indian money market ppt

8/13/2019 Indian Money Market Ppt

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MONEYMONEY

CONTENTSCONTENTS

What is Mone Market?What is Mone Market?

Features of Money Market?Features of Money Market?

Objective of Money Market?Objective of Money Market?

Importance of Money Market?Importance of Money Market?

Instrument of Money Market?Instrument of Money Market?

Structure of Indian Money Market?Structure of Indian Money Market?

Disadvantage of Money Market?Disadvantage of Money Market?


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Continued.Continued.

Characteristic features of a developedCharacteristic features of a developedmoney ar emoney ar e

Recent development in Money Market?Recent development in Money Market?

SummarySummary

1! What is Money Market?1! What is Money Market?

AsAs perper RBIRBI definitionsdefinitions AA marketmarket forfor shortshort termsterms

money,money, facilitatesfacilitates thethe exchangeexchange ofof moneymoney ininprimaryprimary andand secondarysecondary marketmarket..

TheThe moneymoney marketmarket isis aa mechanismmechanism thatthat dealsdealswithwith thethe lendinglending andand borrowingborrowing ofof shortshort termtermfundsfunds lessless thanthan oneone earear ..

AA segmentsegment ofof thethe financialfinancial marketmarket inin whichwhichfinancialfinancial instrumentsinstruments withwith highhigh liquidityliquidity andand veryveryshortshort maturitiesmaturities areare tradedtraded..


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Continued.Continued.

ItIt doesntdoesnt actuallyactually dealdeal inin cashcash oror moneymoneyuu ea sea s ww su s u esu s u e oo cascas ee ra era e

bills,bills, promissorypromissory notesnotes && govtgovt paperspaperswhichwhich cancan convertedconverted intointo cashcash withoutwithout anyanylossloss atat lowlow transactiontransaction costcost..

ItIt includesincludes allall individual,individual, institutioninstitution andandintermediariesintermediaries..

2 ! Features of Money Market?2 ! Features of Money Market?

ItIt isis aa marketmarket purelypurely forfor shortshort--termsterms fundsfunds ororfinancialfinancial assetsassets calledcalled nearnear moneymoney..

ItIt dealsdeals withwith financialfinancial assetsassets havinghaving aa maturitymaturityperiodperiod lessless thanthan oneone yearyear onlyonly..

InIn MoneyMoney MarketMarket transactiontransaction cancan notnot taketake placeplaceformalformal likelike stockstock exchange,exchange, onlyonly throughthrough oraloralcommunication,communication, relevantrelevant documentdocument andand writtenwrittencommunicationcommunication transactiontransaction cancan bebe donedone..


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4 ! Importance of Money Market?4 ! Importance of Money Market?

..

oo DevelopmentDevelopment ofof capitalcapital marketmarket..

oo SmoothSmooth functioningfunctioning ofof commercialcommercial banksbanks..

oo EffectiveEffective centralcentral bankbank controlcontrol..

oo ..

oo NonNon inflationaryinflationary sourcesource ofof financefinance totogovernmentgovernment..

5 ! Composition of Money Market?5 ! Composition of Money Market?

MoneyMoney MarketMarket consistsconsists ofof aa numbernumber ofof subsub--mar e smar e s w cw c co ec ve yco ec ve y cons u econs u e eemoneymoney marketmarket.. TheyThey are,are,

Call Money MarketCall Money Market

Commercial bills market or discountCommercial bills market or discount

Acceptance marketAcceptance market

Treasury bill marketTreasury bill market


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Treasury Bills (TTreasury Bills (T--Bills)Bills)

--securitysecurity..

TheyThey areare issuedissued withwith threethree--month,month, sixsix--monthmonthandand oneone--yearyear maturitiesmaturities..

TT--billsbills areare purchasedpurchased forfor aa priceprice thatthat isis lessless thanthantheirtheir par(face)par(face) valuevalue;; whenwhen theythey mature,mature, thethegovernmentgovernment payspays t et e o ero er t et e uu parpar va ueva ue..

TT--BillsBills areare soso popularpopular amongamong moneymoney marketmarketinstrumentsinstruments becausebecause ofof affordabilityaffordability toto thetheindividualindividual investorsinvestors..

