowed the following activities as core activities:

32 | P a g e
  1. Dealing and underwriting in Government securities.

 2. Dealing in Interest Rate Derivatives.

 3. Providing broking services in Government securities.

 4. Dealing and underwriting in Corporate / PSU / FI bonds/ debentures.

 5. Lending in Call/ Notice/ Term/ Repo/ CBLO market.

 6. Investment in Commercial Papers.

 7. Investment in Certificates of Deposit.

 8. Investment in debt mutual funds where entire corpus is invested in

debtsecurities.

33 | P a g e
 Evolution of money market in India: -

The existence of money market could be traced back to hundis or indigenous

bills ofexchange. These were in use from the 12th century and it appears from
the writings of few Muslim historians, European travelers, state records and the
Ain-I-abkari that indigenous bankers played a prominent part in lending money
both under the early Muslim and mogul rulers in India. The indigenous bankers
financed internal and foreign trade with cash or bill and gave financial assistance
to rulers during period of stress. The money market in India is not a single
homogeneous entity and may be divided into two parts: (a) the central part-
consisting of the Reserve Bank of India, State Bank of India, the Public-Sector
Bank, the Private Sector Bank, the Exchange Banks, and the other development
financial institution; and (b) the bazaar part- consisting of the money –lenders,
indigenous bankers, loan office, chit funds, nidhis, etc., and the co-operative
banks occupying the intermediate position. The connectionbetween these parts is
incomplete as the Indian financial system was somewhat loosely organized and
without much cohesion until 1935 and lacked a central coordinating agency. Till
then, the central part was largely dominated by government, which controlled
currency and through it influenced the bank rate decisively.

Owing to the absence of a central bank until 1935, the Imperial Bank of India
performed some of the functions of the banker’s bank. The other Bank are not
boundto keep balances with it, but in practice the exchange Banks and larger
India joint- stock banks kept a substantial part of their cash balances with it. The
Imperial
bank’s grant of loans to joint-stock banks against government securities at the
bankrate proved very useful to them, but the high bank rate frequently reduced
to a considerable extent the benefits of such loan. On account of the special
banks concessions that the Imperial bank received from the government and
later from theReserve Bank also, the joint-stock banks have regarded it more as
34 | P a g e
an unfair
competitor than as a friendly supporter. Their feeling towards the State Bank was
 not much better. The exchange banks were also considered as powerful
competitorsowing to their large resources and encroachment up to the field of
the finance of internal trade at ports as well as in the interior. The state co-
operative banks used tomaintain current accounts with the state bank and also
used to get credit and overdraft facilities from it. The co-operative banks have
no connection with the indigenous bankers and the moneylenders beyond the
fact that a few of them were depositors or directors of central cooperative banks.

There is also not much contact between the indigenous bankers and the
moneylenders and both of them usually did not maintain account with the State
Bank of India and not at all with the Reserve bank of India (RBI). Till the mid-
1970s, during the busy season (October-April), when the supply of hundis was
greater than the resource of the indigenous bankers, a temporary connection was
established between a number of them who were selected And placed on the
approval list and the State Bank and the joint stock banks rediscounted the
hundisdrawn and endorsed by the by the approved indigenous bankers up to a
certain maximum limits determined according to the financial standing off the
financial standing of the banker or gave them advances against demand
promissory notes signed by two of them.

35 | P a g e
 (a) Operation of the central or organized part of the money
market

These may be considered under the three heads:

(I) The call money market,

(ii) The bill market, and
(iii) Other sub-markets (CPs and CDs)

The call money market

Call money market is the core of the central part of the money market, in which
banks lend money to each other. To begin with call money operated from
Mumbai and later Calcutta, Delhi and Madras joined. The call money is most
sensitive part ofthe money market and indicates the current condition of the
market. The major participants are the public-sector banks. Over the period pf
time, the RBI has permitted other institutions, flush with funds, such as LIC,
GIC, UTI, IDBI, NABARD to participate in money market as lenders. The call
money transaction is unsecured, enabling the borrowing banks to replenish their
funds without touching their other assets. In this market, banks operate with their
own surplus funds and usually without any help from outside. Thus, banks with
surplus funds lend to those that are in need. This helps in spreading the liquid
funds evenly among the various banks and thus enables a more economic use of
resources in the banking system.
The role of banks, as a borrowers or lenders, change according to liquidity
position.Upton 1956, the exchange banks were the chief borrower because of
nature of their business. Their advances were generally very liquid, and they
held substantial proportion of bills. As a consequence, they functioned with a
fine cash ratio and turned to the call market to make up any deficiency of funds
36 | P a g e
for day or two. Prior to1956, some of the Indian banks also resorted to the call
money market occasionally as a borrower to maintain their cash ratio at the
 level required by law. However, since 1956, the India Bank have been resorting
to the call money market mare frequently whenever the demand upon them for
credit owing to increasing investment activity press upon their resources.
Hence, the funds now flow more easily and to a substantial extent, not among
Indian banks center like Mumbai or Calcutta, but also among various centers.

(i) The Bill Market

The bill market can be divided into two viz., the commercial bills market and
thetreasury bills market.

Commercial Bills Market

Bill financing is an important mode of meeting the credit needs of trade and
industry in developed economies because it facilitates an efficient payment
system being self-liquidating in nature. In India bill financing has been popular
since long inancient “Hundi” form.
The existence of an approved bills market enables rediscounting of bills which
is atraditional instrument of credit control. As such, the Indian central Banking
EnquiryCommittee (1931) had strongly recommended the establishment of a
market in commercial bills. But nothing could be done by the Reserve Bank till
1952, on account of the war, the indifference of British Government and the
partition of the country.
Banks of India, especially the Exchange Banks, used to discount bills of
approvedparties fulfilling certain conditions, but there was no discount in the
discount marketin India, except the limited bills market provided by the Reserve
Bank for further dealings in these bills and banks had either to keep them until
they matured or rediscount them in London discount market, if they were export
bills.
37 | P a g eThe RBI pioneered effort on developing bill culture in India. It introduced Bill
Market Scheme (BMS) in 1952 to provide demand loan against bank’s
 promissory notes supported by their constituent’s 90 days usance bills or
promissory notes. Thebank could also cover part of their advances, loans, etc.,
into usance promissory notes for lodging with the RBI collateral. The 1952 Bill
Market Scheme was however, basically a scheme of accommodation for banks.
The scheme was designed to ease the problem of providing temporary finance to
commercial banks by the Reserve Bank as a lender of last resort. But it did not
succeed in developing a

genuine bill market.

