PROJECT REPORT

ON

“MONEY MARKET IN INDIA”

SUBMITTED TO THE UNIVERSITY OF MUMBAI IN THE PARTIAL FULFILLMENT

OF THE DEGREE B.COM (ACCOUNTING & FINANCE)

SUBMITTED BY:

KUSWAH SONU VIRENDRAPRASAD

T.Y.BAF

ACADEMIC YEAR: 2024-25

PROJECT GUIDE:

ASST. PROF. SEJAL V. PANCHAL

M.COM (ADVANCED ACCOUNTANCY)

SUBMITTED TO:
UNIVERSITY OF MUMBAI

SONOPANT DANDEKAR ARTS, V.S. APTE COMMERCE AND M.H. MEHTA SCIENCE

COLLEGE, PALGHAR DIST: PALGHAR PIN: 401404

UNIVERSITY OF MUMBAI
 PROJECT REPORT

ON

“MONEY MARKET IN INDIA”

SUBMITTED TO THE UNIVERSITY OF MUMBAI IN THE PARTIAL FULFILLMENT

OF THE DEGREE B.COM (ACCOUNTING & FINANCE)

SUBMITTED BY:

KUSWAH SONU VIRENDRAPRASAD

T.Y.BAF

ACADEMIC YEAR: 2024-25

PROJECT GUIDE:

ASST. PROF. SEJAL V. PANCHAL

M.COM (ADVANCED ACCOUNTANCY)

SUBMITTED TO:

UNIVERSITY OF MUMBAI

SONOPANT DANDEKAR ARTS, V.S. APTE COMMERCE AND M.H. MEHTA SCIENCE

COLLEGE, PALGHAR DIST: PALGHAR PIN: 401404

UNIVERSITY OF MUMBAI
 DECLARATION

I, KUSWAH SONU VIRENDRAPRASAD, A STUDENT OF SONOPANT DANDEKAR ARTS,

V.S. APTE COMMERCE AND M.H. MEHTA SCIENCE COLLEGE, PALGHAR DIST: -
PALGHAR, PIN: - 401 404 STUDYING IN T.Y.BAF HEREBY DECLARE THAT I HAVE
COMPLETED THIS PROJECT ON “MONEY MARKET IN INDIA” DURING THE
ACADEMIC YEAR 2024-25. THE INFORMATION SUBMITTTED IS TRUE AND
ORIGINAL TO THE BEST OF MY KNOWLEDGE.

DATE: SIGNATURE OF STUDENT

PLACE: PALGHAR
 CERTIFICATE

I, ASST. PROF. SEJAL V. PANCHAL, HEREBY CERTIFY THAT KUSWAH SONU

VIRENDRAPRASAD OF SONOPANT DANDEKAR ARTS, V.S. APTE COMMERCE AND
M.H. MEHTA SCIENCE COLLEGE, PALGHAR DIST: - PALGHAR, PIN: - 401 404 OF
T.Y.BAF HAS COMPLETED HIS PROJECT ON “MONEY MARKET IN INDIA” DURING
THE ACADEMIC YEAR 2024-25. THE INFORMATION SUBMITTED IS TRUE AND
ORIGINAL TO THE BEST OF MY KNOWLEDGE.

ASST. PROF. SEJAL V. PANCHAL SIGNATURE OF THE

SIGNATURE OF PROJECT GUIDE PRINCIPAL OF THE COLLEGE

ASST. PROF. MAQSOOD MEMON SIGNATURE OF

SIGNATURE OF CO-ORDINATOR EXTERNAL EXAMINER

 ACKNOWLEDGEMENT
If words are considered as a symbol of approval and token of appreciation, then let the words play
the heralding role expressing my gratitude. My successful completion of this project report
involved more than just my desire to earn a valued degree working on this project has presented
me with many insights and challenges.

I would like to thank the University of Mumbai for introducing an Accounting and Finance course,
thereby giving its students a platform to abreast with changing business scenario, with the help of
theory as a base and practical as a solution. I am also thankful to the management of Sonopant
Dandekar Arts, V.S. Apte Commerce and M.H. Mehta Science College of Palghar for making all
the facilities available and espousing the cause of the research. I would like to thank our honourable
principal Dr. Kiran Save.

