NON-BANKING NON-FINANCIAL INSTITUTIONS

Non-banking non–financial institutions are providing fee-based services to the public, such as merchant banking, underwriting, counseling, etc. These institutions will not lending any financial assistance to the public but they will provide financially services.

FINANCIAL MARKETS

Financial market deals in financial securities or instruments and financial services. It may be variously classified as primary and secondary, money markets and capital markets, organized and unorganized markets official and parallel markets, and foreign and domestic markets. The financial market provides money and capital supply to the industrial concern as well as promote the savings and investments habits of the public. In simple cases, the financial market is a market which deals with various financial instruments (share,

debenture, bonds, treasury bills, commercial bills, etc.) and financial services (merchant banking, underwriting, etc). Financial markets may be divided into two major classifications:

1. Stock exchanges,

2. Money market,

3. Bond market,

4. Foreign exchange, and

5. Interbank market

A. Capital market B. Money market

FINANCIAL MARKETS

1) Stock exchanges,

A stock exchange provides a facility for trading and investing in sport and future market. Instruments that are stocks, commodities, and currencies. Future and options of these instruments are part of the future segment of the market.

On June 15, 1998, National Stock Exchange launched two new Reference Rates for the loans of Inter-Bank Call Money Market. These rates are Mumbai Inter-Bank Offer Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID). MIBOR will be the indicator of Landing The rate for loans which MIBID will be the landing rate of receipts.

2) Money market,

The money market in India is a marketplace for short duration funds requirements. The instruments of money markets have in general maturities that range from overnight to a year. Instruments include treasury bills, call money, commercial papers, certificate of deposits, reports, interest rate swaps, cash management bills

3) Bond market,

In India, the bond market is also known as the debt market. Here, in the bond market along with government bonds, corporate bonds are also traded. Some mutual funds schemes also deal exclusively with bonds. So we can consider them as a subpart of the Indian bond market. However, government bonds dominate the Indian bond market.

1. Government bond market

2. Municipal bond market

3. Corporate bond market

4. Funding bond market

5. Mortgage-backed and collateral debt obligation bond market

4) Foreign exchange market

The foreign exchange market is also known as the international currency market. Here in this market you can buy and sell international currencies. We also call it the Forex market.

5) Interbank market

Interbank market is mainly for banks. Here banks exchanges and trades different foreign currencies with each other.

Recommended for you Market Segmentation

Among institutions, we may refer to the following:

1. Commercial banks are important investors, but are largely interested in government securities and, to a small extent, debentures of companies.

2. LIC and GIC are growing importance in the Indian capital market, though their major interest is still in government securities.

3. Provident funds constitute a major medium of savings but their investments are mostly in government securities.

4. Special institutions set up since Independence, viz. the IFCI, ICICI, IDBI, UTI etc., all these aim at providing long-term capital to the private sector.

B)
1. Call money market: It is the market for very short-term funds repayable on demand and with the maturity period is less than 15 days. A call money market is mainly located in major industrial and commercial areas like Delhi, Mumbai, Kolkatta, Chennai and Ahmedabad.

2. Treasury bill market: Treasury bills are also one of the short-term financial instruments, which deal in the money market. Treasury bill is a kind of finance bill

or promissory note issued by the government to raise short-term funds. Treasury bills duration vary from 14 days to 364 days. Traditionally, the Indian money market had suffered from the inadequacy of short term credit instruments. On the recommendations of the Vaghul Working Group, the RBI has introduced many new money market instruments.

Recommended for you Market Segmentation

Treasury bills: Instruments for short-term borrowing by the government. The bills are promissory notes to pay to the bearer after the maturity period. The bills are issued by tender to the Money Market and Government Departments. Tenders are invited every week from bankers, discount houses and brokers. The Treasury Bills provide the government with a highly flexible and relatively cheap means of borrowing money to meet its fluctuating needs for cash. In the past, there were only 91days treasury bills, which were traded in the Indian

money market. The new instruments introduced by the RBI are 182 days treasury bills, 364 days treasury bills, longer maturity treasury bills, dated Governments

securities, certificates of deposits and commercial paper. At one time, the demand for the treasury bills by commercial banks was solely governed by the Statutory Liquidity Ratio (SLR) considerations. This is not true anymore. Besides, the secondary market transactions in them are being increasingly driven by the felt-need for effective management of short-term liquidity by the

commercial banks.

182 days treasury bills were variable interest bills and were sold through fortnightly auctions. The yield of these long-dated papers had become attractive for a highly liquid instrument. These were replaced by 364 days treasury bills.

364 days treasury bills there is a considerable scope for banks and financial institutions to be interested in long-dated bills, as they are far superior to their loan

assets and investments which cannot be easily liquidated in times of need, without incurring heavy losses. The 364 days Treasury Bills have thus become an important instrument of Government borrowing from the market and also leading money market instrument in the sense that their yield is most reflective of market conditions. Financial institutions recognize the yield rate on 364 days Treasury Bills–at present around 12.5 to 13 percent–as anchor rate on the basis of which interest rate instruments are floated.

The fortnightly offerings of these bills bring in, annually, about Rs. 20,000 crores to the Government. These bills are entirely held by the market and RBI does not

subscribe to them. RBI introduced two more Treasury Bills in 1997: (i) 14 days

Intermediate Treasury Bills from April 1997 at a discount rate equivalent to the rate of interest on ways and means advances to the Government of India–these

bills cater to the needs of State Governments, foreign central banks and other specified bodies (these have surplus funds which can be invested for very short

periods),

(ii) A new category of 14 days Treasury Bills, sold through an action for the first time in June 1997 to meet the cash management requirements of various sections of the economy.

Dated Government Securities: The government of India has also decided to sell dated securities (of 5 year maturity and 10 maturities) on an auction basis. The purpose of this Government decision is:

(i) to develop dated securities as a monetary instrument with flexible yields;

(ii) to provide financial instruments to suit investors’ expectations; and

(iii) to meet Government needs directly from the market.

A very interesting development is the introduction of repurchase auctions (Repos, for short), since December 1992, in respect of Central Government dated securities. Repos are now a regular feature of RBI’s market operations. One purpose of Repos is to even out short term fluctuations in liquidity of the money market.

When Government securities are repurchased from the market, RBI makes payment to commercial banks and this adds to their liquidity. Repos are developing into a useful instrument to even out sharp fluctuations in the money market.
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