CDs are shortCDs are short--term borrowings in the form ofterm borrowings in the form of

Certificate of deposit (CD)Certificate of deposit (CD)

not less than 15 days up to a maximum of onenot less than 15 days up to a maximum of oneyear.year.

CD is subject to payment of Stamp Duty underCD is subject to payment of Stamp Duty underIndian Stamp Act, 1899 (Central Act)Indian Stamp Act, 1899 (Central Act)

..Unlike traditional time deposits these are freelyUnlike traditional time deposits these are freelynegotiable instruments and are often referred tonegotiable instruments and are often referred toas Negotiable Certificate of Depositsas Negotiable Certificate of Deposits


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AA CDCD isis aa timetime depositdeposit withwith aa bankbank..

ee mosmos meme epos ,epos , un sun s cancan nonowithdrawnwithdrawn beforebefore maturitymaturity withoutwithout payingpayingaa penaltypenalty..

CDsCDs havehave specificspecific maturitymaturity date,date, interestinterestraterate andand itit cancan bebe issuedissued inin anyanyenom na onenom na on..

TheThe mainmain advantageadvantage ofof CDCD isis theirtheir safetysafety..AnyoneAnyone cancan earnearn moremore thanthan aa savingsaving

accountaccount interestinterest..

Features of CDFeatures of CD

CDs can be issued by all scheduled commercialCDs can be issued by all scheduled commercial

Minimum period 15 daysMinimum period 15 days

Maximum period 1 yearMaximum period 1 year

Minimum Amount Rs 1 lac and in multiples ofMinimum Amount Rs 1 lac and in multiples ofRs. 1 lacRs. 1 lac

CDs are transferable by endorsementCDs are transferable by endorsement CRR & SLR are to be maintainedCRR & SLR are to be maintained

CDs are to be stampedCDs are to be stamped


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Commercial PaperCommercial Paper

Commercial Paper (CP) is an unsecuredCommercial Paper (CP) is an unsecuredmoney mar e ns rumen ssue n emoney mar e ns rumen ssue n eform of a promissory note.form of a promissory note.

Who can issue Commercial PaperWho can issue Commercial Paper(CP)(CP)Hi hl rated cor orate borrowers rimarHi hl rated cor orate borrowers rimardealers (PDs) and satellite dealers (SDs)dealers (PDs) and satellite dealers (SDs)

and alland all--India financial institutions (FIs)India financial institutions (FIs)

Commercial paper (CP)Commercial paper (CP)

corporationcorporation typicallytypically financingfinancing dayday toto daydayoperationoperation..

CPCP isis veryvery safesafe investmentinvestment becausebecause thethe financialfinancialsituationsituation ofof aa companycompany cancan easilyeasily bebe predictedpredicted

overover aa ewew mont smont s..

OnlyOnly companycompany withwith highhigh creditcredit ratingrating issuesissuesCPsCPs..


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Eligibility for issue of CPEligibility for issue of CP

a)a) t e tang e net wort o t e company, as per t et e tang e net wort o t e company, as per t elatest audited balance sheet, is not less than Rs. 4latest audited balance sheet, is not less than Rs. 4crorecrore;;

b)b) (b) the working capital (fund(b) the working capital (fund--based) limit of thebased) limit of thecompany from the banking system is not less thancompany from the banking system is not less thanRs.4Rs.4 crorecrore

c)c) and theand the borrowalborrowal account of the company isaccount of the company is

classified as a Standard Asset by the financingclassified as a Standard Asset by the financingbank/s.bank/s.

Rating RequirementRating Requirement

All eligible participants should obtain the creditAll eligible participants should obtain the creditratin for issuance of Commercial Pa erratin for issuance of Commercial Pa er

Credit Rating Information Services of India Ltd.Credit Rating Information Services of India Ltd.(CRISIL)(CRISIL)

Investment Information and Credit RatingInvestment Information and Credit RatingAgency of India Ltd. (ICRA)Agency of India Ltd. (ICRA)

Credit Analysis and Research Ltd. (CARE)Credit Analysis and Research Ltd. (CARE). .. .

India)India) The minimum credit rating shall be PThe minimum credit rating shall be P--2 of2 of

CRISIL or such equivalent rating by otherCRISIL or such equivalent rating by otheragenciesagencies


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MaturityMaturity

CP can be issued for maturities between aCP can be issued for maturities between am n mum o ays an a max mum up om n mum o ays an a max mum up oone year from the date of issue.one year from the date of issue.

