Reforms for Money Market in India

Reforms for Money Market in India

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In 1985, the Chakravarty presided "Committee for the Review of the Working of Monetary System," made a number of suggestions for developing the money market in India. In 1987, the RBI established a Working Group on Money Market under Vaghul's leadership as a follow-up. The Reserve Bank of India (RBI) took a number of steps to expand and deepen the Money Market in response to the recommendations of the Vaghul Committee. The most important ones are as follows:

1. Interest Rates deregulation - The ceiling over the rate of interest upon call money, inter-bank deposits that are short-term, bills re-discounting, and participation inter-bank was lifted in May 1989, allowing the rates to be determined by market forces.As a result, the administration of interest rates is being gradually eliminated

2. Introducing novel money-market instruments - In order to broaden and diversify the Indian money market, the Reserve Bank of India (RBI) has introduced a number of new instruments, including CDs and CPs, 182-day treasury bills, and 364-day treasury bills. Through these instruments the public authority, Business Banks, monetary foundations and corporate can collect supports through the Currency Market. Additionally, they offer investors additional investment tools. RBI reduces the minimum investment amount and maturity period for CDs and CPs in an effort to increase the number of investors.

3. Repos or, the Repurchase Agreements - In December 1992, the RBI introduced Repos for government securities, and in November 1996, it introduced Reverse Repos. The Money Market's short-term fluctuations in liquidity can be balanced with the assistance of repos and reverse repos. Banks can also use them to temporarily store their excess cash. The RBI communicates its policy goals to the entire Money Market by adjusting repo and reverse repo rates.

4. LAF or, the Liquidity Adjustment Facility - The Liquidity Adjustment Facility (LAF) was introduced by the RBI in June 2000 and serves as an important tool for adjusting liquidity through Repos and Reverse Repos. As a result, the Reserve Bank of India (RBI) has recently adopted a policy of using Repos and Reverse Repos to adjust liquidity in the Money Market and, as a result, stabilize short-term interest rates or call rates.

5. DFHI or, the Discount and Finance House of India - was established in 1988 by RBI, public sector banks, and financial institutions to provide liquidity to Money Market instruments and support the growth of secondary markets for these instruments.

6. NBFCs regulation - The RBI Act was changed in 1997 to accommodate a thorough guideline of NBFC area. Without a Certificate of Registration (CoR) from the RBI, no NFBC can conduct any financial institution-related business, including accepting public deposits.

7. CCIL or, the Clearing Corporation of India Limited - The CCIL was established on April 30, 2001, and the State Bank of India served as its primary promoter. It was established in accordance with the Companies Act of 1956. All transactions in government securities and Repos that are reported on the Negotiated Dealing System (NDS) of the RBI are cleared by the CCIL.