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Understanding Commercial Bill and Collateral Loan Market
Understanding Commercial Bill and Collateral Loan Market
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
• Market for Commercial Bills - The market for commercial bills is known as the commercial bill market. This market deals in commercial bills that are issued by businesses. The typical maturity period for these bills is three months. A commercial bill is a promise made by a buyer of goods to the seller of goods to pay a certain amount within a certain time frame. The bill is drawn up by the seller, who sold his goods on credit, and sent to the buyer for acceptance.
The bill becomes a marketable instrument when the buyer or his bank writes "accepted" on it. The bill is then sent to the seller. Now, the seller can get the bill discounted and sell it to his bank for cash. The bank can either rediscount the bills from the Reserved Bank or sell them to other banks during financial crises. The bill market in India is not as developed as it is in advanced nations like the United Kingdom. There are no specialized institutions like acceptance and discount houses, especially those that deal in acceptance and discounting business.
• Market for Collateral Loans - The collateral loan market deals with loans that are secured by collateral, also known as loans. Commercial banks in India offer short-term loans secured by government securities, shares, and debentures, among other things, in the collateral Loan market.
The Markets for Commercial Paper and Certificates of Deposit: Declaration of Store (Compact disc) and Business Paper (CP) markets manage endorsements of store and business papers. The Reserve Bank of India introduced these two instruments—CD and CP—in March 1989 with the intention of broadening the variety of money market instruments and providing investors with greater flexibility in the use of their short-term surplus funds.