I would like to express my earnest gratitude to Asst. Prof. Sejal V. Panchal for his superlative
guidance and unflinching support throughout the project work. No development would have been
feasible had it not been for their excellent supervision, constant encouragement and careful perusal,
in completion of the project successfully.

Last but not the least, I would like to thank my parents & teachers for giving the best education
and friends for their support and feelings without which this project would not have been possible.
Many others, without whose invaluable help and expert advice this project would not have been
the same ought to be cited.

With the completion of my project entitled “MONEY MARKET IN INDIA”

- KUSWAH SONU VIRENDRAPRASAD

 INDEX

Chapter. No Name Of Topic Page. No

1 Introduction 1-31
2 Review Of Literature 32-38
3 Research Methodology 39-42
4 Data Analysis & Interpretation 43-52
5 Case Study 53-59
6 Finding 60
7 Suggestion 61
8 Conclusion 62
9 Bibliography 63
10 Annexure 64-66
 EXECUTIVE SUMMARY

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. 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.
This is 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.
 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 indulges 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

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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
stock Market, 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' like
treasury bills, government securities, commercial paper, certificate of deposit, call
money and 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, and 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 income on 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.
The money market is a component of the economy that provides short-term funds. The
money market deals in short-term loans generally for a period of a year or less.

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 Objective of money market

The following are the important objectives of a money market:

The objective of the money market is to facilitate short-term borrowing and lending,
ensuring liquidity and stability in the financial system. Key objectives include:

1. Liquidity Management – Helps businesses, banks, and governments manage short-term

cash needs.

2. Efficient Allocation of Funds – Channels surplus funds from investors to borrowers

needing short-term capital.

3. Monetary Policy Implementation – Central banks use money market instruments to

regulate liquidity and control inflation.

4. Minimizing Risks – Provides a safe investment avenue with low default risk due to short
maturities.

5. Encouraging Economic Growth – Supports businesses and financial institutions by

providing quick access to funds.

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 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 -

(1) 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 Commercial
Paper 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 converted
into cash without any loss.
One of the features of money market is that it is not a one market but the collection of
markets 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
is again 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.

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Depending on supply of funds, Indian Money Market is divided into two markets:

(a) The organized money markets

(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.

Page | 5
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 Bank of India to provide an active secondary market for money market.

Page | 6
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 following rigidities:

 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 system

Page | 7
 Efficient Money Market history

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.

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 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
beginning in the annals of the Indian money market. The nationalization of banks in
1969, setting up of various committees such as the Suk hoi Chakra borty 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
to other banks which are temporarily in short of funds. The rate of interest paid on a
call loan is known as the call-rate. The call rate in India was used to be determined by
market forces 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 level of
call rate, it became necessary to regulate it within a reasonable a limit.

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
rates increased 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.

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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 money
rate 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.

➤ By making more banks eligible to borrow under the scheme

➤ By reducing the minimum limit of advances.

➤ By reducing the minimum eligibility value of bills.

➤ By extending the scheme to export bills with minimum since 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.

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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
up to 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 their behalf.
In the United States, federal, state and local governments all issue paper to meet funding
needs. 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
to overseas suppliers.
 Retail and institutional money market funds
 Banks
 Central banks.
 Cash management programs
 Merchant bank

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 Types of Money Market Instruments

Money market instruments are short-term financial securities that provide liquidity and
safety for investors. These include Treasury Bills, Commercial Papers, Certificates of
Deposit, and Repurchase Agreements, offering low-risk investment options with
maturities typically less than one year.
Money market instruments are short-term, low-risk financial assets. It serves as an
avenue for investors to park their surplus funds and earn modest returns. These
instruments are highly liquid and provide stability to portfolios. Common types include
Treasury bills, commercial paper, certificates of deposit, and repurchase agreements.
Treasury bills are government-issued debt with maturities of up to a year. Commercial
paper represents short-term loans by corporations. Certificates of deposit are time
deposits offered by banks. Repurchase agreements involve selling and repurchasing
securities. These instruments offer safety liquidity and suit investors seeking capital
preservation and a moderate income level.

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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.