If the maturity date is a holiday, theIf the maturity date is a holiday, thecompany would be liable to makecompany would be liable to makea ment on the immediate recedina ment on the immediate recedin

working day.working day.

DenominationDenomination

Minimum of Rs. 5,00,000/Minimum of Rs. 5,00,000/-- and multipleand multipleereo .ereo .

Very little activity inVery little activity in SecSec. Mkt. Mkt..

Secondary Market in CPsSecondary Market in CPs


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To whom issuedTo whom issued

CP is issued to and held by individuals,CP is issued to and held by individuals,an ng compan es, o er corpora ean ng compan es, o er corpora e

bodies registered or incorporated in Indiabodies registered or incorporated in Indiaand unincorporated bodies, Nonand unincorporated bodies, Non--ResidentResidentIndians (NRIs) and Foreign InstitutionalIndians (NRIs) and Foreign InstitutionalInvestors (FIIs).Investors (FIIs).

Repurchase agreement (Repos)Repurchase agreement (Repos)

Re oRe o isis aa formform ofof overni htoverni ht borrowinborrowin andand isisusedused byby thosethose whowho dealdeal inin governmentgovernmentsecuritiessecurities..

TheyThey areare usuallyusually veryvery shortshort termterm repurchasesrepurchasesagreement,agreement, fromfrom overnightovernight toto 3030 daysdays ofof moremore..

TheThe shortshort termterm maturitmaturit andand overnmentovernmentbackingbacking usuallyusually meanmean thatthat ReposRepos provideprovidelenderslenders withwith extreamlyextreamly lowlow riskrisk..

ReposRepos areare safesafe collateralcollateral forfor loansloans..


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RepoRepo

Uses of RepoUses of Repo

It helps investor achieve money market returnsIt helps investor achieve money market returnswith sovereign risk.with sovereign risk.It helps borrower to raise funds at better ratesIt helps borrower to raise funds at better ratesAn SLR surplus and CRR deficit bank can use theAn SLR surplus and CRR deficit bank can use theRe o deals as a convenient wa of ad ustinRe o deals as a convenient wa of ad ustinSLR/CRR positions simultaneously.SLR/CRR positions simultaneously.

RBI uses Repo and Reverse repo as instrumentsRBI uses Repo and Reverse repo as instrumentsfor liquidity adjustment in the systemfor liquidity adjustment in the system

Meaning of RepoMeaning of Repo

It is a transaction in which two parties agree toIt is a transaction in which two parties agree to..

such an agreement the seller sells specifiedsuch an agreement the seller sells specifiedsecurities with an agreement to repurchase thesecurities with an agreement to repurchase thesame at a mutually decided future date and asame at a mutually decided future date and apriceprice

The Repo/Reverse Repo transaction can only beThe Repo/Reverse Repo transaction can only be

RBI and in securities as approved by RBIRBI and in securities as approved by RBI(Treasury Bills, Central/State Govt securities).(Treasury Bills, Central/State Govt securities).


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Banker's AcceptanceBanker's Acceptance

AA bankersbankers acceptanceacceptance (BA)(BA) isis aa shortshort--termterm--

firmfirm.. BAsBAs areare guaranteedguaranteed byby aa bank bank toto makemake

paymentpayment.. AcceptancesAcceptances areare tradedtraded atat discountsdiscounts fromfrom faceface

valuevalue inin thethe secondarysecondary marketmarket..

imports,imports, exportsexports oror otherother transactionstransactions inin goodsgoods..

ThisThis isis especiallyespecially usefuluseful whenwhen thethe creditcreditworthinessworthiness ofof aa foreignforeign tradetrade partnerpartner isisunknownunknown..


The call money market is an integral part ofThe call money market is an integral part of,, --

toto--day surplus funds (mostly of banks) areday surplus funds (mostly of banks) aretraded. The loans are of shorttraded. The loans are of short--termtermduration varying from 1 to 14 days.duration varying from 1 to 14 days.

