CA PRATAP VISHNOI
The money market is a key component of the financial
system as it is the fulcrum of monetary operations
conducted by the central bank in its pursuit of
monetary policy objectives. It is a market for shortterm funds with maturity ranging from overnight to
one year and includes financial instruments that are
deemed to be close substitutes of money.
 It provides an equilibrating mechanism for demand and
supply of short-term funds.
 It enables borrowers and lenders of short-term funds to
fulfill their borrowing and investment requirements at
an efficient market clearing price.
 It provides an avenue for central bank intervention in
influencing both quantum and cost of liquidity in the
financial system, thereby transmitting monetary policy
impulses to the real economy.
Monetary Policy Operations ( Reserve Requirements,
Refinance)
Change in Reserves
Short-term Interest Rate
Monetary Base
Money Supply
Market Interest Rate
Real Interest Rate
Interest Rate Channel
Aggregate Demand
• Reserve Bank of India
• SBI DFHI Ltd (Amalgamation of Discount & Finance House
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in India and SBI in 2004)
Acceptance Houses
Commercial Banks, Co-operative Banks and Primary
Dealers are allowed to borrow and lend.
Specified All-India Financial Institutions, Mutual Funds,
and certain specified entities are allowed to access to
Call/Notice money market only as lenders
Individuals, firms, companies, corporate bodies, trusts and
institutions can purchase the treasury bills, CPs and CDs.
 The system of Primary Dealers (PDs) in the Government Securities
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Market was introduced by Reserve Bank of India in 1995 to strengthen
the market infrastructure of Government Securities
DFHI was set up by RBI in March 1988 to activate the Money Market.
It got the status of Primary Dealer in February 1996. Over a period of
time, RBI divested its stake and DFHI became a subsidiary of State Bank
of India (SBI).
SBI had also set up a subsidiary in 1996 for doing PD business namely
SBI Gilts Limited.
Both these companies were merged in 2004 to become the largest
Primary Dealer in the country
Primary Dealers can also be referred to as Merchant Bankers to
Government of India as only they are allowed to underwrite primary
issues of government securities other than RBI
 PDs are allowed the following activities as core activities:
1. Dealing and underwriting in Government securities.
2. Dealing in Interest Rate Derivatives.
3. Providing broking services in Government securities.
4. Dealing and underwriting in Corporate / PSU / FI bonds/
debentures.
5. Lending in Call/ Notice/ Term/ Repo/ CBLO market.
6. Investment in Commercial Papers.
7. Investment in Certificates of Deposit.
8. Investment in debt mutual funds where entire corpus is
invested in debt securities.
• The call money market is an integral part of the Indian
Money Market, where the day-to-day surplus funds
(mostly of banks) are traded. The loans are of shortterm duration varying from 1 to 14 days.
• The money that is lent for one day in this market is
known as "Call Money", and if it exceeds one day (but
less than 15 days) it is referred to as "Notice Money".
Banks borrow in this market for the following purpose
• To fill the gaps or temporary mismatches in funds
• To meet the CRR & SLR mandatory requirements as
stipulated by the Central bank
• To meet sudden demand for funds arising out of large
outflows.
 CDs are negotiable money market instruments and
are issued in dematerialized form or a promissory
note, for funds deposited at a bank or other eligible
financial institution for a specified time period.
 They are like bank term deposits accounts. Unlike
traditional time deposits these are freely negotiable
instruments and are often referred to as Negotiable
Certificate of Deposits
 The tangible net worth of the company, as per the latest
audited balance sheet, is not less than Rs. 4 crore;
 The working capital (fund-based) limit of the company
from the banking system is not less than Rs.4 crore
 The borrowable account of the company is classified as
a Standard Asset by the financing bank/s.
 All eligible participants should obtain the credit
rating for issuance of Commercial Paper
 The minimum credit rating shall be P-2 of CRISIL
or such equivalent rating by other agencies
 Banks, financial institutions, primary dealers, mutual
funds and co-operative banks, who are members of
NDS, are allowed to participate in CBLO transactions.
Non-NDS members like corporate, co-operative banks,
NBFCs, Pension/Provident Funds, Trusts etc. are
allowed to participate by obtaining Associate
Membership to CBLO Segment.