 The money market is divided into two segments based on regulation and
structure:

1. Organized Money Market

This segment operates under the supervision of the central bank (e.g., RBI, Federal
Reserve) and other financial regulators. It consists of institutions and instruments that
are formally recognized and follow strict guidelines.
Features:
Regulated and supervised by financial authorities Transparent and
secure transactions
Lower risk due to government oversight
Participants include banks, financial institutions, and corporations

Components:
Treasury Bills (T-Bills) – Issued by the government for short-term funding
Commercial Papers (CPs) – Unsecured corporate debt instruments Certificates of
Deposit (CDs) – Issued by banks as short-term fixed deposits
Repurchase Agreements (Repos) – Short-term borrowing backed by securities Call
Money Market – Interbank lending for very short durations

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 2. Unorganized Money Market

This segment operates outside regulatory frameworks and consists of informal lenders.
It is widely used in rural and unbanked areas where access to formal finance is limited.

Features:
Unregulated and lacks transparency
Higher interest rates and risk of exploitation Limited
or no legal protection for borrowers
Includes traditional and informal financial institutions

Components:
Moneylenders – Individuals lending at high-interest rates
Indigenous Bankers – Informal banking institutions
Chit Funds – Rotational savings and credit associations Pawn
Shops – Lending money against pledged valuables
Hindi System – Informal credit instruments for trade and business
Key Differences between Organized and Unorganized Money Markets:

The organized money market ensures financial stability, while the unorganized money
market serves those who lack access to formal financial services.

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 Evolution of money market in India:

The existence of money market could be traced back to hundis or indigenous bills of
exchange. 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-1-ahkari 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 bonkers, loan office, chit funds, nidhis, etc., and the co-operative
banks occupying the intermediate position. The connection between these parts is
incomplete the Indian financial system somewhat loosely organized and without much
cohesion until 1935 and lacked a central coordinating agency. Till then, the central part
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 bound to 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 hank's grant of loans
to joint-stock banks against government securities at the bank rate 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 the Reserve Bank also, the joint-stock
banks have regarded it more as 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 competitors owing to their large resources and encroachment
up to the field of the finance of internal trade at ports as well as in the interior.

Page | 15
The state co-operative banks used to maintain 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 hankers 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 handis greater than the resource of the indigenous
bankers, a temporary connection. 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 hundis drawn 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.

(a) Operation of the central or organized part of the money market

These may be considered under the three heads

(1) The call money market,

(ii) The bill market, and

(iii) Other sub-markets (CPs and CDs)

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(i) 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 of the money
market and indicates the current condition of the market. The major participants are the
public-sector hanks. Over the period of time, the RBI has permitted other institutions,
flush with funds, such as LIC, GIC, UTI, IDBI, and 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 with suit 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 for day
or two. Prior to 1956, some of the Indian banks also resorted to the call money market
occasionally is 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 Condit owing to increasing investment
activity press upon their resources. Hence, the funds now flow moms easily and to a
substantial extent, not among Indian bonks center like Mumbai or Calcutta, but also
among various centers.

(ii) The Bill Market

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

Page | 17
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 in ancient
"Hundi form.

The existence of an approved bills market enables rediscounting of bills which is a

traditional instrument of credit control. As such, the Indian central Banking Enquiry
Committee (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 country. The indifference of British Government and the partition of the
Banks of India, especially the Exchange Banks, used to discount bills of approved parties
fulfilling certain conditions, but there was no discount in the discount market in India,
except the limited bills market provided by the Reserve Bank for further dealings in
these hills and banks had either to keep them until they matured or rediscount them in
London discount market, if they were export bills.
The RBI pioneered effort on developing bill culture in India. It introduced Bill Market
Scheme (BMS) in 1952 to provide demand loan against bunk's promissory notes
supported by their constituent's 90 days nuance bills or promissory notes. The hank
could also cover part of their advances, loans, etc., into nuance promissory notes for
lodging with the RBI collateral. The 1952 Bill Market Scheme however, basically a
scheme of accommodation for hunks. 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 this scheme, 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 bills for
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 fixed for corporate
borrowers. Further, interest rate on rediscounting of bills was deregulated in May 1989.

