MONEY MARKET INSTRUMENTS :

CALL / TERM MONEY, CD / CP

 SEQUENCE OF PRESENTATION

 Introduction
 Call Money
 Term Money
 Commercial Papers (CPs)
 Certificate of Deposit (CD)
 Conclusion
 Quiz
01/13/2022 2
Introduction
 INTRODUCTION

 Financial System
• A Link Between Saving-surplus Units and
Saving –deficit Units
• Stimulate Capital Formation
• Accelerate Economic Growth

 Pillars of Financial System

• Financial Intermediaries
• Financial Markets
• Financial Instruments

01/13/2022 4
Organization of Indian Financial System

Indian Financial System

Financial Intermediaries Financial Markets Financial Assets

/Instruments
-Banks
Money Capital -Primary Direct
-NBFCs Market Market (Shares, Debentures)

-Mutual Funds - Indirect

-Call Market -Primary
-T Bill Market (Mutual Fund Units,
Market/ New
- Insurance Sector - Bills Market Security Receipts,
Issue Market
-Commercial Securitized Debt
Papers -Secondary/ Instruments)
-Repo Stock Market/
- Derivatives
-T-Bills
-CBLO (Forward, Futures,
01/13/2022 Options) 5
 MONEY MARKET

 Market for assets, close substitutes of Cash

 Caters to short term requirements
 Need Based Market, demand and supply decides the
rates
 Ensures following:-
• Provides balancing of demand and supply for short
term funds
• Focal Point for RBI’s intervention to influence interest
rates and liquidity in the Market
• Provides Access to Suppliers and users of short
funds
• Allows transmission of Monetary policy to the Indian
economy
01/13/2022 6
 Money / Capital MARKETS

Money Markets
•Maturity Period < 1 year
•Call Money / Notice Money/Term Money
•CPs Unsecured
•CDs
•Repos
•Treasury Bills
Secured
•Collateralised Borrowing & Lending Operations

Capital Markets
•Maturity Period > 1 Year
•Treasury Bonds
•Long Term Corporate Bonds
•Equity / Shares
01/13/2022 7
 MONEY MARKET
INSTRUMENTS

Call Money/ Notice Money / Term Money

Certificate of Deposits (CDs)
Commercial Papers (CPs)

01/13/2022 8
 CALL / NOTICE MONEY

• Maturity Period – 1 Day to Fortnight

•
Participant Borrow Lend
Banks (Excl RRBs) Yes Yes
Primary Dealers Yes Yes
Cooperative Banks (Less Land Development Banks) Yes No

Note – Non-Banking financial institutions not permitted

• Over the counter operations. No Exchange, no broker
• No collateral required, unsecured loans
• Highly Risky, volatile & liquid (next only to cash)
• Funds repayable on demand

01/13/2022 9
 TERM MONEY

• Maturity Period – from 15 days to one year

• Funds Normally traded for 3 to 6 months period
• Participatory Institutes
- IDBI, ICICI, IFCI, IIBI, SIDBI, EXIM Bank
- NABARD, IDFC, NHB

01/13/2022 10
 WHY CALL / NOTICE MONEY MARKET

• Why Call / Notice Money

• Maintenance of CRR - Enables Banks to Lend
surplus funds /borrow deficient funds (meet CRR
requirement)
• Factors determining Call Rates
• Other Money Market Instruments
• Forex Markets
• Liquidity Conditions
• CRR Requirements

01/13/2022 11
 REGULATION OF CALL / NOTICE MONEY
MARKET
• RBI - Financial Markets Regulation Department (FMRD) .
RBI Circular No RBI/2015-16/55 FMRD.DIRD. 01 /14.01.001/2015-16
dated Jul 01, 2015. (www.mastercirculars.rbi.org.in, n.d.)
• Indirect regulation
• How does RBI Regulate Call / Notice Money Market
• By setting Buying & Lending limits
• By streamlining Call Rates
• FIMMDA Handbook on interest calculation
• Reference Rate – NSE MIBID / MOBOR
• Repos / Reverse Repo – Liquidity Adjustment Facility
• Freeing of Inter Bank Liability from calculation of reserve
requirement
• Ensuring Transparency - National Dealing System (Call) (NDS-
CALL)
01/13/2022 12
 COMMERCIAL PAPERS
(CPs)