Promotion of bill culture, however, remained one of the major concerns of the
RBI. Finally, in November 1970, based on the recommendations of
Narasimham committee, RBI introduced Bill Rediscounting Scheme (BRS) also
known as New Bill Market Scheme (NBMS) which continues till date in
modified form. Under thisscheme, all scheduled commercial banks are eligible
to rediscount genuine trade bills arising out of sale/purchase of goods with the
RBI and other approved institutions.
To promote the bills culture, RBI in March 198 educed the discount rate for
billsfor borrowers from 16.5% to 15.5%. Thereafter, the bills finance has
always been subject to one percentage point lower rate of interest than prime
lending rate fixedfor corporate borrowers. Further, interest rate on rediscounting
of bills was deregulated in May 1989.

Treasury Bills Market

In addition to internal and foreign trade bills, banks deal in Treasury Bills. As
theyare issued at a discount by the Government of India or State Government
and are repayable usually after three months, banks regard them as a very
38 | P a gseuitable form of invest ment for their own surplus fund. Most of them have been
issued by Government of India. During the First World War, they were issued to
meet government’s disbursements on behalf of British War Office. During the
 post-war period, they were issued to meet budget deficits and to repay old bills.
Later, they have been issued to provide ways and means of current and capital
expenditure, repayment of old bills and conversion of loans. During the Second
World War, they were issued to provide in enormous amounts for the same
purpose as the First WorldWar.
Tenders for them are invited by government notification and are received by
the office of Reserve Bank. The tenders quoting the lowest discount are
accepted andthe bills are issued and paid by the offices of the Reserve Bank In
addition,

intermediate Treasury Bills are sold sometime at a rate. At least 90% of the
tenders and purchases are made by few big banks and nearly half of these by the
State Bankalone. This makes government in India dependent upon a few banks,
whereas in London, large funds which do not belong to banks are invested in
Treasury Bills andenable Government there to secure more favorable rates.
Consequently, the ReserveBank sometimes had to intervene and purchase Bills
on its own account.

The Reserve Bank has tried to organize and widen the Treasury bill market, in
order to secure better control of the money market, with the rediscounting of the
bills with itself and to enable the market to carry a large floating debt and
thereby reduce the cost of Government borrowing. The efforts of the Reserve
Bank in widening the Treasury bill market have not succeeded fully until the late
1980s, owing to the absence of a discount market in these bills. Banks were
reluctant to discount Treasury bill with the Reserve Bank because the money
market regarded such discount as a sign of weakness. This led to funds being
locked in and market elasticity was not there in case of Treasury bill. Sales of
treasury bills were suspended from 20th April 1954 to 2nd November 1954 and
form 6th April 1956 to 1stAugust 1958. However, since 1970s, the treasury bills
were issued at a fixed rate of 4.6% and were for tenure of 91 days. However,
with the setting up of the Discount and Finance House of India (DFHI) in 1988,
39 | P a gth
ee secondary market for the treasury bills began to develop.
 Other Sub-markets

The other important sub-markets that have come into existence in the money
marketare the Certificate of deposits (CDs) market and the Commercial Papers
(CPs) market.
These sub-markets are of recent origin. While the CDs market becomes
operationalduring 1989-1990, the CPs market emerged in 1990-91.

Certificate of Deposit
(CDs)

The CDs are basically deposit receipts issued by a bank to the depositor. In
India the Tambe Working group in 1982 was the first one to evaluate the
introduction of CDs in the money market. The group, however, did not
recommend introduction of CDs on the ground of inherent weakness viz. (I)
absence of secondary market, (ii) administered interest rate on bank deposits,
and (iii) danger of giving rise to fictitious transaction. The Vaghul Working
Group in 1987 also discussed at large thedesirability of launching this
instrument. The working group was of the view that developing CDs as money
market instrument would not be meaningful unless the short-term deposit rate is
aligned with other rates in the system. As such, it did not recommend
introduction of CDs. The group, however, noted the importance of CDs and
recommended feasibility of introduction of CDs after appropriate changes at a
later date.

40 | P a g e
 Commercial Papers (CPs)

The CPs as an instrument are unsecured usance promissory notes issued by the
corporate borrowers with fixed maturity evidencing their short-term debt
obligation.In India, Vaghul Working Group 1987 was the first to recommend
introduction of CPs in Indian money market.
It noted that CP market has an advantage of giving highly rated corporate
borrowerscheaper funds while providing investors higher interest earnings.
Though the banks would lose some of their first rated borrowing clientele and
consequently interest income they can supplement their earning by acting as
issuersand dealers of commercial papers.
Accordingly, the working group recommended the launch of CPs and
suggested ascheme for issue of CPs.

The Bazaar Part: -

Important cogs in the evolution of the Indian money market evolution of

theIndian Money Market are the indigenous institutions. Although, nidhis and
chit funds exist, they are not important or money market as such they absorb
funds that might otherwise fed into banking system.
A more obvious money market institution was the Multani shroff. Formerly, and
indeed into 1960s and the early 1970s, the Multani shroff lent money to customer
bydiscounting a hundi (which was originally in promissory note form) and then,
after endorsement and by arrangement through a hundi broker, rediscounted with
a schedule bank up to limits agreed upon. Although Multani shroffs have
survived as apart of the indigenous sector, their clan is readily declining and
expected to become extinct.
41 | P a g e
Discount and Finance House of India (DHFI)AND Securites Trading
Corporation of India (STCI)

A very significant step in evolution of the Indian money market has been
setting up of the DHFI and the STCI. As a sequel to the recommendations of the
Working Group of the money market, the Discount and Finance House of India
was set up bythe RBI jointly with the Public-Sector Banks and all-India
financial institutions to deal in money market instruments. DHFI was
incorporated on March 8, 1988 underthe Companies Act, 1956 with an autorised
share capital of Rs. 100 crores subscribed by the RBI (Rs. 33 crores) and all-
India financial institutions (Rs 16 crores).
DHFI quotes regular bid and offer rates for treasury bills and commercial bills
rediscounting. However only bid prices for CDs and CPs are normally quoted.
DHFIis also authorized to undertake “REPO” transaction against treasury bills
and it provides daily buy back and sell back rates for treasury bills to suit their

requirements of commercial banks.

The STCI is of recent origin. Basically, set-up for dealing in government
securities market to broaden and deepen this market, the STCI also has been
allowed to deal incall money market and the treasury bills market.

