Participants in the Indian Money Market. The money market is characterized by voluminous transactions involving substantial amounts. The number of money market players is limited, but they are very active and in a dominant position. The following are some of the major market participants:
1) Reserve Bank of India (RBI):
The central bank of the country, i.e. RBI is the key participant in the money market. It is responsible for the formulation and implementation of the monetary policy of the country. With a view to injecting liquidity in the market or using the same from the system, it has got a number of instruments at its disposal. Bank rates, repo mechanisms, CRR, etc. are some of them, which are put to use, as and when required, by the central bank from time to time.
2) Schedule Commercial Banks (SCBs):
Scheduled Commercial Banks form the core of the money market, as they are the most prominent players in short-term borrowing as well as short-term lending. Household savings of the people find their way to banks in the form of deposits, a part of which is utilized by the banks for onward lending to business entities for meeting their short-term working capital requirements. Deployment of the remaining funds is done by way of investment in Government securities (medium to long-term), treasury bills (short-term), equities and bonds issued by corporates, etc.
3) Cooperative Banks:
Participation of cooperative banks in the money market is similar to that of scheduled commercial banks.
4) Financial and Investment Institutions:
Certain financial and investment institutions like Life Insurance of India, Unit Trust of India, General Insurance Company, development banks, etc. are also active players in the money market. However, their role is restricted in the market as lenders only; they are not permitted to borrow.
5) Corporates:
Participation of companies in the money market is manifold:(i) demand for funds is generated by them through the banking system, (ii) one of the money market instruments, viz. Commercial Papers (CPs) are issued by the corporates, (iii) they accept public deposits and also undertake activities like inter-corporate deposits (ICDs) and investments.
6) Mutual Funds:
Mutual Funds, as part of their investment activities, prefer to invest in various money market instruments, especially if their investment horizon is for a short period. They are also permitted. in addition to the SCBs, to participate in the call money market. Money Market Mutual Funds (MMMFS) have been created with the specific purpose of mobilizing short-term funds to be invested in various money market instruments. They have played a significant role in the evolution of the Indian money market.
7) Discount and Finance House of India (DFHI):
The Discount and Finance House of India Limited (DFHI ) was in the year 1988 by the Reserve Bank of India in collaboration with public sector banks and all-India financial institutions (AIFII) with a view to popularising short-term money market instruments and thereby deepening and widening the Indian money market.
The present activities of DFHI include (1) participation in the inter-bank call/notice money market and term deposit market, as a lender as well as a borrower, (ii) rediscounting of instruments like 182-day treasury bills, commercial bills, Certificates of Deposits (CDs) and Commercial Papers (CPS).
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