Understanding the Structure of Money Market in India

Understanding the Structure of Money Market in India

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As opposed to a stock exchange, the Money Market does not have any geographical restrictions. The financial institutions that deal in assets may be spread out across a large area. Even though Mumbai, Calcutta, Chennai, and other Money Market centers exist, they are interconnected and interdependent markets rather than distinct markets. It applies to all transactions involving money or financial assets. This is only a market for short-term investments. It is not a unified, uniform market. The Call Money Market, the Bill Market, and other submarkets are examples. Currency Market lays out a connection among RBI and banks and gives data of financial strategy and the board. Brokers don't have to be involved in a transaction to be successful. In the Money Market, a wide range of instruments are traded.

Goals of the Money Market - The goals of the Money Market are as follows:

1. to meet the needs of short-term fund borrowers and provide liquidity to these funds' lenders.

2. to use the surplus fund to provide parking for temporary employment.

3. to make it possible to fill short-term gaps.

4. to make it possible for the central bank to influence and control the economy's liquidity.

5. to support the government's monetary policy implementation through open market operation.

Indian Money Market Structure - In general, Currency Market in India contains two Areas

(a) Organised sector - comprises of the Save Bank of India, the State Bank of India with its seven partners, twenty nationalized Business banks, other booked and non-planned Business banks, unfamiliar banks, and Local Country Banks. Because its component is systematically coordinated by the RBI, it is referred to as Organised. In this market, non-bank financial institutions like the LIC, the GIC, and its subsidiaries, the UTI, also operate, but only indirectly and not directly through banks. Banks are also used by large corporations and quasi-government entities to distribute their short-term surplus funds to the Organised Market. The Indian money market's cooperative credit institutions serve as a middleman between the organized and unorganized segments. The structure of these institutions is three-tiered. State cooperative banks are at the top. There are primary credit societies and urban cooperative banks at the local level. State and central cooperative banks should only be included in the Organised Sector due to their size, operations, and interactions with the RBI and commercial banks. It has a tenuous connection to the local cooperative societies.

(b) Unorganised sector - comprises of Native banks and cash moneylenders. It is unorganized because the RBI does not systematically coordinate the activities of its components. The money lenders operate nationwide but are not connected to one another. viii) Indigenous banks are better organized than commercial banks because they get discounts from commercial banks, which have a connection to the RBI. However, this kind of organization only has a tenuous connection to the RBI.