Structure of Indian Money Market
The entire money market in India can be divided into two
parts. They are organised money market and the unorganized money market. The
unorganised 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 organisational structure of the Indian money
market.
Components, SubMarkets
of Indian Money Market ↓
After studying above organisational chart of the Indian
money market it is necessary to understand various components or sub markets
within it. They are explained below.
- Call
Money Market : It an important sub market of the Indian money
market. It is also known as money at call and money at short notice. It is
also called inter bank loan market. In this market money is demanded for
extremely short period. The duration of such transactions is from few
hours to 14 days. It is basically located in the industrial and commercial
locations such as Mumbai, Delhi, Calcutta, etc. These transactions help
stock brokers and dealers to fulfill their financial requirements. The
rate at which money is made available is called as a call rate. Thus rate
is fixed by the market forces such as the demand for and supply of money.
- Commercial
Bill Market : It is a market for the short term, self liquidating
and negotiable money market instrument. Commercial bills are used to
finance the movement and storage of agriculture and industrial goods in
domestic and foreign markets. The commercial bill market in India is still
underdeveloped.
- Treasury
Bill Market : This is a market for sale and purchase of short
term government securities. These securities are called as Treasury Bills
which are promissory notes or financial bills issued by the RBI on behalf
of the Government of India. There are two types of treasury bills. (i)
Ordinary or Regular Treasury Bills and (ii) Ad Hoc Treasury Bills. The
maturity period of these securities range from as low as 14 days to as
high as 364 days. They have become very popular recently due to high level
of safety involved in them.
- Market
for Certificate of Deposits (CDs) : It is again an important
segment of the Indian money market. The certificate of deposits is issued
by the commercial banks. They are worth the value of Rs. 25 lakh and in
multiple of Rs. 25 lakh. The minimum subscription of CD should be worth
Rs. 1 Crore. The maturity period of CD is as low as 3 months and as high
as 1 year. These are the transferable investment instrument in a money
market. The government initiated a market of CDs in order to widen the
range of instruments in the money market and to provide a higher
flexibility to investors for investing their short term money.
- Market for Commercial Papers (CPs) : It is the market where the commercial papers are traded. Commercial paper (CP) is an investment instrument which can be issued by a listed company having working capital more than or equal to Rs. 5 cr. The CPs can be issued in multiples of Rs. 25 lakhs. However the minimum subscription should at least be Rs. 1 cr. The maturity period for the CP is minimum of 3 months and maximum 6 months. This was introcuced by the government in 1990.
- Short
Term Loan Market : It is a market where the short term loan
requirements of corporates are met by the Commercial banks. Banks provide
short term loans to corporates in the form of cash credit or in the form
of overdraft. Cash credit is given to industrialists and overdraft is
given to businessmen.