The money that is lent for one day in thisThe money that is lent for one day in this

"" "" ,,exceeds one day (but less than 15 days) itexceeds one day (but less than 15 days) itis referred to as "is referred to as "Notice MoneyNotice Money".".


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Banks borrow in this market for theBanks borrow in this market for the

To fill the gaps or temporary mismatchesTo fill the gaps or temporary mismatchesin fundsin funds

To meet the CRR & SLR mandatoryTo meet the CRR & SLR mandatoryrequirements as stipulated by the Centralrequirements as stipulated by the Centralanan

To meet sudden demand for funds arisingTo meet sudden demand for funds arisingout of large outflows.out of large outflows.

Factors influencing interestFactors influencing interestratesratesThe factors which govern the interest rates areThe factors which govern the interest rates aremostl econom related and are commonlmostl econom related and are commonlreferred to asreferred to as macroeconomic factorsmacroeconomic factors. Some of. Some ofthese factors are:these factors are:

1)1) Demand for moneyDemand for money2)2) Government borrowingsGovernment borrowings3)3) Supply of moneySupply of money

5)5) The Reserve Bank of India and the GovernmentThe Reserve Bank of India and the Governmentpolicies which determine some of the variablespolicies which determine some of the variablesmentioned above.mentioned above.


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Treasury BillsTreasury Bills

Treasury bills, commonly referred to as TTreasury bills, commonly referred to as T--BillsBills

short term borrowing requirements withshort term borrowing requirements withmaturities ranging between 14 to 364 days.maturities ranging between 14 to 364 days.

All these are issued at a discountAll these are issued at a discount--toto--face value.face value.For example a Treasury bill of Rs. 100.00 faceFor example a Treasury bill of Rs. 100.00 face

. .. .end of it's tenure at Rs. 100.00.end of it's tenure at Rs. 100.00.

Who can invest in TWho can invest in T--BillBill

Banks, Primary Dealers, StateBanks, Primary Dealers, StateGovernments, Provident Funds, FinancialGovernments, Provident Funds, FinancialInstitutions, Insurance Companies, NBFCs,Institutions, Insurance Companies, NBFCs,FIIs (as per prescribed norms), NRIs &FIIs (as per prescribed norms), NRIs &OCBs can invest in TOCBs can invest in T--Bills.Bills.


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What is auction of SecuritiesWhat is auction of Securities

Auction is a process of calling of bids withAuction is a process of calling of bids withan o ec ve o arr v ng a e mar ean o ec ve o arr v ng a e mar eprice. It is basically a price discoveryprice. It is basically a price discoverymechanismmechanism

Primary Dealers & SatellitePrimary Dealers & SatelliteDealersDealers

r mary ea ers can e re erre o as erc anr mary ea ers can e re erre o as erc anBankers to Government of India, comprising theBankers to Government of India, comprising thefirst tier of the government securities market.first tier of the government securities market.Satellite Dealers work in tandem with theSatellite Dealers work in tandem with thePrimary Dealers forming the second tier of thePrimary Dealers forming the second tier of the

market.market.

These were formed during the year 1994These were formed during the year 1994--96 to96 tostrengthen the market infrastructurestrengthen the market infrastructure


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What role do Primary DealersWhat role do Primary Dealers

play?play?

The role of Primary Dealers is to;The role of Primary Dealers is to;comm par c pa on as r nc pa s ncomm par c pa on as r nc pa s n

Government of India issues throughGovernment of India issues throughbidding in auctionsbidding in auctions(ii) provide underwriting services(ii) provide underwriting services(iii) offer firm buy(iii) offer firm buy -- sell / bid ask quotessell / bid ask quotesfor Tfor T--Bills & dated securitiesBills & dated securities

(v) Development of Secondary Debt(v) Development of Secondary DebtMarketMarket

7 ! Structure of Indian Money7 ! Structure of Indian Money

Market?Market?

I :I :-- ORGANISED STRUCTUREORGANISED STRUCTURE

. eserve an o n a.. eserve an o n a.

2. DFHI (discount and finance house of India).2. DFHI (discount and finance house of India).3. Commercial banks3. Commercial banks

i. Public sector banksi. Public sector banksSBI with 7 subsidiariesSBI with 7 subsidiariesCooperative banksCooperative banks20 nationalised banks20 nationalised banks

ii. Private banksii. Private banksIndian BanksIndian BanksForeign banksForeign banks

4. Development bank4. Development bankIDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.


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Continued..Continued..