Major Reforms in Indian Money Market

1. Deregulation of Interest Rates: -

Some of the important policies in the deregulation of interest rates have been:
1. The lending and deposit rates that have, over time, been considerably
freed. Lending rates are now linked to the PLR, and the banks depending on their
risk perceptions freely determine the spreads. Deposit rates beyond one year
have been freed, and deposit rates less than one year linked or pegged to the
Bank Rate. All re- finance; the OMO operations and liquidity to the Primary
42 | P a gDeealers (PDs) have been linked to the Bank Rate. To that extent the Bank Rate
has been emerging as a kind of reference rate in the interest rate scenario.
 2. The second interesting aspect has been that the borrowings by the
government(since 1992) have been at market rates.
3. The PSUs and FIs, who had been largely depending on budgetary support for
their resources, have been forced to go to the market to raise their resource
requirements.
Integration of Markets
The other important aspect of the fixed income market is the close inter-linkage
between the money and debt segments. The Call, Notice & Term money markets
are to be made purely inter-bank markets. The non-bank participants are being
shifted tothe Repo market. However, the existing players have been allowed to
park their short-term investments till they find other avenues. The corporates
have the facility of routing their call transactions through the PDs.

Primary Dealers
In order to make the government securities market more vibrant, liquid and to
ensuremarket making capabilities outside RBI a system of PD’s was established.
The PDs have been allowed to operate a current account and along with an SGL
account. They also have been allowed to open constituent SGL accounts. RBI
has provided them liquidity support facility.
In order to facilitate their continued presence in auctions the RBI invites bids for
underwriting in respect of all auctions. Routing of operations in the call money
market is allowed through PD’s. They are allowed the facility of funds from one
center to another under RBI’s Remittance facility scheme. The number of PDs
has been increased from 7 to 13. Infect the introduction of PDs has added to the
liquidityin the market.
Valuation of securities
Banks have been required to mark 70% of their portfolio to market from the year
1998-99 and 75% from 1999-2000.
Foreign Institutional Investors (FIIs)
43 | P a gFeIIs have been allowed to trade in T. Bills within the overall debt ceiling. They
nowhave access to all type’s debt instruments.
 Developments in the Money Markets

Call/Notice Money Market: -

As per the suggestions of the Narasimham Committee II, the RBI in the Mid-
TermReview of October 1998 that it would move towards a pure inter-bank
call/notice/term money market, including the PDs. Towards this end the non-
bank participants can invest their short-term resources in the Repo market and
other money market instruments.

Taking into consideration the transitional problems, it has also been decided to
continue with the present system of permitting FIs and MFs to lend in the
call/noticemoney market. The corporates can route their call/notice money
transactions through the PDs.
Term Rate: -
Inter-bank CRR, other than minimum 3% has been done away with. In this
directionthe Interest Rate Swaps (IRS) have been introduced for the participants
to hedge their interest risks.
For benchmarking we have the 14, 91& 364 T. Bills. Also, we have the CPs.
Now itis to the participants to use this opportunity.

Money Market Mutual Funds (MMMFs): -

Many Mutual Funds have started funds which specifically focus on money
market.They have also been permitted to invest in rated corporate bonds and
debentureswith a residual maturity of up to only one year, within the ceiling
existing for CP. Repos and Reverse Repos

Non-bank entities, which are currently permitted to take Repos, have been
44 | P a g e
permittedto borrow money through reverse Repos at par with banks and PDs.
There is no restriction for the duration of a Repo. All government securities have
 been made available for Repo. The Repos have also been permitted in PSU
bonds and private corporate debt securities provided they are held in demat form
in a depository and the transactions are done in recognized stock exchanges.

Needs for imbibing depth to the market

Diversifying investor base

Active participation by a number of investor segments, with diverse views and
profiles, would make the market more liquid. In order to attract retail investors
there

is need to exempt the interest income from income tax. The mutual funds are
expected to take the markets in a big way.

Settlement system reforms

In the settlement and transfer of wholesale trades, though DVP settlement has
been introduced, inter-city settlement continues to be a problem. It is not possible
to buy and sell a security on the same day as transactions are settled on a gross
basis and short selling is not allowed. The RBI plans to introduce the Real Time
Gross Settlement (RTGS), which will add efficiency.
Transparency
Development of technology is an integral part of reforming the debt market,
especially in the context of providing a technologically superior dealing and
settlement system. Hence the RBI has embarked upon the technological
upgradation of the debt market. This includes screen-based trade reporting
system with the use of VSAT communication network complimented by a
centralized SGL accounting system.

It shall also facilitate logging bids in auctions of dated securities and T-bill’s.
This will broaden the participation in the auction system.
45 | P a gTehe participants would be required to provide two-way quotes. It is also
believed that the screen would have a chat line mode. The system will be
integrated with the regional current account system. Nothing seems to have been
 finalized as of now.
Anyway, this system may not really be effective enough to substitute the
telephonicmode of operation. The system as has been planned does not provide
for a participant to withhold his identity. Now this factor alone could lead to
inefficiencies in Price discovery, as in the case of a major participant having to
reveal his buy/sell interest.
In fact, the market participants seem to be divided over this issue.

Some believe that the system as planned is proper while many others believe
that there would be no significant improvement. Anyway, the RBI seems to have
decidedto eliminate the brokers from the system.

This would remain an interesting debate as the NSE members/brokers not

willing tobelieve that they would be out of the system after having paid the NSE
fees. About this system the market seems to be divided. RBI would like the
market to be free ofintermediaries (brokers). The banks feel that the brokers
would remain. The brokersmaintain that this system would not lead to the best
price discovery. It is not very wise for the participants to release their identity
and interest.

Short selling
The participants feel that this would add to the depth of the market and also help
in providing two-way quotes. However, it is not evident whether the RBI will be
allowing this.
Primary dealers
The banks maintain that with all the benefits provided to them they should be
providing fine two-way quotes at market rates. For this the PDs feel that it is
essential to allow the short selling of securities and that every participant
provides a two-way quote.
46 | P a g e
Awareness
The government along with the RBI has decided to do some publicity
 work.Retailing of government securities
Since the beginning of the reforms it has been recognized that a strong retail
segment for government segment needs to be developed.
The basic objective of setting up of primary and Satellite Dealers was to
enhance distribution channels and encourage voluntary holding of government
securities among a wider investor base. To give a fillip to this scheme for
availing of liquidity support from RBI has been made available to them.

Now banks are allowed to buy or sell freely government securities on an

outright basis and retail government securities to non-bank clients without any
restriction on the period between sale and purchase.
The big question is whether the banks would actually take interest in the task,
as this will affect their deposits. Towards this end there is the need for
introducing STRIPS.
Further to enable dematerialization of securities of retail holders, institutions
such as NSDL, SHCIL, and NSCCL have been allowed to open SGL accounts
with RBI. SD’s have also been extended the facility of Repo transactions since
March 1998.

