Money markets, unlike stock markets, are not location-based. Money markets are not separate entities; they complicated webs of interconnection. This holds true even when there are a lot of them, like in Mumbai, Calcutta, and Chennai. This topic outlines characteristics of indian money market which will assist you to achieve desired goals in your life.
Every day, more than forty million rupees traded on the Indian money market. This accounts for 6% of commercial banks’ money in circulation and about 3% of India’s overall money supply. The amount of money that changes hands on the money market each day is equivalent to 2% of India’s GDP. The money market is many times larger than the capital market, but it still pales in comparison to the volume of transaction that occurs on a daily basis in these sophisticated marketplaces. Read more about the role of rbi in money market to deepen your comprehension.
Characteristics of Indian Money Market
This procedure involves a variety of financial groups, including the Reserve Bank of India (RBI), the Discount and Finance House of India (DFHI), primary dealers, state governments, NBFCs, mutual funds, banks, business investors, and many more. The Securities Trading Corporation of India (STCI) is accepting applications from PSUs, Indians who do not live in India, and overseas firms. The characteristics of indian money market include:
Role of Market
A money market consists of several sorts of financial institutions, including commercial banks, non-banking financial companies, discount houses, acceptance houses, and others. Commercial banks are typically the most prominent actors in this area.
High Volatility in Call Money Market
On the call money market, people buy and sell funds with dates that are somewhat near to the present. The call rate is the real-time exchange rate for requests for funds. In the most fundamental sense, commercial banks are the primary sources of call money borrowing. It has remained quite unstable because to the significant changes that institutions such as the GIC and the LIC have undergone.
Presence of a Central Bank
During times of hardship, the central bank can help people stay afloat financially by decreasing the value of certain securities and ensuring that there is always cash on hand. The central bank can use its open market activities to remove excess funds when times are sluggish and add more cash when times are busy.
Commercial Banks Lacked Discipline
Our fourth issue is that India’s banking sector is not well-organized. Most corporate banks have a cash reserve of extra funds. It is commonly understood that their lending standards are more difficult to follow than those of the unorganized market. Banks are hesitant to open new branches in areas where there aren’t enough customers with bank accounts.
However, given the current situation, this criticism of private banks is unfair. After the government took over commercial banks, India’s banking sector improved significantly. People believe it is one of the most organized segments of the money market right now. It’s understandable to have reservations about the Reserve Bank of India’s (RBI) ability to effectively oversee and regulate India’s organized commercial banking industry.*Is not included*
Lack of Organized Bill Market
The official bill market is not the only segment of the Indian money market. Despite the Reserve Bank of India’s (RBI) attempts to repair it twice, with the 1952 Bill Market Scheme and the 1970 New Bill Market Scheme, India’s bill market remains unorganized.
Absence of a Bill Market before 1971
The fifth issue is that the controlled and uncontrolled elements of the money market cannot merge unless a bill market is established. In theory, a link or union could exist between the two sectors if trade bills could exchange on a regular basis. However, India did not have one until 1971, when the Reserve Bank of India (RBI) implemented the “real” bill market strategy.
Unorganised Sector Virtually Free from the Rbi’s Control
Third, the disorganized segment of the money market cannot effectively use the central bank’s methods of controlling the economy. Because of the uncontrolled money market, the Reserve Bank of India (RBI) has less control and flexibility over money. Why? The Reserve Bank of India (RBI) cannot regulate the money market.
If there is a cash shortage, these organisations will not approach the Reserve Bank of India (RBI) for assistance. This remains true in light of this. Furthermore, they do not have to meet any backup standards. The way things are set up makes it plain that the Reserve Bank of India’s (RBI) loan control tools cannot be utilized against them, no matter how severe a punishment might be in the national interest.
Rbi and Unorganised Component of the Money Market
For a country’s central bank to remain the money market leader, it must have comprehensive control over the economy. The performance of a country’s money market reflects the effectiveness of its monetary strategy. People frequently regard the money markets in LDCs as still in their early stages of development. Unfortunately, India is similar to every other country in this regard. The Reserve Bank of India (RBI) provides no financial assistance to the less organized sectors of India’s money market, such as the banking system. This is because these places exclusively deal with their own money and do not accept deposits from customers.