01/13/2022 17
 COMMERCIAL PAPERs

• Short Term (7 days to 1 Year), Unsecured money

market instrument issued in the form of a promissory
note
• Who can issue CP
• Companies (including NBFCs) and All India Financial
Institutions.
• Coop Scieties, Govt. Enties Trusts and LLPs with minimum
NW of Rs.100 Cr.
• Qualifying criteria for issuing CPs:-
• Tangible NW > Rs 4 Cr
• Sanctioned Working Capital Limit by Banks / AFI
• Borrowing account of Company is classified as Standard
Asset by Lending Bank / AFI
• Minimum Credit Rating – A2
01/13/2022 18
 SAMPLE OF COMMERCIAL PAPER

Reliable Technologies Limited

Sl. No….
Issued at Mumbai Date of Issue: 12/08/2018
Maturity Date: 12/12/2018

For value received, Reliable Technologies Limited hereby promises

to pay to State Bank or order, on the maturity date as specified
above a sum of Rs.100 Crores (Rs. One hundred crores) upon
presentation and surrender of this Commercial Paper to SBI
Capital Markets Ltd.

For and on behalf of Reliable Technologies

Authorised signatories.

01/13/2022 19
 COMMERCIAL PAPERs

• Limit
• As approved by its Board of Directors
or
• Quantum indicated by the Credit Rating Agency for the
specified rating
whichever is lower
• Minimum Denomination – Rs.5 Lakh or multiples
• Duration for which CP are open – Two weeks from
date of opening
• Can be issued multiple number of times, however
with same maturity date
• Scheduled Commercial Bank is nominated as Issuing
and Paying Agent
01/13/2022 20
 COMMERCIAL PAPERs

• Subscribers
• Individuals
• Banking Companies
• Other Corporate Bodies (registered or incorporated in India)
and unincorporated bodies
• Non-Resident Indians (NRIs)
• Foreign Institutional Investors (FIIs) within the limits set
SEBI from time-to-time
• Issued at Discount to Face Value
• Tradable in secondary market
• OTC transaction to be reported on FIMMDA
platform within 15 mins of transaction

01/13/2022 21
 CERTIFICATE OF DEPOSIT

01/13/2022 22
 CERTIFICATE OF DEPOSIT (CD)
• Short Term (7 days to 1 Year), negotiable money market
instrument issued in the form of a promissory note /
Demat Form
• Issued by:-
• Scheduled Commercial Banks, other than RRBs & Local Area
Banks
• Selected Financial Institutions (FIs) ( Maturity 1 to 3 Yrs)

• Limits:-
• Min amount – 1 Lakh & multiples
• Banks as per their requirement
• AIFI – As per RBI Limit. CD together with other instruments, viz.
term money, term deposits, commercial papers and inter-corporate
deposits should not exceed 100 per cent of its net-owned funds, as
per the latest audited balance sheet
01/13/2022 23
 CERTIFICATE OF DEPOSIT

• Subscribers
• Individuals
• Corporations
• Corporate Bodies
• Funds
• Issued at Discount to Face Value
• Tradable in secondary market
• There is no lock-in period for certificates of deposit
• Banks/FIs cannot grant loans against CDs.
• They cannot buy back their own CDs before maturity.
• Banks need to maintain cash reserve ratio (CRR) and
statutory liquidity ratio (SLR), on the issue price of the
CDs.
01/13/2022 24
 CONCLUSION

01/13/2022 25
 Money Market Data :13 Aug 18

MONEY MARKET INSTRUMENTS Volume Weighted

(One Leg) Average Range
Rate
Overnight Segment
(I+II+III+IV) 1,868.96 6.35 5.00-6.50
I. Call Money 168.32 6.34 5.00-6.50
A. II. Collateralised Borrowing
and Lending Obligation
(CBLO) 1,294.49 6.34 6.20-6.44
III. Market Repo 406.15 6.40 5.50-6.50
IV. Repo in Corporate Bond 0.00
Term Segment
I. Notice Money** 2.63 6.20 5.50-6.45
II. Term Money@@ 9.11 - 6.50-7.40
B. III. CBLO 0.00 - -
IV. Market Repo 2.50 6.10 6.10-6.10

V. Repo in Corporate Bond 0.72 8.71 7.90-8.80

(Amount in Rupees billion, Rate in Per cent)
 Money Market : Aug 18
Liquidity Adjustment Facility OMO (Outright) Net
Date Repo Reve Variabl Variable Sale Purchase Injection
rse e Rate Rate (+)/
Rep Repo Reverse Absorption
o Repo MSF M SS
SLF (–)
(1+3+5+6+9
–2–4–7–8)
1 2 3 4 5 6 7 8 9 10