Market Microstructure: -
To develop the primary and the secondary markets the following points need
careful evaluation
1. At present the PDs underwrite a sizeable portion of the market loans and
quote an underwriting commission. It has been suggested that it be made
compulsory for them to bid for a minimum percent for a minimum percent of the
notified amount. By increasing the number of PDs, the total bids should be
brought up to 100% of the notified amount.
2. The RBI should try and move out of the primary auctions but in transition
could take up to 20% of the notified amount. In case of the issue being not fully
subscribed the RBI should have the option of canceling the entire issue.
47 | P a g e
3. Gradually the RBI should move out of the 14- and 91-day T. Bill auction
and then the 364-day auction and then finally from the dated of securities.
 The RBI should have a strong presence in the secondary market by means of
providing two-way quotes.

Standardization of Practices: -
Standard practices in the market need to be evolved with regard to the manner of
quotes, conclusion of deals, etc. It has been proposed that the Primary
Dealers

Association and FIMMDSI quickly setup a timeframe for CP. The minimum the
documentation and market practices, minimum the lock in period.

If needed RBI will come forward and indicate a time frame. Most importantly
the code of conduct will have to be compatible with the contemplated dealing
screenand the technological upgradation.

Risk Management: -
Investors in debt instrument face three major types of risks namely credit risk,
interest rate risk and foreign currency risk. In case of the government securities
thecredit risk is zero. For the domestic investors the foreign exchange risk is
none.
Investment in all debt instruments is exposed to interest rate risk. Introduction of
rupee derivatives will go a long way in providing investors an opportunity to
hedge their exposures. IRS and FRA have already been introduced. Also, there
is a need for the dealers (especially in PSU banks) to be provided with more
freedom to makedecisions. Finally, it remains on the willingness of the
participants to trade. This indeed would provide the needed fillip to the market.

48 | P a g e
 OBSTACLES TO DEVELOPMENT OF IRS IN INDIA

When we talk of IRS, we are actually referring to derivatives based on

underlying instruments, which are linked to interest rates. Now, for a good
derivatives market for any underlying instrument, the market for that instrument
should be well developed, mature and competitive. However, in India, we do not
have a very mature and competitive money market, especially the term money
market and the floating rate loan market. Thus, the derivatives based on these
instruments are boundto be far and few. Moreover, India does not even have a
very good inter-bank rate measure for different parties, which are acceptable to
all parties. Then, risk management systems are almost non-existent in most
corporate. These and other

obstacles in development of the IRS market have been discussed in greater

detailbelow.

Non-availability of an acceptable Benchmark

rate Lack of A Developed Term-Money
Market
Lack of Active Market for Floating Rate Loans
Non-availability of a variety of acceptable Yield Curves
Participants’ Inertia
Lack of Awareness
Reluctance on Part of Small Corporates and Small Banks

49 | P a g e
--

PRESENT SCENARIO OF THE INDIAN MARKET: -

Money markets throwing up some interesting opportunities

The foreign currency borrowing rates are rising

alongside Indian debt capitalmarket rates.
Updated on Jun18 (2018)

The last fortnight was full of market action in anticipation and subsequent follow
upaction on the announcement of the periodic data globally.
In its bimonthly money policy review, RBI increased the policy signalling repo
rateby 25 basis points to 6.25 per cent. India also announced retail as well as
wholesaleinflation numbers for May on June 12 and 14, respectively, together
with trade dataand index of industrial production. While IIP numbers did not
enthuse the market despite a favourable base effect, the two indices for retail
and wholesale inflation (CPI and WPI) were very much on lines of market
expectations.
The rate of growth of exports has improved significantly and registered an

impressive reading of 20.2 per cent year-on-year with the absolute figure touching
$28.86 billion.

However, imports showed a robust growth too, at 14.9 per cent, with oil imports
alone growing 49.5 per cent, which resulted in a higher trade deficit of $14.62
billion for the month, a figure not witnessed in the recent past. If the same trend
continues, trade deficit may again cross the $160 billion mark, and the current
50 | P a gaeccount deficit may cross 2.5 per cent of GDP.

Though the ratio (CAD) is not that alarming, the trend certainly is. Hence the
 needfor greater push to increase exports. This may partly be helped by the
recent depreciation in the Indian rupee vis-a-vis USD. The pair has already
gained more than 7 per cent since the first week of January when the rupee was
trading at 63.
RBI continued to arrest volatility and the result showed clearly in the depletion
of forex reserves since the beginning of this financial year. Forex reserves
touched their peak in the first week of April at more than $426 billion and it
has gradually slipped ever since to touch $412 billion on June 1, 2018. Data for
the week ended June 8 showed growth after six weeks, of nearly $880 million
week on week (w-o-w) to reach nearly $413 billion.
The fall in forex reserves was caused mainly by the forex interventions to stem a
steep fall in the rupee while arresting high volatility, though some amount of fall
canalso be attributed to revaluation of reserves held in currencies other than
USD.
On the global front, FOMC decided to raise the Fed fund target rate by 25 basis
points to a new range of 175 to 200 basis points with the commentary suggesting
2-3more hikes of 25 basis points each within this calendar. The European Central
Bank has also hinted at total withdrawal of accommodation in the near future.
This has impacted the availability of foreign currency funds for Indian corporates
in global markets.
The foreign currency borrowing rates are increasing alongside Indian debt
capitalmarket rates. These developments have resulted in credit demand on
Indian banks
from the corporate side for new capacity creation and for refinancing foreign
currency loans through rupee sources. The USD-INR pair is thus expected to
remainelevated at 67.50- 68.50 levels in the coming weeks.
The combined effect of the increase in ‘currency in circulation’ and forex
intervention has resulted in a sharp drop in rupee liquidity. All through this
quarter, money market rates have remained high, which in normal course falls
after March. Certificates of deposit (CDs) issued by some of the large private
51
| P a gseector banks to raise wholesale deposits crossed 8 per cent mark against the pre-
March levels of 6.25-6.75 per cent while the policy signalling repo rate just
moved from 6 per cent till June 6 to a post-policy rate of 6.25 per cent. Such a
 spread is normally seen in anacute liquidity-deficit condition, which is not the
case in the current scenario.

It appears that credit-chasing banks (mainly private players) have been short of
liquidity, while liquidity-surplus banks (primarily PSBs) are not pushing credit
growth for obvious reasons, like imposition of PCA (prompt corrective action)
processes. The credit- deposit ratio for all scheduled commercial banks (ASCBs)
remained below the optimal level at 75.14 per cent on May 25, 2018 (source:
RBI WSS 15/08/2018). The year-on-year (y-o-y) absolute growth in deposits at
Rs 8.975lakh crore was lower than credit growth of Rs 9.945 lakh crore reported
for the sameperiod last year, resulting in an incremental credit-deposit ratio of
111 per cent over last one year. This phenomenon has pushed deposit rates of
banks northward, ultimately lifting marginal cost lending rate (MCLR).
The liquidity conditions are expected to remain tight and, therefore, the
possibility of more OMO purchase auctions is not ruled out. There is a
possibility of private placement of G-secs and corporate securities with FPIs, for
whom the holding conditions were relaxed recently. The sovereign 10-year
benchmark security is trading in the 7.85-7.95 per cent range currently. Looking
at the demand- supply dynamics and liquidity conditions, the benchmark yield is
likely to remain elevatedand trade in current range.

