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The Indian Money Market

The Indian Money Market:

The Reserve Bank occupies a pivotal position in the Indian money market as it controls the flow of currency and credit into the market. The Indian money market is classified into the following ways:

finance
[Post Image Courtesy of Stuart Miles at FreeDigitalPhotos.net]

Indian money market consists of:

(1). The unorganised Sectors

(2). The organised sectors.

The unorganised sector consists of indigenous bankers who pursue the banking business on traditional lines. The organised sector comprises the Reserve Bank, the State Bank of India and its associate banks, the 19 nationalised banks and other private sector banks, both Indian and foreign.

The organised money market in India has a number of sub-markets such as the Treasury Bills Market: the Commercial Bills Market and the Inter-Bank Call Money Market.

On the recommendations of the Sukhmoy Chakravarty Committee on the Review of the working of the Monetary System, the RBI has initiated a series of money market reforms. The Narasimhan Committee report on the Working of the Financial System in India, (1991) also made important recommendations on the Indian money market.

As par of its anti-inflationary policy, the RBI has followed a strict policy of interest rate control and regulations. Deposit rates of banks, lending rates of banks and financial institutions-in fact, all kinds of interest rates were subject to strict control and regulation by the RBI.

Since 1988, the RBI has removed the ceiling stipulation (of 16.5% per annum) for all bank advances and instead has fixed a minimum of 16% per annum.

Banks have been asked to ensure that the interest rates charged remain within reasonable limits. Subsequently, the ceiling on interest rates on inter-bank call and short notice money, inter short-term deposits, bills rediscounting and inter-bank participation were removed from May 1989 and the rates were permitted to be determined by market forces.

In a nutshell, the money market in India is made up of the unorganised sectors, the organised sectors and the sub markets.

The sub markets consists of the call money market, bill market, 364 days bill market, certificates of deposits (CDs) and commercial papers.

Moreover, the bill market trades commercial bills and treasury bills (91 Days).

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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