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11 декабря 2016г.

It is an open secret that Debt markets are important source of funds, especially in a developing economy like India. Indian Debt market is one of the largest in Asia, but it is still underdeveloped (when we compare it with advanced markets). Money Market is a significant part of Indian Debt market. Let’s explain the main problems in this sector and try to find solutions.

To begin with, the major participants of Indian Money Market are commercial banks, financial intermediaries, large corporates and RBI. We can see the structure in the Picture 1. [1]

RBI has a lot of functions as the regulator of authority. Money Market organization includes: Call market, Commercial Bill market, T-Bills market, Commercial Papers market and CDs. The main purpose of this article is to explain the main challenges of these different categories.

In fact, this market faced to many problems. Firstly, it is a market for short-term funds. Participants don’t  care about long-term profit; they try to maintain only temporary liquidity. 

Secondly, Indian Money Market consists of organized and unorganized sectors. Indeed, there is huge diversity in interest rates. According to specialists, it is the main disadvantage. There are differences in the rates within the organized sector. But in unorganized sector the rates are rather high and they differ with the purpose and borrower.

Thirdly, it is necessary to improve Call Money market as one of the main parts in the whole debt system. The trend of average rates is represented in the Picture 2 [3]. It depends on liquidity condition and the RBI intervention.

Luckily, the RBI takes steps to moderate liquidity and volatility in the Call market through REPOs and refinances operations. Table 1 provides information about rates of this instrument. [3]

Table 1 - The Repo, Reverse Repo in Indian Money Market, %



Effective Date


Bank Rate




















 Moreover, absence of organized Bill market requires changes in this sphere too. We can see slight decline in Yield of Transactions, according to Picture 3 [3]. Yields serve as a benchmark and help in pricing different floating rates instruments. Treasury Bills market need adjustments, because of lack of credit information agencies, administrative problems and small size of foreign trade.

As for foreign investors, India has been increasing the limits of foreign ownership of Indian bonds, but these measures still allow far less than other emerging markets, where foreign investors can own about 10-40% of government bonds. The development of this market is at the heart of growth of the Money market. [4]

Seasonality of Money market is the last, but not the least problem. [2] Agriculture is busy during the period between November and June, because there is heavy demand for funds. During this period money market suffers from shortage (rate of interest is rather high). There is also amount of black money which has influence on the shortage of funds. It goes without saying, RBI must reduce the seasonal fluctuations. All in all, in recent years development of banking has improved the mobilization of funds to some extent.

According to this research, Indian Debt market is a mixed blessing. This market is still underdeveloped, because it has a lot of serious problems to solve. But the short-term instruments are used very successfully. An important point is that the main advantage of investing in Indian Debt market is high liquidity.

It is important to remember that an effective Money Market requires the development of appropriate institutions, instruments and operating procedures (for example, it is necessary to develop mutual funds, liquidity adjustment facility and electronic transactions). So, the RBI takes measures to improve the structure of this market, it introduces reforms strengthen this area.



1.        Krishna Kumar Sharma [The Indian Money Market Paperback], Publ., Aug 2011, 306 p.  

2.        Characteristics and  Features of Indian Money Market, Available at: http://www.importantindia.com/12368/characteristics-and-features-of-indian-money-market/ (Accessed 30 November 2016).

3.        Reserve Bank of India (Statistics). Available at: https://www.rbi.org.in/Scripts/Statistics.aspx (Accessed 28 November 2016).

4.        The Wall Street Journal «India to Allow Foreign Investors to Buy More Government Debt», Available at: http://www.wsj.com/articles/india-to-allow-foreign-investors-to-buy-more-government-debt-1443519244 (Accessed 30 November 2016).