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 Treasury Bills Market
In addition to internal and foreign trade bills, banks deal in Treasury Bills. As they are
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 suitable form of investment 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 World War.
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 and the 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 Bank alone. 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 and enable Government there to
secure more favorable rates. Consequently, the Reserve Bank 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

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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 1" August 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, the 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 market
are the Certificate of deposits (CDs) market and the Commercial Papers (CPs) market.
These sub-markets are of recent origin. While the CDs market becomes operational
during 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. (1) 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 the desirability 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.

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Commercial Papers (CPs)
The CPs as an instrument are unsecured since 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 borrowers
cheaper 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 issuers and
dealers of commercial papers.
Accordingly, the working group recommended the launch of CPs and suggested a
scheme for issue of CPs.

The Bazaar Part: -

Important cogs in the evolution of the Indian money market evolution of the Indian
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 by
discounting 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 Shroff’s have survived as a part of the
indigenous sector, their clan is readily declining and expected to become extinct.

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Discount and Finance House of India (DHFI) AND Securities 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 by the 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 under the Companies Act, 1956
with an authorized 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. DHFI is
also authorized to undertake "REPO transaction against treasury hills 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 in
call money market and the treasury hills market.

Measure Reforms in Indian Money Market

1. Deregulation of Interest Rates: -

Some of the important policies in the deregulation of interest rates have been:
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 Dealers (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.
The second interesting aspect has been that the borrowings by the government (since
1992) have been at market rates.
The PSUs and FIIs, who had been largely depending on budgetary support for their
resources, have been forced to go to the market to raise their resource requirements.

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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 to the 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 ensure
market 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 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 liquidity in 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 (Flls):

FIIs have been allowed to trade in T. Bills within the overall debt ceiling. They now
have access to all type's debt instruments.
Developments in the Money Markets

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Call/Notice Money Market:
As per the suggestions of the Narasimham Committee II, the RBI in the Mid- Term
Review 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 Fls and MFs to lend in the
call/notice money 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 direction
the Interest Rate Swaps (IRS) have been introduced for the participants to hedge their
interest risks.
For benchmarking we have the 14, 918 364 T. Bills. Also, we have the CPs. Now it is
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 debentures. With
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 permitted to
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.

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 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 up gradation 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. The 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 telephonic mode 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.

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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 decided to
eliminate the brokers from the system. This would remain an interesting debate as the
NSE members/brokers not willing to believe 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 of intermediaries (brokers). The banks feel that the brokers
would remain. The brokers maintain 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.

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

Page | 26
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.

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.

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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 screen and the technological up
gradation.

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 the credit 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 make decisions.
Finally, it remains on the willingness of the participants to trade. This indeed would
provide the needed fillip to the market.

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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 bound to 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 detail below.

 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

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PRESENT SCENARIO OF THE INDIAN MARKET:

Money markets throwing up some interesting opportunities the foreign currency

borrowing rates are rising alongside Indian debt capital market rates.

As of March 12, 2025, the Indian money market reflects a dynamic interplay of
monetary policy adjustments, currency stability efforts, and investor sentiment. Here's
a comprehensive overview:

Monetary Policy and Interest Rates:

Policy Rates: The Reserve Bank of India (RBI) has set the policy repo rate at 6.25%,
with the reverse repo rate at 3.35%. The marginal standing facility rate and the bank
rate are both at 6.75%.

Reserve Ratios: The Cash Reserve Ratio (CRR) is maintained at 4.5%, and the Statutory
Liquidity Ratio (SLR) stands at 18.00%.

Money Market Operations:

Overnight Segment: On March 10, 2025, the overnight money market segment reported
a total volume of ₹5,80,904.21 Crore, with a weighted average rate of 6.22%. This
segment includes:
Call Money: Transactions amounted to ₹17,279.79 Crore at a weighted average rate of
6.26%.
Triparty Repo: Volumes reached ₹3,86,478.40 Crore with a weighted average rate of
6.18%.
Market Repo: Transactions totaled ₹1,75,149.12 Crore at a weighted average rate of
6.29%.

Currency Stability and Foreign Exchange:

Rupee Performance: The Indian rupee has shown resilience amid global currency
fluctuations. On March 12, 2025, it closed nearly flat at 87.2075 per U.S. dollar, despite
weaknesses in other Asian currencies. This stability is partly due to the RBI's
interventions aimed at curbing forex volatility and maintaining liquidity.