The yield curve has flattened a bit and the shorter end continues to climb higher
thanthe longer segment with the expected rate actions by RBI. The new fortnight
is unlikely to throw up any surprise and may just extend the current phase and,
therefore, the markets are expected to remain rangebound.

52 | P a g e
 Chapter 2 Review of Literature: -

Reuters (2009) Article: India call money ends near reverse repo rate, cash
abundant. India overnight money rates brought down to the reverse repo rate of
3.25% on Wednesday these cash surplus in the system will help the banks meet
theirreserve needs comfortably. Cheaper money usable at the security borrowing
and lending agreement (CBLO) also reduce the pressure on the inter-bank cash
rates. Onthat day banks were guided to report their position to RBI once in two
weeks. This alteration created an expectation on liquidity resistance. And some
analysts said thatthe central bank may start rolling back the liquidity as early as
on December 2009, as they already pressured the consumer prices could pose
significant inflationary threat to the economy, in the thick of easy cash
conditions Overnight rates are supported around the reverse repo rate because
banks holding the surplus funds could also break up with the same central bank
at that rate in its daily liquidity adjustment auctions.

Rastogi Nikhil (2008) Article: Money Market Integration in India: A Time

Series Study Says that Indian financial markets have achieved much from the
highly controlled pre-liberalization era. He denotes that the main focus is on
achieving efficiency, which is the trade mark of any developed financial market.
This researchpaper tests the efficiency and extent of integration between
financial markets observed at the short end of the market.
The rates are mainly taken for the purpose of the study of, the compound call
marketrate, CD (Certificate of Deposit) rate, CP (Commercial Paper) rate, 91-day
T-bill (Treasury bill) rate and 3-month forward premium.

The results, though promising, are mixed. In his research he concluded that
althoughmarkets have achieved integration in some of its branches, but they still
53 | P a g e
have to attain full integration.
It has absolute implications on the monetary policy of the Reserve Bank of India.
 (RBI) since the changes in one market (gilt market) can be used to coordinate the
other market (forex market).

Rusty Sadananda (2007) Article: Market efficiency and financial markets

integration in India in their work examined the impact of economic reforms on
the integration of various segments of the financial market in India over the
time seriestools during the period from March 2006 to March 2012. The major
findings were:
(I) various sector of the financial market in India have achieved market efficiency,
(ii) the 91-day Treasury bill rate is the suitable 'base rate' of the financial
sector inIndia,
(iii) the financial markets in India are broadly integrated at the short-end of
themarket, and
(iv) the long- end of the market is amalgamate with the short-end of the market.
From the above monetary policy should rely more on interest rate and asset
price channels to control inflation.

Recommendations of Three Committees: -

The issue of whether non-bank participants should constitute part of
call/notice/term money market could be traced first in the Report of the
Committee to Review the Working of the Monetary System (Chairman: S.
Chakravarty) in 1985. Since then, the Report of the Working Group on the
Money Market (Chairman: N. Vague) in 1987 and the Report of the Committee
on Banking Sector Reforms (Chairman: M. Narasimha) in 1998 had also
deliberated on this issue. It needs to be appreciated that the particular set of
recommendations from these three Committees have to be assessed against the
specific objectives for which these Committees had been

constituted as well as the differing initial conditions reflecting the state of Indian
financial market which were prevailing at that particular point of time.

54 | P a g e
Sukhmoy Chakravarty Committee (1982) Articles: - Recommended for call
money market. Examined the study of call money market for India was first
 recommended by the Sukhmoy Chakravarty. Committee was set up in 1982 to
review the working of the monetary system. They felt that allowing additional
non- bank participants into the call market would not dilute the strength of
monetary regulation by the RBI, as resources from non-bank participants do not
represent any additional resource for the system as a whole, and their
participation in call money market would only imply a redistribution of existing
resources from one participant to another. In view of this, the Chakravarty
Committee recommended that additionalnonbank participants may be allowed to
participate in call money market.

The Vaghul Committee (1990) Articles: - Introduction of money

marketinstruments.
The Vaghul Committee (1990), while recommending the introduction of a
number of money market instruments to broaden and deepen the money market,
recommended that the call markets should be restricted to banks. The other
participants could choose from the new money market instruments, for their short
- term requirements. One of the reasons the committee ascribed to keeping the
call markets as pure inter-bank markets was the distortions that would arise in an
environment where deposit rates were regulated, while call rates were market
determined.

Narasimham Committee (1998) Articles: - observation on call/money/term

money market examined the Narasimham Committee II (1998) concurred with
the Vaghul Committee as it also observed that call/notice/term money market in
India, like in most other developed markets, should be strictly restricted to banks.
It, however, felt

that exception should be made for Primary Dealers (PDs) who have been acting
as market makers in the call money market and are formally treated as banks for
the purpose of their inter-bank transactions and, therefore, they should remain as
part ofcall money market.55 | P a
ge
With regard to non-banks, it expressed concern that these participants "are not
subjected to reserve requirements and the market is characterized by chronic
 lendersand chronic borrowers and there are heavy gyrations in the market". It felt
that allowing non-bank participants in the call market "has not led to the
development of a stable market with liquidity and depth and the time has come
to undertake a basic restructuring of call money market". Like the Vaghul
Committee, it had also suggested that the non-bank participants should be given
full access to bill rediscounting, Commercial Paper (CP), Certificates of Deposit
(CDs), Treasury Bills(TBs) and Money Market Mutual Funds (MMMFs) for
deploying their short-term surpluses.

Kotter and Mosser (2002) Articles: - The Monetary Transmission Mechanism:

Some Answers and Further Questions, examined the Monetary policy’s effect
appears to be somewhat weaker than they were in past decades. Financial
Innovationis one possible cause of this change but not the only one improved
inventory management and the conduct of monetary policy itself are others.
Thank to financialinnovation and institutional changes in housing finance the
housing sector is no longer on the leading edge of the transmission mechanism.
However, judging from the evidence presented for the United. Kingdom, the role
of housing assets on households’ balance sheets warrants further study. Neither
financial consolidation nor the shrinking reserve volume appears to be a major
factor affecting monetary transmission—at least not yet.
Some loose ends and lacunae remain, however.
First, although monetary policy seems to have retained its effectiveness,
theeconomy’s sensitivity to interest rates remains an open question.