Aug. 6, 44.16 289.94 – 155.50 – – – – – –401.28

2018
Aug. 7, 42.81 103.20 67.25 30.04 – – – – – –23.18
2018
Aug. 8, 89.41 37.47 – – 17.23 –0.60 – – – 68.57
2018
Aug. 9, 194.80 85.93 – – – 0.85 – – – 109.72
2018
Aug. 38.41 260.24 149.50 239.62 0.55 – – – – –311.40
10,
2018

(Amount in Rupees billion, Rate in Per cent)

 Summary: Money Market

Instrume Secured/ Maturit OTC / Discounte Eligibility Subscriber

nts Unsecured y Period Exch d s
Call/ Notice Unsecured Overnigh OTC Interbank Banks, PDs, Banks
Money t/ 14 Call Money Cooperative
days Rate Banks
Term Money Unsecured 15 days - OTC Term Rate Banks, PDs, Banks
1 yr Cooperative
Banks
Commercial Unsecured 7 days – Traded Face Value Corporate, Individuals,
Paper 1 Yr in Sec FIs, Fin Inst Banks,
Mkt 5 Lakh and Corporates,
its Multiples FII, NRIs
Certificate Unsecured 7 days – Traded Face Value Banks, FIs Individuals,
of Deposits 1 Yr in Sec Corporates,
Mkt 1 Lakh and Funds
its Multiples

01/13/2022 28
 Multiple Choice Question

Question 1

• Which of Following Money Market Instruments do

not need collaterals
(a) Call Money
(b) Commercial Paper
(c) Both (a) and (b)
(d) None of the above

01/13/2022 29
 Multiple Choice Question

Question 2

• Certificate of Deposits can be issued by :-

(a) Commercial Banks
(b) Financial Institutes
(c) Regional Rural Banks
(d) Both (a) and (b)

01/13/2022 30
 Multiple Choice Question

Question 3

• Banks resort to which Money Market instrument to

ensure CRR is maintained
(a) Commercial Papers
(b) Certificate of Deposits
(c) Term Money
(d) Call Money

01/13/2022 31
 Multiple Choice Question

Question 4

• Financial Institutes can make use which of the

following Money Market Instruments for short term
funding
(a) Call Money/ Notice Money
(b) Term Money
(c) Certificate of Deposits
(d) All of the Above

01/13/2022 32
 Multiple Choice Question

Question 5

• Which of Following is not True with regard to Call

Money
(a) Call Money deals with over night loans
(b) FIs like UTI, LIC, GIC can borrow in Call Money
to cater for short term funds
(c) Call loans are made with collaterals
(d) Interbank Call Money rates are decided by Call
Money market as per Demand and Supply
01/13/2022 33
 Multiple Choice Question

Question 6

• Which of the following is not a Qualifying criteria for

issue of Commercial Paper is :-
(a) Net Worth not less than 4 Crores
(b) Minimum credit rating of A-1 as prescribed by
SEBI
(c) Company has sanctioned working capital limit
by Banks/ FIs
(d) Borrowing Account specified as Standard Asset
by Financing bank / FIs
01/13/2022 34
 Multiple Choice Question

Question 7

• In which of Following instrument the Rate of return

calculated on ‘Discount Basis’
(a) Commercial Bills
(b) Certificate of Deposits
(c) Both (a) and (b)
(d) Only (a) and not (b)

01/13/2022 35
 Multiple Choice Question

Question 8

• Certificate of deposits have to be minimum value of

(a) Rupees 1 Lakh and its multiples
(b) Rupees 5 Lakhs and its multiples
(c) Rupees 25 Lakhs and its multiples
(c) Rupees 1 Crore and its multiples

01/13/2022 36
 Multiple Choice Question

Question 9

• Which of Following Money Market Instruments can

be traded in the secondary market
(a) Call Money
(b) Certificate of Deposits
(c) Term Money
(c) Notice Money

01/13/2022 37
 Multiple Choice Question

Question 10

• Which of the following is true with respect to

Certificate of Deposits (CDs) :-
(a) Banks and FIs cannot buyback their own CDs,
before Maturity
(b) Banks and FIs can grant loans against CDs
(c) Both (a) and (b)
(d) None of the above

01/13/2022 38
 THANKS

01/13/2022 39