The market that borrows and lends short-term funds is called the money market. The instruments in the money market are short-term in nature and are highly liquid. Money market plays an important function of transferring funds to those economic units who have short-term requirements for funds. In money markets short-term debts instruments in particular are traded by individuals, corporations, government. The short-term instruments are with a maturity of one year or less is issued by those economic units that require short-term funds and lent by people who have surplus short-term funds. The need for money market arises due to the immediate cash requirements of people which do not necessarily match with their cash receipts.
The Indian market can be classified into organized and unorganized sectors. The unorganized sector consists of money lenders, chit funds, and indigenous bankers. These people satisfy the credit requirement of a large section of the rural masses. The organized part comprises commercial banks in India both public sector and private sector banks and foreign banks. The Reserve bank of India the apex bank is the regulator of the money market in India. It regulates the flow of the credit and money in the economy. To influence the liquidity in the system the RBI intervenes in the money market from time to time either to augment or reduce the supply of credit. The open market operation of the RBI provides signals for other segments of the financial system regarding the future monetary and credit policy of the apex bank.
The indigenous bankers and money lenders are still dominating the semi-urban and rural areas in India. In India the organized and unorganized money markets exist side by side. This is a major weakness to the Indian money market. The unorganized money markets follow its own rules and regulation of banking and finance so it does not come into the purview of RBI rules and regulations. In the recent days there are large number of Non-bank Financial companies (NBFC) have come up raising deposits from the public. These NBFC’s perform functions like lending, investing, hire purchase etc. these institutions are not effectively controlled by the RBI.
There is an absence of a well-organized banking system. Though developed to some extent in the recent years their presence is insignificant in rural areas even today. The absence of banking facilities to the rural masses due to slow branch expansion in the country is a matter of concern.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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