Dr. Y.V. Reddy (2002) Article: - Parameters of Monetary Policy in India

attempted to focus on the conduct of monetary policy and highlighted some of
the immediate tasks. In case, there is interest in an overview of theory and
analytics, especially in the context of role of monetary policy in revitalizing
growth in India. The conduct of monetary policy in India would continue to
involve the constant rebalancing of objectives in terms of the relative importance
56 | P a g e
a ssigned, the selection of instruments and operating frameworks, and a search for
an improved understanding of the working of the economy and the channels
 through which monetary policy operates. Among the unrealized medium-term
objectives of reforms in monetary policy, the most important is reduction in the
prescribed CRR for banks to its statutory minimum of 3.0 per cent. The
movement to 3.0 per cent can be designed in three possible ways, viz., the
traditional way of pre-announcing a time-table for reduction in the CRR;
reducing CRR as and when opportunities arise as is being done in recent
years; and as a one-time reduction from the existing level to 3.0 per cent under a
package of measures. The Reserve Bank influences liquidity on a day-to-day
basis through LAF and is using this facility as an effective flexible instrument for
smoothening interest rates. The operations of non-bank participants including
FIs, mutual funds and insurance companies that were participating in the
call/notice money market are in the process of being gradually reduced according
to pre-set norms. Such an ultimate goal of making a pure inter-bank call money
market is linked to the operationalization of the CCIL and attracting non-banks
also into an active repo market. The effectiveness of LAF thus will be
strengthened with a pure inter-bank call/notice money market in place coupled
with growth of repo market for non-bank participants.

Reserve Bank of India (2010) in his discussion paper “Deregulation of Savings

bank Interest rates: A Discussion paper” try to put the pros and cons of
deregulation of savings deposits interest rates in India. Regulation of interest
rates imparts rigidity to the instrument/product as rates are either not

changed in response to

changing market conditions or changed slowly. This adversely affects the

attractiveness of a product/instrument. In the case of savings bank deposits, its
interest rate has remained unchanged at 3.5 per cent since March 1, 2003 even as
theReserve Bank’s policy rates and call rates (representing a proxy for operative
policy rate as at a time, only one rate – either the repo rate or the reverse repo
rate – is operative depending on liquidity conditions) moved significantly in
57
| P a geeither direction. Regulation of savings deposits interest rate has not only reduced
its relative attractiveness but has also adversely affected the transmission of
 monetary policy. For transmission of monetary policy to be effective, it is
necessary that all rates move in tandem with the policy rates. This suggests that
regulation of the interest rate on savings deposits has impeded the monetary
transmission and that deregulation of interest rate will help improve the
transmission of monetary policy. In sum, deregulation of savings deposit interest
rates has both pros and cons. Savings deposit interest rate cannot be regulated
for all times to come when all otherinterest rates have already been deregulated
as it creates distortions in the system. International experience suggests that in
most of the countries, interest rates on savings bank accounts are set by the
commercial banks based on market interest rates.

Deepak Mohanty (2011) Article: - Monetary Policy Response to Recent

Inflation inIndia trying to prove the relation between the Policy framed by the
reserve bank of India and the Inflation situation in the country. India, though
initially somewhat insulated from the global developments, was eventually
impacted significantly by the global shocks through all the channels – trade,
finance and expectations channels. In response, the Reserve Bank swiftly
introduced a comprehensive range of measures to limit the impact of the adverse
global developments on the domestic financial system and the economy. The
Reserve Bank, like most central banks, took a number of conventional and
unconventional measures to augment domestic and foreign currency liquidity,
and sharply reduced the policy rates. In a span of seven months between October
2008 and April 2009, there was unprecedented policy

activism. For example: (I) the repo rate was reduced by 425 basis points to 4.75
percent, (ii) the reverse repo rate was reduced by 275 basis points to 3.25 per
cent, (iii)the cash reserve ratio (CRR) of banks was reduced by a cumulative 400
basis pointsof their net demand and time liabilities (NDTL) to 5.0 per cent, and
(iv) the total amount of primary liquidity potentially made available to the
financial system was over 5.6 trillion or over 10 per cent of GDP. As growth
took hold and inflation became more generalized, monetary policy response was
58 | P a gsetrengthened. Initially, monetary transmission was weak as systemic liquidity

was in surplus. But once liquidity turned into deficit in July 2010, monetary
 transmission improved.

Conclusion: -

The call money market decreases the repo rate, but the bank manages the
cheapermoney of their surplus breakdown through reverse repo rate.

The bank has to report this issue to RBI within to week.

Rastogi says that the Indian money market has achieved more from the
pre-liberalization era.

In his research he concluded that although markets have achieved integration in

some ofits branches, but they still have to attain full integration.
He said that the main objective or focus is on creating efficiency or growth of
moneymarket.
The monetary policy should rely more on interest rate and asset price channels to
control inflation.
The Chakravarty Committee recommended the additional nonbank participants
may beallowed to participate in call money market.
The Vaghul Committee introduce the money market and broaden the
instrument ofmoney market. The money market is usually for short-term period
i.e. less than oneyear.

THE Narasimham Committee study the observation of call and term money.

Interest are collected periodically by the depositor by depositing.

59 | PBeacgauese of change in RBI regulation there is change the rate of interest

 Because of inflation there is change in the rate of interest it affects the rate of interest.

Chapter 3

Research Methodology: -

Methodology is an essential part of research to find answer to the research objective

that initiate the same. Therefore, it figures as an important part of the study. This
chapter focuses on the design and research method utilized in the study. In addition,
theprocedure followed to collect, capture, process and analyzed data is presented.
The research approach used in the study is presented below: -

Sample Unit: -

Sample size determination is the process of choosing the number of

respondents/observations to include in a statistical sample. It is an important feature of
a research studybecause onthe basis of sample size data is collected and interpreted to
giveaccurate and appropriate results.
The correct and appropriate sample size is said to give more accurate results. For
example, in a census, data is collected from the entire population. Therefore, the sample
size is equal to population of the country. Keeping in mind the rate of non-response
andnon-availabilit y o f respondents, the sample size was taken between 25 – 50
science students of Mumbai University. It was Random sampling method that was
considered to decide the sample size.
Due to the sample size being smallthere may be slight inaccuracy of datathat can be
rectified by further study.

60 | P a g e
 Type of research: -

my research is based on descriptive research. It helps to know qualitative and

quantitative aspects of study. It studies the characteristics of Indian Money Market
andsee to it that how we can bring more agencies in India. It is used because this
topic is being studies only to understand the concept and the problem it faces.
However, my research also studies Review of Literature which acts as a base for
Descriptive study.