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RBI's Forex Strategy: The RBI has been actively intervening in the forex market to
stabilize the rupee, balancing the "impossible trinity" of monetary policy autonomy,
exchange rate management, and free capital movement. These interventions aim to
prevent undue market speculation and maintain currency stability.

Inflation Trends:
Retail Inflation: India's retail inflation decreased to 3.61% in February 2025, marking
the first time in six months it has fallen below 4%. This decline, primarily driven by
lower vegetable prices, provides the RBI with room to consider further interest rate cuts
to support economic growth.

Capital Markets and Mutual Fund Flows:

Equity Mutual Funds: Inflows into India's equity mutual funds dropped to a 10-month
low in February 2025, totaling approximately ₹29,300 Crore—a 26% decrease from the
previous month. This decline reflects investor caution amid market volatility and global
economic uncertainties.

Stock Market Performance:

Benchmark Indices: On March 12, 2025, the Nifty 50 closed 0.12% lower at 22,470.5,
while the Sensex fell 0.1% to 74,029.76. The indices fluctuated between a 0.7% decline
and a 0.4% gain during the session, indicating market volatility amid global economic
concerns.

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 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 their reserve needs
comfortably. Cheaper money usable at the security borrowing and lending agreement
(CBLO) also reduce the pressure on the inter- bank cash rates. On that 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 that the 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 research paper 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 market
rate, 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 although
markets have achieved integration in some of its branches, but they still 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).

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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 series tools 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 in
India,

(iii) The financial markets in India are broadly integrated at the short-end of the market,
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. Chakra arty) 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.

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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 additional nonbank participants may be allowed to
participate in call money market. The Vaghul Committee (1990) Articles: - Introduction
of money market instruments.

The Vaghul Committee (1990) Articles: - 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 of call money
market.
With regard to non-banks, it expressed concern that these participants "are not subjected
to reserve requirements and the market is characterized by chronic lenders and 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.

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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 Innovation is 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 financial innovation 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, the economy’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 assigned, 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.

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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 Apure 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 the
Reserve 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 either 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 other
interest 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.

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Deepak Mohanty (2011) Article: - Monetary Policy Response to Recent Inflation in
India 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 per cent, (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 points of 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 strengthened.
Initially, monetary transmission was weak as systemic liquidity was in surplus. But
once liquidity turned into deficit in July 2010, monetary transmission improved.

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 Conclusion:

The call money market decreases the repo rate, but the bank manages the cheaper
money 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
of its branches, but they still have to attain full integration.
He said that the main objective or focus is on creating efficiency or growth of money
market.
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 be
allowed to participate in call money market.
The Vaghul Committee introduce the money market and broaden the instrument of
money market. The money market is usually for short-term period
I.e. less than one year.
THE Narasimham Committee study the observation of call and term money. Interest are
collected periodically by the depositor by depositing.
Because 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.

Page | 38
 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, the
procedure 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 study because on the basis of sample size data is collected and interpreted to
give accurate 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 and non-availability of 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 small there may be slight inaccuracy of data that can be
rectified by further study.

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 and
see 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.

Page | 39
Sampling Objective: -
The objectives are designed to have a particular direction to the study like what aspect
of 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 study because on the basis of sample size data is collected and interpreted to
give accurate 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 and
non-availability of 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 small there may be slight inaccuracy of data that can be
rectified by further study. (100 respondents)

Sample Design: -
The sample design used to represent the survey data 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.

Page | 40
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
the respondents.

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.

Page | 41
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.

Objective of Study: -
The objective of the project are as follows: -
To study about INDIAN MONEY MARKET AND its related aspects like its types and
the 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.

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 DATA ANALYSIS & INTERPETATION

SR.NO PARTICULARS FREQUENCY PERCENTAGE

1 Below 1lakh 7 7%

2 Between 1lakh to 10 10%

3lakh

3 Between 3lakh to 15 15%

5lakh

4 Above 5lakh 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,
between 3 lakhs to 5 lakhs were of 15%, above five lakhs were 38% and for no income
there are 30%

Page | 43
 1) How do you invest in your savings?

SR.NO PARTICULARS FREQUENCY PERCENTAGE

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 estate 20 20%

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

Page | 44
 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
knows 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

Page | 45
 4) How long would you like to hold your money market
instruments?

