Money Market

The money market is a market for overnight to short term funds and for short term money and financial assets that are close substitute for money Functions of money market are to provide i) Evening out short-term surpluses and deficiencies ii) RBI intervention for influencing liquidity in the economy iii) A reasonable access to the users of short term funds to meet their requirements at reasonable price

Treasury Bills
Treasury Bill is an instrument of short term borrowing by government to bridge temporary gaps between receipts and expenditure A promissory note issued by the RBI on behalf of the government Main Features i) They are issued at discounts and redeemed at par on maturity ii) High liquidity iii) Absence of default of risk (Govt& RBI) iv) Assured yield v) Low transaction cost

Types of Treasury Bills

a) 91- Day T- bills b) 364-Day T-bills Type of auctions Multiple Price auctions Uniform Price Auction

Certificate of deposits
Certificate of deposits is a marketable /negotiable receipt of funds deposited in a bank for the fixed period at a specified rate of interest Main elements Issued at demat form or issuance or usance promissory note for funds deposited at banks or ant other FI for fixed period Issuer- Commercial Banks and Any FIs permitted by RBI The CDs can be subscribed by individuals/ companies/ trusts/ associations Maturity period: Banks 7 days( Min) to one year ( Maxi) FIs - 1-3 years The CDs may be issued at a discount on face value and also on floating rate basis Banks have to maintain appropriate SLR & CRR on issue price of the CDs

 The CDs should be issued only in demat form The holders of the dematted CD should approach the respective Depository participant Loans against CDs and buy back of CDs by the issuers before maturity mare not permitted The minimum amount of CD should be Rs 1 lakh and multiples of Rs 1 lakh

Commercial bill
Is a short term negotiable and self liquidating written instrument containing an unconditional order signed by the maker directing to pay certain amount of money only to a particular person Bills of exchange are drawn by the seller (drawer) on the buyer(drawee) for the values of good delivered by him such bills are called are called Trade bills When trade bills accepted by the commercial banks they are called commercial bills Export bills Import bills Bill discounting Bill re discounting

Commercial bill
Factors hindering the development of the bill finance in India Administrative problems, physical scrutiny of invoices, physical presentation of bills of payment Small size of foreign trade Cash credit which is more convenient and cheaper than bill financing Misuse of bill market in the early 1990s by banks

 Commercial paper is a short term unsecured negotiable instrument consisting of usance promissory notes with a fixed maturity Elements of Commercial paper Issuer- Corporates, All India financial Institutions, Issued at a discount on face value and also interest bearing form Direct papers Dealer papers Eligibility a. Tangible worth of the company- not less than Rs 4 Crore b. Working capital limit sanctioned by banks Rating Requirements Obtain the credit rating for issuance of CP from CRISIL Ltd/CARE Ltd/CARE Ltd The minimum Credit rating Should be P-2 of the CRISIL or equivalent rating by other agencies

Commercial Papers

Commercial Papers
Maturity- Minimum 7 days maximum 1 year The maturity date should not go beyond valid credit rating period Denomination- Minimum of Rs 5 lakhs and multiples of 5 lakhs Limitations- The issue of the CP together with other instruments should not exceed 100 percent of its net owned funds Issuing & payment agent(IPA)- Only scheduled banks Roles ensure issuer has the minimum credit rating stipulated by RBI Verify all the documents submitted by issuer and report the same periodically to RBI Advised and report to RBI immedeately in case in defult in repayment of the CPs Investment in CPs individuals, banking companies, other corporate bodies, NRIs &FIIs Mode of issuance- Promissory notes or Dematerialized form Payment of CP- through IPA ( both physical and demat holding) Stand-by- Facility- CP is a stand alone product

Call / Notice Money

Call money is borrowing and lending funds over night to meet the CRR requirements of banks Call money- when money is borrowed for a day/ overnight Notice money- when money is borrowed for more than a day and upto 14 days

Registration- Terms and conditions Trustee/sponsor/AMC/custodian would have to comply with the SEBI regulations Payment of i) Application fee Rs 1 Lakh ii) Registration fee- Rs 25 Lakh Annual fee based on net assets as follows Rs 500 crore: Rs 2.5 lakh Rs 500-Rs 1000 crore: Rs 3.5 lakh Rs 1000-Rs 3000 crore: Rs 4.5 lakh Rs 3000- Rs 5000 crore: Rs 5.5 lakh Rs 5000- Rs 10,000 crore: Rs 6.5 lakh Above 10,000 crore : Rs 7.5 lakh