ndian inan ial ar et 11.5
to obtain a specified credit rating from this money market instrument was
an agency approved by the RBI (such as introduced/organised in 1992 to provide
CRISIL, ICRA, etc). short-term investment opportunity to
(iv) Commercial Bill (CB): Organised in individuals. The initial guidelines for
1990, a CB is issued by the All India the MF have been liberalised many
Financial Institutions (AIFIs), Non- times. Since March 2000, MFs have
Banking Finance Companies (NBFCs), been brought under the preview of SEBI,
Scheduled Commercial Banks, besides the RBI. At present, a whole lot
Merchant Banks, Co-operative Banks of financial institutions and firms are
and the Mutual Funds. It replaced the allowed to set up MFs, viz., commercial
old Bill Market available since 1952 in banks, public and private financial
the country. institutions and private sector companies.
At present 42 MFs are operating in the
(v) Call Money Market (CMM): This is
country—managing a corpus of over Rs.
basically an inter-bank money market
20.4 lakh crore (by March 2018).
where funds are borrowed and lent,
generally, for one day—that is why this (vii) Repos and Reverse Repos: In the era of
is also known as over-night borrowing economic reforms there developed two
market (also called money at call). Fund new instruments of money market—
can be borrowed/raised for a maximum repo and reverse repo. Considered the
period upto 14 days (called short notice). most dynamic instruments of the Indian
Borrowing in this market may take place money market they have emerged the
against securities or without securities.11 most favoured route to raise short-term
Rate of interest in this market ‘glides’ with funds in India. ‘Repo’ is basically an
the ‘repo rate’ of the time the principle acronym of the rate of repurchase. The
remains very simple—longer the period, RBI in a span of four years, introduced
higher the interest rate. Depending upon these instruments—repo in December
the availability and demand of fund in 1992 and reverse repo in November
this market the real call rate revolves 1996.
nearby the current repo rate. Repo allows the banks and other
The scheduled commercial banks, co- financial institutions to borrow money
operative banks operate in this market from the RBI for short-term (by selling
as both the borrowers and lenders while government securities to the RBI). In
LIC, GIC, Mutual Funds, IDBI and reverse repo, the banks and financial
NABARD are allowed to operate as only institutions purchase government
securities from the RBI (basically here the
lenders in this market.
RBI is borrowing from the banks and the
(vi) Money Market Mutual Fund (MF): financial institutions). All government
Popular as Mutual Funds (MFs) securities are dated and the interest for
11. The State Bank of India (operates in this market as the repo or reverse repo transactions are
lender as it is in a comforta le cash position lends announced by the RBI from time to time.
against government securities, while others lend against The provision of repo and the reverse
the deposit receipts of the orrowing an s. he S
functions as the lender of intermediate resort while repo have been able to serve the liquidity
the functions as the lender of last resort . evenness in the economy as the banks