SR.NO PARTICULARS FREQUENCY PERCENTAGE

1 LONG 78 78%
TERM
METHOD
2 SHORT 22 22%
TERM
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.

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 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.

Page | 47
 6) In your opinion what is your expected of return?

SR.NO PARTICULARS FREQUENCY PERCENTAGE

1 BELOW10% 17 17%

2 BETWEEN 10% TO 32 32%

20%

3 BETWEEN 20% TO 43 43%

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%.

Page | 48
 7) 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:-
Form the above analysis we can see that 10% respondents didn’t have a good experience
with Indian money market while 14% respondent had excellent experience.

Page | 49
 8) Is recession had affected your investment decision?

SR.NO PARTICULARS FREQUENCY PERCENTAGE

1 YES 86 86%

2 NO 14 14%

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
recession.

Page | 50
 9) For fixed income what type of instrument would prefer?

SR.NO PARTICULRS FIQUANCY PERCENTAGE

1 CORPORATE 51 51%
BOND
2 TREASURY 57 57%
BILLS
3 GOVERNMENT 53 53%
BOND
4 COMMERCIAL 47 47%
PAPER

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.

Page | 51
 10) What will be your course of action during recession?

SR.NO PARTICULARS FIQUANCY PERCENTAGE

1 BUY 39.2 39.2%

2 SELL 23.7 23.7%

3 HOLD 37.1 37.1%

Interpretation; -
From the above analysis we can see that 39.2% of the respondents buy the instruments
at the time of recession, 37.1% of the respondents sells the instruments, and 23.7% of
the respondents hold the instruments.

Page | 52
 CASE Study

HDFC Money Market Fund

The previous chapter dealt with the impact of liberalization on the Indian mutual funds
industry. The chapter also dealt with the various issues and challenges of the industry,
regulatory frame work for the industry, and the role of mutual funds in the mobilization
of the house hold sector savings. The present chapter is devoted to the study of HDFC
Asset Management Company Ltd (AMC), sponsors and trustee. The researcher has
selected five schemes namely HDFC Balanced Funds(HBF), HDFC growth
Funds(HGF), HDFC Equity Funds(HEF), HDFC Tax Saver(HTS) and HDFC TOP –
200(HT200) to find out the performance of these funds in comparison to the market,
their diversification and the relationships between these funds objectives and their risk
characteristics.
To generate optimal returns while maintaining safety and high liquidity.
HDFC Money Market Fund is a Debt - Money Market fund was launched on 18 Nov
99. It is a fund with Low risk and has given a CAGR/Annualized return of 7.3% since
its launch. Ranked 41 in Money Market category. Return for 2019 was 8.1%, 2018 was
7.4% and 2017 was 6.5%.
Below is the key information for HDFC Money Market Fund HDFC Money Market
Fund Growth Launch Date was on 18 Nov 99 NAV (06 Mar 20) ₹4,155.64
↑ 0.48 (0.01 %) Net Assets (Cr) ₹9,441 on 31 Jan 20 Category Debt - Money Market
AMC HDFC Asset Management Company Limited Rating 3 star Risk Low , the
Expense Ratio was 0.34 Sharpe Ratio 6.43 Information Ratio 0.69 Alpha Ratio
2.3 Min Investment 5,000 Min SIP Investment Exit Load NIL Yield to Maturity 5.69%
Effective Maturity 4 Months 9 Days Modified Duration 3 Months 25 Days.
HDFC Money Market Fund is an open-ended debt scheme that invests in money market
instruments, aiming to generate income and capital appreciation with relatively low
interest rate risk and moderate credit risk.

Page | 53
  Key Features:

Investment Objective: To generate income and capital appreciation by investing

in money market instruments.

Asset Allocation: The fund invests approximately 97.21% in debt instruments, with
11.73% in government securities and 85.48% in low-risk securities.

Risk Profile: Classified as having low to moderate risk, suitable for investors seeking
short-term investments with relatively stable returns.

Minimum Investment: The fund requires a minimum lump sum investment of

₹100, with a minimum SIP (Systematic Investment Plan) investment also set at
₹100.

Fund Manager: Managed by Anil Bamboli, an experienced professional in debt fund

management.

