Structure of Indian Financial Market

What is Financial Market?

• A financial market is a market in which people trade financial securities
and derivatives such as futures and options at low transaction costs.
Securities include stocks and bonds, and precious metals.
• The term "market" is sometimes used for what are more strictly
exchanges, organizations that facilitate the trade in financial securities,
e.g., a stock exchange or commodity exchange.
• This may be a physical location (like the NYSE, LSE, JSE, BSE) or an
electronic system (like NASDAQ).
• Much trading of stocks takes place on an exchange; still, corporate actions
(merger, spinoff) are outside an exchange, while any two companies or
people, for whatever reason, may agree to sell stock from the one to the
other without using an exchange.
• Trading of currencies and bonds is largely on a bilateral basis, although
some bonds trade on a stock exchange, and people are building electronic
systems for these as well, to stock exchanges.
 Money Market
• Money Market is a segment of Financial Market where
borrowing and lending of short-term funds take place.
• The maturity of money market instruments is from one day
to one year.
• In India, this market is regulated by both RBI and SEBI
• Funds borrowed from money markets are typically used for
general operating expenses, to provide liquid assets for
brief periods.
• For example, a company may have inbound payments from
customers that have not yet cleared, but need immediate
cash to pay its employees.
• Money Market can be Organized or Unorganized
• Organized Money Market is controlled by the Regulators
 Capital Market
• The "capital markets" are used for the raising of
long-term finance, such as the purchase of
shares/equities, or for loans that are not
expected to be fully paid back for at least a year
• The purpose is to invest in additional physical
capital goods, which will be used to help increase
its income.
• It can take many months or years before the
investment generates sufficient return to pay
back its cost, and hence the finance is long term.
Organized Sub-Market
of Money Market
 Treasury Bills (T-Bills)

• Treasury Bills are short term (up to one year) borrowing instruments of the
Government of India which enable investors to park their short term surplus funds
while reducing their market risk. They are auctioned by Reserve Bank of India at regular
intervals and issued at a discount to face value.
• RBI acts as an Agent of Central Government to conduct the auctions of the T-Bills
•The T-Bills are issued in 3 types of maturity durations i.e. 91, 182 & 364 days
•T-Bills are also known as “Zero Coupon Securities”
• T-Bills are issued on discount to face value, while the holder gets the face value on
maturity.
 Call Money

• CRR and SLR are the two ratios. CRR is a Cash Reserve Ratio
and SLR is Statutory Liquidity Ratio.
• Under CRR a certain percentage of the total bank deposits
has to be kept in the current account with RBI which means
banks do not have access to that much amount for any
economic activity or commercial activity.
 Call Money

• Call Money, Notice Money and Term Money markets are sub-markets of the Indian
Money Market. These refer to the markets for very short term funds. Call Money
refers to the borrowing or lending of funds for 1 day. Notice Money refers to the
borrowing and lending of funds for 2-14 days.

• Call money is minimum 5% short-term finance repayable on demand, with a

maturity period of one to fourteen days or overnight to fortnight. It is used for
inter-bank transactions. The money that is lent for one day in this market is known
as "call money" and, if it exceeds one day, is referred to as "notice money.“
 Certificate of Deposit
• A Certificate of Deposit (CD) is a savings certificate (e.g.
Fixed Deposit) with a fixed maturity date
• CD in India can be issued by:
– All scheduled commercial banks excluding Regional Rural
Banks (RRBs) & Local Area Banks (LABs)
– All India Financial Institutions permitted by RBI

• CD can be issued to individuals, corporations,

companies, trusts, funds, associations etc.
• NRIs are also eligible for CDs provided they don’t
repatriate the funds
 Certificate of Deposit (contd…)
• Minimum Amount: 1 lac (& multiples of 1 lac)
• Maturity: Between 7 days to 1 year
(Commercial banks) & Not less than 1 year to
not more than 3 years (Financial institutions)
• Return:
– Discounted, market based fixed or floated
– Banks or FIs can’t grant loans against CDs
– They can’t buy back their own CDs before
maturity
 Commercial Bills
• A Commercial Bill arises out of a genuine
trade transaction
• A bill of exchange is an important commercial
bill which is drawn by the seller on the buyer
for the amount due to him
• The maturity period of the bill may vary from
3 to 6 months
 Commercial Paper
• Commercial Paper (CP) is an unsecured, short-
term debt instrument issued by a corporation
for meeting short-term liabilities
• Who can Issue CP:
– Corporates, Primary dealers & All India Fis (e.g.
Banks, Insurance Cos. etc.)
• The maturity period is between 7 days to 1
year from the date of issuance
Commercial Paper (contd…)
Commercial Paper (contd…)
Cash Management Bills
Cash Management Bills (contd…)
Unorganized Sub-Market
of Money Market
Hundis
Indigenous Bankers
Indigenous Bankers (contd…)
Indigenous Banker Vs Money Lender
Non-securities Capital Market
Mutual Funds
Securities Capital Market - Primary
Initial Public Offering (IPO)
Private Placement
Securities Capital Market - Secondary
 Equity Market

https://www.youtube.com/watch?v=4QI6ft8cUkU
Debt Market
Commodity Market
Derivative Market
Thank you!