Sampling Objective: -

The objectives are designed to have a particular direction to the study like what
aspectof the topic is going to be studied. A topic can be studied from various
parameter, the objectives designed for a project gives an idea that in what manner
the topic is studied,what is the flow of project, what are the variables selected for
the project, etc.
-To find out individual investors for the age group of 18-55 years.

Sampled size: -

Sample size determination is the process of choosing the number of

respondents/observations to include in a statistical sample. It is an important feature of
a research studybecause onthe basis of sample size data is collected and interpreted to
giveaccurate and appropriate results.
The correct and appropriate sample size is said to give more accurate results. For
example, in a census, data is collected from the entire population. Therefore, the sample
size is equal to population of the country. Keeping in mind the rate of non-response
andnon-availabilit y o f respondents, the sample size was taken between 25 – 50
science students of Mumbai University. It was Random sampling method that was
61 | P a gceonsidered to decide the sample size.
Due to the sample size being smallthere may be slight inaccuracy of datathat can be
 rectified by further study. (100 respondents)

SAMPLE DESIGN: -

The sample design used to represent the surveydata is in the form of Pie-Charts and
Bar-Charts based on the 80 respondents of the survey. Probability sampling was
used to collect responses

Data Collection: -

Data for the study was collected from the primary as well as secondary sources.

PRIMARY SOURCE OF DATA COLLECTION: -

Primary source of data collection consisted of survey method. The survey was
collected through a Structured Questionnaire. The questionnaire was prepared
keeping in mind the objectives of the study and factors that were to be considered
for the study. Questionnaire was prepared in such a manner that it could be easily
understood by the respondents. The questionnaire being structured was in a single
format to save time of therespondents.

62 | P a g e
 SECONDARY SOURCE OF DATA COLLECTION: -

The secondary source of data collection is assessed to gain information and

knowledge about our research problem that may be previously discussed by some
other researcher. The secondary is referred to know what has already been discussed
and what more scope can be there for research.

The secondary data is taken from selective websites and from online publication of
some researchers. The secondary data was useful for the study of Review of
Literature. We could study various aspects of different researchers which gave us an
idea about the factors being previously discussed and also the conclusions drawn
from them. It also gave us an insight on what more could be studied to solve the
research problem.

Data Analysis; -

The application of statistical tools and techniques for the data collected by means of
questionnaires is been classified tabulated analyzed and summarized with the help of
statistical tool percentage method.

Limitation of the study: -

The study is based on limited scope of

area.Whole market cannot be collected.

63 | P a g e
 Objective of Study: -

The objective of the project are as follows: -

To study about INDIAN MONEY MARKET AND its related aspects like its types
andthe instruments.

To study about the history, participant, organizational structure of INDIAN MONEY

(MONETORY) MARKET.

To find out the investors saving preferences.

To study about overcoming the short-term deficit.

To enable liquidity in the market.

Hypothesis: -

Hypothesis is referred as the presumption made by an individual to study the

research project. These presumptions are made in a way to satisfy the objectives
framed for the projects. Framing of hypothesis is a research as in this step the
research problem or the problem statement is designed on which the entire research
is based.
The hypothesis or the research problem of the study is designed in such a manner to
find out the relationship between the variables, i.e. does the effect has any impact on
theother. We can also say that the following hypothesis will let us know how closely
they are correlated with each other.
64 | P a g e

H0: - past prices are not reflected on present

 prices.H1; - Past prices are reflected on present
prices.

H0: - it has no impact on economy

growth.H1: - it has impact on economy
growth.

H0: - undercome the short-term

deficit.H1: - overcome the short-
term deficit.

Ho: - there is no flow of liquidity in the

market.H1: - there is flow of liquidity in
the market.

65 | P a g e
 Chapter 4

DATA ANALYSIS:

Interpretation and Presentation :-

1) What is your annual income?

SR. NO. PARTICULARS FREQUENCY PERCENTAGE

1 Below 1 lakh 7 7%

2 Between 1 lakh to 3 10 10%

lakhs

3 Between 3 lakhs to 15 15%

5lakhs

4 Above 5 lakhs 38 38%

5 No income 30 30%

Interpretation: -

There were total 100 responses out of which 7% respondents have annual income of
below 1 lakh. 10% respondents have an annual income between 1 lakh to 3 lakhs,
66 | P a gbeetween 3 lakhs to 5 lakhs were of 15%, above five lakhs were 38% and for no
income there are 30%
 2) How do you invest in your saving?

SR PARTICULARS FREQUENCY PERCENTAGE

NO.
1 Invest in capital 49 49%
market
2 Invest in money 54 54%
market mutual
fund
3 Invest in bank 60 60%
4 Invest in real 20 20%
estate

|P age
67 Interpretation: -
 From the above data we can see that 49% of the respondents invest in capital
market, 54% of respondents invest in money market mutual fund, 60% invest in
banks and 20 % invest in real estate.

3) Do you have any knowledge about money market instruments?

SR NO. PARTICULARS FREQUENCY PERCENTAGE

1 YES 75 75%
2 NO 8 8%
3 MAYBE 6 6%
4 HEARD BUT 11 11%
DON’T KNOW

Interpretation: -

From the above analysis we can see that 75% have heard about money market and
68 | P a gkenows about that, while there are 6% people who aren't sure about this, 11% people
have heard about the term money market but have no knowledge about that and then
 about 8% of the respondents don't know anything about money market

4) How long would you like to hold your money market instruments?

SR PARTICULARS FREQUENCY PERCENTAGE

NO.
1 LONG TERM 78 78%
METOD
2 SHORT TERM 22 22%
METHOD

Interpretation: -

From the above data 78% of the people like to keep money market instruments for
long term method while other people which are about 22 % keep it for the short-
term method. We can see that most of them are willing to keep their investment for
long term.

69 | P a g e
 5) How much risk will you be willing to take?

SR NO. PARTICULARS FREQUENCY PERCENTAGE

1 LOW 13 13%
2 AVERAGE 19 19%
3 MEDIUM 51 51%
4 HIGH 17 17%

Interpretation: -

From the above data we can see that 13% respondents will take low level of risk,
while 17% of respondents will take high amount of risk. 19% of respondents will
take risk at average level. Most of the respondents are willing to take average
number of risks.

70 | P a g e
 6) In your opinion what is your expected rate of return?

SR NO PARTICULARS FREQUENCY PERCENTAGE

1 BELOW 10% 17 17%
2 BETWEEN 10 32 32%
TO 20%

3 BETWEEN 20 43 43%
TO 30%

4 ABOVE 30% 8 8%

Interpretation: -

From the above data we can see that 17% respondents expect returns below 10%.
32% respondents expect Returns between 10%-20%. 43% respondents expect
returns between 20%-30%. 8% respondents expect returns above 30%.