Fund Size: As of February 18, 2025, the fund's Asset Under Management (AUM) is
₹7,57,067 crore.

Net Asset Value (NAV): The latest NAV as of February 18, 2025, is ₹5,655.06.

Expense Ratio: The fund has an expense ratio of 0.410%.

Page | 54
Growth over the year-
Growth of 10,000 investment over the years:-

DURATION RETURNS

29 feb 2016 10,815

28 feb 2017 11,605

28 feb 2018 13,290

29 feb 2019 14,324

28 feb 2020 15,398

If the individual investor invests 10000 rupees on 28 Feb 2015 the value or the amount,
he invested get increased on the next year on 29 Feb 2016 amounted to rupees 10,815
and again gets increased on 28 Feb 2017 amounted to rupees 11,605 and so on
Returns for HDFC Money Market Fund Returns up to 1 year are on absolute basis &
more than 1 year are on CAGR (Compound Annual Growth Rate) basis. As on 6 Mar
20

Duration Returns

1 months 0.5%

3 months 1.5%

6 months 3.1%

1 year 7.8%

3 year 7.3%

5 year 7.5%

10 year -

15 year -

20 year -

Page | 55
Allocation: -
There are two type of allocation they are as follows: -

a) Asset allocation

b) Debt allocation

a) Asset allocation: -

Data below of HDFC money market mutual fund asset class (cash) has and (100%)
value of asset allocation

Assets class value

cash 100%

Debt sector allocation: -

SECTOR VALUE

Cash equivalent 83.14%

corporate 12.28%

government 4.58%

History: -
The historical performance of HDFC money market mutual fund is on the basis of
yearly.

Page | 56
 YEAR RETURN

2019 8.1%

2018 7.4%

2017 6.5%

2016 7.5%

2015 8.3%

2014 9.1%

2013 9.2%

2012 9.7%

2011 8.9%

2010 5.4%

Returns: -

The return given by HDFC money market mutual fund is not fixed it fluctuates
depending on the performance. The following are the data of returns of HDFC money
market mutual fund: -

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound
Annual Growth Rate) basis. as on 6 Mar 20.

Page | 57
 DURATION RETURN

1 months 0.5%

3 months 1.5%

6 months 3.1%

1 year 7.8%

3 year 7.3%

5 year 7.5%

10 year -

Credit Quality:-

The credit quality if HDFC mutual fund is (AAA) and the value is 100%

Page | 58
Top 10 holding in HDFC money market fund

COMPANY NAME SECTOR ASSETS VALUE

Punjab national bank Finance 2.89% 790.26cr

Punjab national bank Finance 2.56% 700.19cr

National bank of agriculture & rural Finance 2.55% 698.52cr

development
LIC housing finance Ltd Finance 2.17% 594.64cr

Small industries development bank Finance 2.04% 559.58cr

of India
Union bank of India Finance 2.04% 558.00cr

Reserve bank of India Finance 2.00% 546.17cr

Bank of Baroda Finance 1.87% 512.84cr

Export-import bank of India Finance 1.87% 511.69cr

Axis bank Ltd Finance 1.71% 466.80cr

Page | 59
 Findings
 Is past price affect the present price?
 There may be change in the price because of change in demand or change in the
economic 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.

 Is there any change in economic growth?

 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
be positive, negative, or no change in the economic growth.
 Recession may have positive or negative impact on economy

 How can one manage the short-term deficit?

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

 Does recession tend to liquidate the money market instruments?

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

 Is there a risk in money market instruments?

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

Page | 60
 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.

Page | 61
 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 management by
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 through a money
market mutual fund.

Page | 62
 BIBLIOGRAPHY

AUTHOR SOURCS
R.S. Aggarwal---------------------------- emerging money market
M.S.GOPALAN ------------------------- Indian money market structure, operations
Development

Prasanna Chandra ----------------------- Financial Management

P.K. Bandgar ----------------------------- securities management and portfolio
Management
RBI site -------------- https://www.rbi.org.in.
INDIAN INSTITUTE
BANKING & FINANCE - https://www.iibf.org.in/

Page | 63
 ANNEXURE
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

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

Page | 64
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?

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

Page | 65
d) Commercial paper

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

a) Buy

b) Sell

c) Hold

Page | 66