Money Market Products

Money Market Products: Money market products relate to raising and deploying short term resources with maturity Maximum 1 year. The money market products are:

1.    Call Money: It refers to Overnight placement. It needs to be repaid on Next Working Day. O/N MIBOR Rate is the indicative rate. Non bank players (FIs/MFs) are not eligible to participate.

2.    Notice Money: It is placement of funds beyond overnight up to maximum period of 14 days.

3.    Term Money: It deals with placement of funds in excess of 14 days up to 1 year. 1 to 6 month products are very common.

Other Money Market Products:

1.    Treasury Bills:

·         These are issued by Govt. of India through RBI.

·         Tenure is 91Days, 182 Days and 364 Days.

·         These are issued at Discount in auction.

·         Banks and PDs participate in the auction.

·         The auction is also available to all financial players (FIs/MFs/Corporate).

·         Auction takes place on Wednesday every week in case of 91 days bills.

·         It takes place on Wednesday every Fortnight in case of 182 D and 364 D bills.

2.    Commercial Papers & 3. Certificates of Deposits

CP and CD

              Commercial Papers – CP:

·    CP is issued by Corporate with Net Worth minimum 4

Crore, Rating min.P2 (now A2) and availing WC limit from

any bank.

·       CP is issued with tenure 7 Days to 1 year.

·     CP is issued in multiples of Rs. 5.00 lac.

·    CP is Promissory Note and is Negotiable and also attracts

Stamp Duty.

·     It is fairly active in Secondary market.

·    It is in Demat form and the price is less than Face Value.

Certificate of Deposit – CD

                 ·    CD is issued by banks

·     CD is issued with tenure 7 Days to 1 year.

·     CD is issued in multiples of Rs. 1.00 lac

·    CD is Promissory Note and is Negotiable and also attracts

Stamp Duty.

·    CD is not very active in Secondary market

3.    LAF – Repo and Reverse Repo

It is Lending and Borrowing money for short term period (1 day to 1 year)

Under Repo, RBI purchases securities with commitment to sell at a later date in order to Inject Liquidity. Presently, Govt. securities are dealt with. All Repo transactions are routed through CCIL. RBI has permitted Repo in Corporate securities for only ―AA‖ rated companies. But the market is yet to be activated.

Under Reverse Repo, RBI sells securities with a commitment to buy at a later date in order to Contain Liquidity.

Repo and Reverse Repo transactions are generally conducted for Overnight period through Auction Twice Daily. The minimum Bid is Rs. 5.00 crore and its multiples. Margin is normally 5%.

(Total available funds to a bank under LAF will be capped at 0.5% of NDTL w.e.f. 24.7.2013)

Latest Repo Guidelines as per Monetary policy dt. 3.6.2014

·         Cap of Overnight Repo reduced from 0.5 % to 0.25% of NDTL

·         Continuation of Term Repo up to 0.75% (cap) of NDTL under 7 days to 14 days term repos.

4.    CBLO : Collateralized Borrowings and Lending Obligations:

It is money market instrument launched by CCIL. Borrower can deposit G-sec with CCIL and borrow funds from others who have surplus funds subject to re-purchase of securities. The tenure is 1 day to 1 year.

Bills Rediscounting:

Treasury re-discounts bills which are already discounted by other banks. The tenure is 3-6 months.