II. UNORGANISED SECTORII. UNORGANISED SECTOR..

2 Money lenders2 Money lenders3. Chits3. Chits4. Nidhis4. Nidhis

III. COIII. CO--OPERATIVE SECTOROPERATIVE SECTOR1. State cooperative1. State cooperative

. centra cooperat ve an s. centra cooperat ve an sPrimary Agri credit societiesPrimary Agri credit societies

Primary urban banksPrimary urban banks2. State Land development banks2. State Land development banks

central land development bankscentral land development banksPrimary land development banksPrimary land development banks

8 ! Disadvantage of Money Market8 ! Disadvantage of Money Market

down, in case of up in inflation.down, in case of up in inflation.

Absence of integration.Absence of integration.

Absence of Bill market.Absence of Bill market.

No contact with foreign Money markets.No contact with foreign Money markets.

Limited instruments.Limited instruments. Limited secondary market.Limited secondary market.

Limited participants.Limited participants.


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9 ! Characteristic features of a9 ! Characteristic features of a

developed money Market?developed money Market?

Presence of central bankPresence of central bank

Availability of proper credit instrumentAvailability of proper credit instrument

Existence of subExistence of sub--marketmarket

Existence of secondary marketExistence of secondary market Demand and supply of fundDemand and supply of fund

10 ! Recent development in10 ! Recent development in

Money MarketMoney Market

Integration of unorganised sector with theIntegration of unorganised sector with the

Widening of call Money marketWidening of call Money market Introduction of innovative instrumentIntroduction of innovative instrument Offering of Market rates of interestOffering of Market rates of interest Promotion of bill culturePromotion of bill culture Entr of Mone market mutual fundsEntr of Mone market mutual funds Setting up of credit rating agenciesSetting up of credit rating agencies Adoption of suitable monetary policyAdoption of suitable monetary policy Establishment of DFHIEstablishment of DFHI Setting up of security trading corporation of IndiaSetting up of security trading corporation of India

ltd. (STCI)ltd. (STCI)


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11 !11 ! SummarySummary

TheThe moneymoney marketmarket specializesspecializes inin debtdebt securitiessecuritiesthatthat maturemature inin lessless thanthan oneone yearyear..

MoneyMoney marketmarket securitiessecurities areare veryvery liquid,liquid, andand areareconsideredconsidered veryvery safesafe.. AsAs aa result,result, theythey offeroffer aalowerlower returnreturn thanthan otherother securitiessecurities..

TheThe easiesteasiest wayway forfor individualsindividuals toto gaingain accessaccess totothethe moneymoney marketmarket isis throughthrough aa moneymoney marketmarketmutualmutual fundfund..

TT--billsbills areare shortshort--termterm governmentgovernment securitiessecuritiesthatthat maturemature inin oneone yearyear oror lessless fromfrom theirtheir issueissuedatedate..

TT--billsbills areare consideredconsidered toto bebe oneone of of thethe safestsafestinvestmentsinvestments..

Continued.Continued. AA certificatecertificate ofof depositdeposit (CD)(CD) isis aa timetime depositdeposit withwith aa

bankbank.. AnnualAnnual ercenta eercenta e ieldield APY APY takestakes intointo accountaccount

compoundcompound interest,interest, annualannual percentagepercentage raterate (APR)(APR)doesdoes notnot..

CDsCDs areare safe,safe, butbut thethe returnsreturns aren'taren't great,great, andand youryourmoneymoney isis tiedtied upup forfor thethe lengthlength ofof thethe CDCD..

CommercialCommercial paperpaper isis anan unsecured,unsecured, shortshort--termterm loanloanissuedissued byby aa corporationcorporation.. ReturnsReturns areare higherhigher thanthan TT--

.. BankersBankers acceptanceacceptance (BA)(BA) areare negotiablenegotiable timetime draftdraft

forfor financingfinancing transactionstransactions inin goodsgoods.. RepurchaseRepurchase agreementagreement (repos)(repos) areare aa formform of of

overnightovernight borrowingborrowing backedbacked byby governmentgovernmentsecuritiessecurities..


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Thank youThank you

indian money market ppt

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