CALL/NOTICE MONEY MARKET AND COMMERCIAL PAPERS

PRESENTED BY:LOKENDRA MALVIYA LOKESH SHARMA MAHAVEER SHIVHARE MANOJ BHAWNANI

CALL/NOTICE MONEY MARKET

CALL MONEY MARKET When money is borrowed or lent for a day, it is known as call money.

NOTICE MONEY MARKET When money is borrowed or lent for more than a day and up to 14 days.

WHY CALL MONEY

Commercial banks borrow money from other banks to maintain CRR. The CRR is a technique effected by RBI for achieving some objectives. To fill the gaps or temporary mismatches in funds To meet sudden demand for funds arising out of large outflows.

PARTICIPANTS IN THE CALL MONEY MARKET

Till 1971, UTI and LIC were allowed to operate as lenders. On 1978, brokers were also allowed to participate in the market. In 1990s, DFHI, STCI,GIC,NABARD,IDBI, money market mutual funds, corporate and private sector mutual funds entered as lenders.

CALL RATE
 Call rate is highly volatile in nature. Within one fortnight, rates moved from1-2 % to over 140 % per annum. There are two call rates in India:Inter-bank call rate. Lending rate of DFHI in the call market.

CALL MONEY MARKET

Source : RBI, Annual report 2009-10

ROLE OF THE RBI IN THE CALL MONEY MARKET

The Reserve Bank intervenes in the call money market indirectly in two ways-

 By providing lines of finance/additional funding to the DFHI and other call money dealers; and

 By conducting repo auctions.

SIZE OF THE CALL MONEY MARKET

Its average daily turnover at more than Rs.40,000 crore in recent period is the highest among all money market instruments including Government securities market.
(In Rs. Crore)
Average (2003-04 to 2007-08) (5 years) Average Daily Call Money Market Turnover 2007-08 2008-09 2009-10

18492

21393

22436

15924

Source : RBI, Annual report 2009-10

CALL MONEY MARKET

Source : RBI, Annual report 2009-10

NSE MIBID/MIBOR
NSE MIBID is stands for Mumbai Inter-bank Bid Rate NSE MIBOR is stands for Mumbai Inter-bank Offer Rate

NSE MIBID/MIBOR for the Day on 16-November-2010

Category OVERNIGHT 3 DAY 14 DAY 1 MONTH 3 MONTH Time 9:40 a.m. 9:40 a.m. 11:30 a.m. 11:30 a.m. 11:30 a.m. MIBID 6.82 7.03 7.4 7.7 SD(MIBID) 0.0131 0.1272 0.0908 0.0855 MIBOR 6.91 7.26 7.69 8.01 SD(MIBOR) 0.0121 0.0863 0.0726 0.0864

FACTORS INFLUENCING CALL MONEY MARKET RATE

 Liquidity Conditions  Reserve Requirement Prescriptions and stipulations Regarding Average Reserve Maintenance.  Structural Factors  Investment Policy of Non-Bank Participants in the Call Market who are the Major Lenders of Funds in the Call Market. Liquidity Changes and Gaps in the Foreign Exchange Market.

MEASURES FOR CURBING HIGH VOLATILITY

 Increasing the Number of Participants

 Through Repos

 Freeing of Inter-bank Liabilities From Reserve Requirements

COMMERCIAL PAPER

INTRODUCTION


What is commercial paper ? How and when commercial paper Came into market ? Who can issue commercial papers ? Commercial papers can be issued to Rating requirements in commercial papers.. Other information

PROCESS FOR ISSUING A CP

 firstly

a resolution has to be passed by board of directors of the company

The cp issue than has to be rated by a CREDIT RATING AGENCY Than company has to select an IPA Document verification by the IPA The company than has to arrange for DEALERS such as MERCHANT BANKERS ,BROKERS AND BANKS..

GUIDELINES RELATING TO CP 1) Eligibility. 6) Issuing and paying age

2) Rating requirement. 7) Investment in CP. 3) Maturity. 4) Denomination. 8) Mode of issuance. 9) Preference for DEMAT.

5) Limits and amount. 10) Stand by facility.

SIZE OF CP MARKET
Year (end march) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 July 31, 2002 Outstanding amount (in crores) 65.00 332.00 577.00 3,264.00 604.00 76.00 646.00 1500.00 4,770.00 5,663.00 5,847.00 7,224.00 8,519.95 Interest rate 15.8-16 11-12 14-15 20-20.2 11.3-12.3 14.2-15.5 9.1-13.3 10-12 8.75-13.50 7.15-13.00 6.55-9.30

FORTNIGHTLY ISSUANCES IN CP MARKET

Source : RBI, Annual report 2009-10

Issuer Isuing and paying agent (IPA) Credit rating agency (CRA)

SECONDARY MARKET IN CP
There was a very little activity in the secondary market in CPs due to the investors preference to hold the instrument till maturity. The market is developing with the entry of foreign and private sector banks who are becoming the major players. Mutual funds also prefer the secondary market route as the stamp duty for issuing CPs is higher at 0.5% for mutual funds than for banks, which stands at 0.2%. Mutual funds are active players in the CP secondary market. Mutual funds buy the paper in the secondary market through banks who pay a lower stamp duty in the primary market.

CP RATE MOVEMENTS

Source : RBI, Annual report 2009-10

FACTORS INHIBITING THE GROWTH OF THE CP MARKET

 Small Size of Investment  Administrative Difficulties and Complex Procedural Formalities  Non-bank institutional investors are not big buyers in this market.  Stamp Duty Levy Minimum Maturity Period of 7 days

THANK YOU