71 | P a g7e) How would you rate your experience with Indian money market?
 SR NO PARTICULARS FREQUENCY PERCENTAGE
1 AVERAGE 18 18%
2 POOR 10 10%
3 GOOD 58 58%
4 EXCELLENT 14 14%

Interpretation: -

From the above analysis we can see that 10% respondents didn't have a good
experience with Indian market while 14% respondents had excellent experience
with Indian Market.

8) Is recession had affected your investment decision?

SR NO PARTICULARS FREQUENCY PERCENTAGE

1 YES 86 86%
72 | P a g e 2 NO 14 14%
 Interpretation: -

From the above data we can see that 86% respondents experienced that recession
has affected their Investment decision while 14% respondents were not affected by
recession

9) For fixed income what type of instrument would prefer?

SR NO PARTICUL-ARS FREQUEN-CY PERCENTA-GE

1 Corporate Bond 51 51%

2 Treasury Bills 57 57%

3 Government 53 53%
Securities

4 Commercial 47 47%
Papers

73 | P a g e
 Interpretation: -

From the above data we can see that 51% of respondent invest in corporate bonds,
57%in treasury bills, 53% in government securities and 47% of respondents invest
in commercial paper.

10) What will be your course of action during recession?

SR PARTICULARS FREQUENCY PERCENTAGE

NO
1 Buy 39.2 39.2%
2 Sell 23.7 23.7%
3 Hold 37.1 37.1%

74 | P a g e
 Interpretation; -

From the above analysis we can see that 39.2% of the respondents buy the
instrumentsat the time of recession,
37.1% of the respondents sells the instruments, and 23.7% of the respondents hold the
instruments

75 | P a g e
 Findings: -

1) Is past price affect the present price?

o There may be change in the price because of change in demand or change in
theeconomic condition due to this price can increase or decrease as the
demand changes or there can be no change in price even the demand
changes.

2) Is there any change in economic growth?

o Yes, there can be change in the economic condition as in the above itself say
that change in the economic condition tends to change the price, therefore
there can bepositive, negative, or no change in the economic growth.
o Recession may have positive or negative impact on economy

3) How can one manage the short-term deficit?

o One can overcome the short-term deficit by managing the funds

o Managing the funds means there can be issue of money market securities or,
o One can do nothing i.e. (under come of short term deficit).

4) Does recession tend to liquidate the money market instruments?

o From the above question at the time of recession, the investor may liquidate
theirinvestment from the market, purchase the instrument or do nothing
(hold).
o Recession have an impact on the liquidity.

5) Is there a risk in money market instruments?

o Money market instruments is a minimal risk or no risk instruments in the market as
theyare for shorter period i.e. (a year or less than one year).it has low risk or no risk
instrument in the market.
o The instrument is divided in various risk categories elevated risk, minimal risk, or no
riskinstruments.

76 | P a g e
 Suggestion: -

Few suggestions relevant to the development of money market in India are

enumerated below:

There should be a mechanism to make the call range bound which may reduce
uncertainty and provide confidence to the bankers for lending/borrowing. In the
context, it is emphasized that Repos and Reverse Repos conducted by RBI has the
potential to set the floor and ceiling in the call money market.

Besides, Repo mechanism, call money market, needs to be supplemented by Open

Market Operation (OMO). OMO can influence interest rate as well as volumes in
the market.

Non-bank segment should be brought under the same regulation on par with the
banks early as possible so that level playing field is created.

Transparency should be ensured in money market transaction. There should be

screen based trading with two-way quotes for each money market instruments.

The lock-in period of CDs and CPs should be completely removed in a phase manner.

Retailing of government papers should be encouraged. The primary dealers can play
a role in this context.

Currently FIIs are allowed in government dated securities in primary as well as

secondary market. More FII participation could be encouraged.

Money Market Mutual Funds should be set up by various banks and institutions.
This would increase the retail participation in the market.

77 | P a g e
 Chapter 5

Conclusion: -

 The money market is a vibrant market, affecting our everyday lives. As the
short- term market for money, money changes hands in a short time frame
and the players in the market have to be alert to changes, up to date with
news and innovative with strategies and products.
 The withdrawal of non-bank entities from the inter-bank call-money market is
linked to the improvement of settlement systems.
 Any time-bound plan for the evolution of a pure inter-bank call/notice money
market would be ineffective till the basic issue of settlements is addressed.
 In brief, various policy initiatives by the Reserve Bank have facilitated
development of a wider range of instruments such as market repo, interest
rate swaps, CDs and CPs.
 This approach has avoided market segmentation while meeting demand for
various products.
 These developments in money markets have enabled better liquidity
managementby the Reserve Bank.
 The money market specializes in debt securities that mature in less than one year
 Money market securities are very liquid, and are considered very safe. As a
result,they offer a lower return than other securities.
 The easiest way for individuals to gain access to the money market is
througha money market mutual fund.

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 BIBLIOGRAPHY

AUTHOR SOURCE
R.S. Aggarwal Emerging money market

M.S. GOPALAN Indian money market structure, operation and

developmentPrasanna Chandra Financial management

P.K. Bandgar securities management and portfolio

managementRBI SITE http://rbi.org.in

SBI DHFI SITE http://sbidhfi.com/

INDIAN INSTITUTE OF
BANKING AND FINANCE http://www.iibf.org.in

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 Chapter 6

Appendix

Questionnaire: -

1) What is your annual income?

a) Below 1 lakh.

b) Between 1 lakh to 3 lakhs.

c) Between 3 lakhs to 5 lakhs.

d) Above 5 lakhs.

2) How do you invest your saving?

a) Invest in capital market.

b) Invest in money market mutual fund.

c) Invest in banks.

d) Invest in real estate.

3) Do you have any knowledge of money market instruments?

a) Yes

b) No
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c) Maybe
 d) Heard but didn’t know

4) How long do you like to hold your money market instruments?

a) Long term method

b) Short term method

5) How much risk will you be willing to take?

a) Low

b) Average

c) Medium

d) High

6) In your opinion what is your expected rate of returns?

a) Between 10%

b) Between 10%-20%

c) Between 20%-30%

d) Above 30%

7) How would you rate your experience with Indian money market?
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a) Average
 b) Poor

c) Good

d) Excellent

8) Is recession had affected your investment decision?

a) Yes

b) No

9) For fixed income what type of investment would you prefer?

a) Corporate bond

b) Treasury bill

c) Government securities

d) Commercial paper

10) what will be your course of action during recession?

a) Buy

b) Sell

c) Hold

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