It’s hardly surprising that the Reserve Bank of India doesn’t supervise every aspect of the money market. However, the Reserve Bank of India (RBI) will always have a say in the money market’s controlled segments. However, the Reserve Bank of India (RBI) has no control over the types of loans that pass via the shadow banking sector, nor can it affect their quality.
This generally signifies that the Reserve Bank of India’s (RBI) monetary policy and credit control instruments are less effective. For example, the Reserve Bank of India (RBI) may employ its credit-control tools to keep inflation (or deflation) under check. In India, private banks must obey the Reserve Bank of India’s (RBI) laws.
Native American banks, on the other hand, are not subject to these regulations. Keeping inflation or decrease under control is difficult enough, but this complicates matters. What you should bear in mind is that these organizations bring in a lot of unlawful money for the business. On the other side, they have practically complete freedom to do whatever they choose.
Sub-markets
There is no single market that is particularly similar to another. The market is made up of several smaller marketplaces, each dealing with a distinct type of funding. Some of them are the Call Money Market, the Acceptance Market, and the Bill Market. This is good characteristics of indian money market.
Scattered
The Indian financial market also stretch across the entire country. Mumbai and Kolkata, regarded as the “financial capitals,” are India’s two largest financial markets. The “Northern Money Market” refers to both of these marketplaces combined. In contrast, the National Money Market is gaining traction in Ahmedabad and Delhi. Money markets around the world link to money markets in individual countries.
Dichotomised
There will always two major groupings in India’s money market: the organize commercial banking industry, which inspired by the West, and the unorganized, more traditional sector. On the other hand, there is no strong correlation between these two market areas.
Every firm handles its everyday tasks in its own distinctive way. The unregulated segment of India’s money market has lost some of its significance over time. It still has a significant impact on making banking services more accessible in rural areas.
No Formal Place
The phone is one example of spoken contact that is frequently utilized in business. It is feasible to exchange essential papers and messages after the incident. A capital market, unlike a stock exchange, is not concentrated in a single, congested location.
Problems Associated with Seasonal Fluctuations in Money Supply
Furthermore, the Indian money market’s peak season is characterized by a significant increase in currency demand, making cash difficult to get. Interest rates tend to rise between November and June, when business is at its peak, because cash is scarce and in high demand. Things alter dramatically, however, when interest rates fall during the off-season.
The money market is unstable because interest rates fluctuate throughout the year. The Reserve Bank of India (RBI), on the other hand, is adept at managing changes in market interest rates because it oversees the country’s monetary policy.
Absence of Integration
This is one of the primary features that distinguishes the Indian money market. It also divide into multiple pieces with only loose links to one another. Nonetheless, the many components of the money market do not work together. The Reserve Bank of India (RBI) controls all aspects of the organized segment. The RBI, on the other hand, has no such supervision over the unorganized sector.
Highly Organized Banking System
Business banks serve as the money market’s central nervous system. Because they are the principal lenders, they primarily provide short-term loans. Commercial banks connect the Central Bank with the rest of the money market. They play a significant function in the marketplace.
FAQ
Who Controls the Indian Money Market?
The Reserve Bank of India Act of 1934, the Government Securities Act of 2006, the Foreign Exchange Management Act of 1999, the Bilateral Netting of Qualified Financial Contracts Act of 2020, and the Payment and Settlement Systems Act of 2007 are all important laws that the Reserve Bank must follow to keep the financial markets safe.
How Rbi Regulates Money Market?
When there is an excess of cash, the Reserve Bank of India (RBI) will sell government shares to clear it. When the economy requires additional cash, the Reserve Bank of India (RBI) purchases government assets and increases the money supply.
Who are the Major Players in the Indian Money Market?
This market is home to many prominent people and organizations, including the Reserve Bank of India, all of India’s commercial banks, NBFCs, LIC, mutual funds, large enterprises, and even state governments. It would be beneficial for me to look at many aspects of this sector.
Final Remarks
As the organized and unorganized sectors finally converge, the money market will become increasingly sensitive to and responsive to changes in monetary policy. Once the integration process complete, the Reserve Bank of India (RBI) would have complete control over the money market, including the ability to regulate, advise, and oversee it. In this guide, we’ve explained characteristics of indian money market. I hope that provided you with some useful knowledge.
