What is Money Market?
By the phrase “money market” we mean, the purchase and sale of the services of money. It comprises all institutions dealing in money.
The dealers in money buy the sayings from the depositor at a low interest rate and sell the same to the debtors at a higher rate. The money market is the short-term market.
In a country like India, monetary largely depends upon the structure of the money market. It is governed by the credit consciousness and development of banking habits of the people.
Indian Money Market: Features
The distinctive feature of the Indian money market is that it can be divided into unrecognized and organized parts.
- The unrecognized part of our money market includes the indigenous banks and money-lenders such as Mahajan, Multani etc. They provide nearly 10 percent of the total credit in India. The indigenous bankers enjoy rediscount facilities from the commercial banks. They deal in hundis and do not make a distinction between short term and long term loans. It is said that “the indigenous bankers refuse to be drawn within the fold of the regular money market in the country,” and the Reserve Bank of India has not yet succeeded to bring the indigenous bankers into line with the banking system.
- The organized section of the Indian money market includes the Reserve Bank of India, the State Bank of India, the foreign exchange banks, the Indian joint stock banks, the financial intermediaries like the Industrial Finance Corporation, Life Insurance Corporation of India and so on. We know that the Reserve Bank of India acts as the leader of the money market. Hence, it can effectively control the institutions falling within the organised part of our money market. The organized section of India’s money market may again be classified into call market, collateral loan market.
- In an underdeveloped economy like India the co-operative credit institution stand a midway between the organized and unorganized sections of money market. The co-operative banks have a close relation with the commercial banking system and they receive considerable financial assistance from the Reserve Bank of India. They are required to maintain current accounts with the State Rank, and obtain from it overdraft and cash credit facilities.
Hence, “the Indian money market is characterized by a diversity of institutions at the apex of which stands the Reserve Bank of India and at the bottom of which there are the village money lenders cum traders. In between the two, we have the co-operative credit institutions, Post Office savings banks, indigenous bankers, joint stock banks inclusive of the State Bank of India, the various finance corporations of the Central as well as the State Governments, and the foreign exchange banks.”