Characteristics of Indian Money Market-What are the Characteristics of Indian Money Market-What are Indian Money Market Characteristics

Characteristics of Indian Money Market

The daily turnover on the Indian money market exceeds Rs 40,000 crore. That’s more than 3% of India’s total currency and 6% of the money commercial banks have deposited. Every day, traders handle two percent of India’s GDP. Although the money market is far larger than the capital market, it still only represents a tiny fraction of the daily trading that takes place on major exchanges. This article discusses in detail about characteristics of indian money market.

The need for higher tax rates is one such niche industry. One more is the growing need for cash on the market. The Reserve Bank of India (RBI) and commercial banks in India use the money market to communicate and coordinate on matters of monetary policy and administration.

Characteristics of Indian Money Market

The money market is a trading platform for commodities with monetary-like characteristics. Investors can purchase goods and services in the market with a maturity of one year or less overnight. It’s not a physical location like the New York Stock Exchange. Instead, participants conduct it via telephone. India’s banking and monetary system would be incomplete without the money market. Check out these characteristics of indian money market to enhance your knowledge.

A Central Bank is there

The central bank discounts qualifying securities in these countries. The central bank oversees their cash reserves and provides emergency funding if needed. Participating in the open market allows the central bank to both collect excess funds during sluggish periods and distribute more funds during busy periods.

The Market’s Role

Central banks, commercial banks, non-banking financial institutions, acceptance houses, and discount houses together make up what is known as the money market. Commercial banks often play a crucial role in this industry.

There is no Integration

The Indian currency exchange market relies heavily on this factor. At the same time, the market divides into many sections that do not have much in common with one another. Money market components have trouble communicating due to a lack of coordination. The RBI exercises complete authority over the components of the organized sector, but very limited authority over the components of the unorganized sector. Characteristics of Indian money market facilitates short-term borrowing and lending, serving as a crucial source of funds for various entities, including banks, corporations, and the government.

High Volatility in Call Money Market

Short-term cash exchanges are known as the “call money market.” You’ll have to pay the going cost for phone calls right now. Commercial banks mostly drive the need for call money, and the substantial disagreements between institutions like the GIC and the LIC contribute to the market’s continued volatility.

Bill Market isn’t Put Together

In India’s monetary system, the scheduled bill market does not play a significant role. The Reserve Bank of India (RBI) attempted to establish a well-organized bill market in 1952 with the Bill Market Scheme and again in 1970 with the New Bill Market Scheme.

The Rbi doesn’t have Much Control over the Unorganized Sector

Furthermore, the development of an unregulated money market outside of its purview constrains the RBI’s ability to adjust to economic conditions and maintain control of the money supply, as monitoring the unstructured portion of the money market becomes difficult for central banks. The RBI must find a way to avoid this situation.

This is due to the fact that when these financial institutions run low on funds, they do not turn to the RBI for assistance. They also gain the benefit of not having to maintain a secondary copy. The RBI cannot use its credit control powers against them, despite warranted punishment, due to the country’s best interest.

Banks that are very Well Organized

Commercial banking institutions control the global money market. They’re the best options for getting cash rapidly. Private banks serve as a vital link between the Central Bank and the various segments of the money market. Characteristics of Indian money market provides ample opportunities for investors to earn competitive returns on their short-term investments, while maintaining relatively low levels of risk.

Seasonal Changes in the Money Supply can Lead to Problems

Last but not least, the Indian money market is characterized by the fact that the availability of funds shrinks as the peak season approaches. The busiest time of year, from November to June, is also when interest rates tend to rise. This is because people need access to cash but there is a scarcity of that resource. But when loan rates fall during the slow season, things improve.

The volatility of the money market is a direct result of the interest rate changes that occur throughout the year. However, these fluctuations in the market interest rate can be controlled by the Reserve Bank of India (RBI), the country’s central bank and a monetary guardian.


The market segments into smaller marketplaces that specialize in particular kinds of investments, making it too diverse to treat as a whole. A few examples of financial markets are the bill market, the payment market, and the money market.


First, there has always been a paradox in the Indian money market, which can be summed up as follows: commercial banking based on Western or European models, and a traditional, unregulated sector. However, at most, there is just a tenuous connection between these two fields.

Each sector of the economy operates autonomously and according to its own standards. The unregulated portion of India’s money market has lost prominence during the past few decades. However, one cannot overlook its benefits to rural banking.

No Formal Place

The telephone serves as the primary means of conducting the vast majority of business. After completing direct contact, correspondence can be dispatched. There is no equivalent of a stock exchange or other centralized trading facility that characterizes a capital market.

Before 1971, there was no Bill Market

To integrate the regulated and unregulated sectors of the money market, a bill market is necessary. Many believe that enabling both industries to have access to freely negotiated trade laws will lead to the merger of those sectors. Before the Reserve Bank of India (RBI) established a “real” bill market in 1971, however, nothing like it existed in India. Characteristics of Indian money market operates with relatively low transaction costs, making it accessible to a wide range of investors and facilitating cost-effective financial transactions.

Rbi and the Part of the Money Market that is not Organized

The nation’s central bank, as the market’s undisputed authority, should have ultimate say over all of the country’s monetary and financial systems. The characteristics of the money market are crucial to the success of a country’s monetary strategy. The majority of LDCs suffer from underdeveloped financial markets. India is not an outlier in this regard. Unregulated sectors of India’s money market, such as the banking industry, do not require the services of the Reserve Bank of India (RBI) because these organizations manage their own funds and do not accept deposits from the general public. The reason for this is that the public is unable to deposit funds with the RBI.

The RBI is obviously unable to regulate this sector of the financial system. However, the Reserve Bank of India (RBI) will continue to oversee and direct the regulated portions of the monetary system. However, the Reserve Bank of India (RBI) does not exert much influence over the unsupervised segments of India’s money market, which determine the availability and terms of credit in the country.

The RBI’s ability to implement monetary policy and regulate the lending sector is being hampered as a result. In order to prevent inflation (or deflation), the Reserve Bank of India (RBI) may, on occasion, employ its credit control mechanisms. In truth, the RBI has rules and regulations that private banks must adhere to.

However, in-country bankers are exempt from these regulations. As a result, achieving the aim of containing inflation or recovery is now hopeless. To begin, these establishments are major contributors to the shadow economy. On the other hand, their actions frequently become disruptive.

There was no Discipline in Commercial Banks

As a fourth observation, we notice that India’s financial sector poorly develops. Private banks typically have more cash on hand than is really necessary. Most of the time, their lending policies and procedures are stringent, especially in comparison to the shady side of the business. Some banks are hesitant to establish a presence in areas where none currently exists.

However, the current state of affairs proves that this claim about private banks is false. India’s banking sector, since nationalization, is currently sufficiently robust. It is currently one of the money market’s most streamlined sectors. There are a variety of reasons to be skeptical of the RBI’s efforts to regulate and oversee the organized commercial banking sector.


Second, there are many tiny players in India’s monetary sector. The two most significant financial hubs in India are the cities of Kolkata and Mumbai. Combining the names of these two locations, “National Money Market” was born. On the other hand, both Delhi and Ahmedabad are currently preparing to become active participants in the National Money Market.


Which Part of the Indian Money Market is the most Important?

Third, it should allow short-term lenders and borrowers to obtain access to the capital they need to meet their individual borrowing and investment requirements at a price that reflects the market’s effective closing time. The Reserve Bank of India (often abbreviated as “RBI”) is the single most crucial institution in the country’s monetary system.

Who Runs the Money Market in India?

Several pieces of legislation, including the Reserve Bank of India Act of 1934, the Government Securities Act of 2006, the Foreign Exchange Management Act of 1999, the Bilateral Netting of Qualified Financial Contracts Act of 2020, and the Payment and Settlement Systems Act of 2007, give the Reserve Bank of India authority over the Indian financial markets. The Reserve Bank of India Act enacted all of these regulations.

How does Rbi Supervise the Money Market?

The Reserve Bank of India sells government bonds whenever there is a surplus of funds. The Reserve Bank of India (RBI) will do the same thing when the economy needs more money: it will buy government assets and then inject those funds into the economy.

Final Words

The money market and the reserve bank are intimately connected, with the reserve bank often being considered an integral part of the money market. In reality, the money market reports directly to the reserve bank. When it comes to the flow of money in India, the Reserve Bank of India (RBI) plays a pivotal role. Continue reading to become an expert on characteristics of indian money market and learn everything you should know about it. For tips on characteristics of money market, check out this guide specially for you.

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