Indian Money Market & Development of Banking in India

Indian Money Market & Development of Banking in India

The money marketThe market encompassing the trading and issuance of short-term non-equity debt instruments, including treasury bills,

commercial paper, bankers’ acceptance, certificates of deposits etc. The market ..... is a mechanism that deals with the lending and borrowing of short term funds or debt securities (bankers acceptances, commercial paperA short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually ....., repos, negotiable certificates of deposit, and Treasury BillsA short term bearer discount security issued by governments as a means of financing their cash requirements. Treasury Bills play an important role in the ..... with a maturity of one year or less). Money market securities are generally very safe investments which return a relatively low interest rate that is most appropriate for temporary cash storage or short-term time horizons. BidAn offer of a price to buy as in an auction. Business on the Stock Exchange is done through bids. Bid also refers to the ..... and ask spreads are relatively small due to the large size and high liquidity of the market.

The Indian Money Market involves a wide range of instruments. The maturities range from one day to a year, issued by banks and corporates of various sizes. The money market is also closely linked with the Foreign ExchangeRegulated market place where capital market products are bought and sold through intermediaries. Market through the process of covered interest arbitrage(1) Technically, arbitrage consists of purchasing a commodity or security in one market for immediate sale in another market (deterministic arbitrage).  Popular usage has expanded ..... in which the forward premiumIf an investor buys a security for a price above its eventual value at maturity he has paid a premium for it. acts as a bridge between domestic and foreign interest ratesWhen a person borrows some money from another person, this money comes at an interest which can also be called the "Opportunity Cost" of the ......

In India Money market is divided in 3 parts broadly:

1. Reserve Bank of IndiaThe Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 with .....: It occupies the central position in Indian Money market. It regulates the control of the credit supply of the country.
2. Organized sector which comprises State bank of India and its 7 associate banks. , Other nationalized banks, Regional banks, rural banks and Cooperative banks.
3. Unorganized sector: it comprises money lenders and indigenous bankers.

Reserve Bank of India In 1926, the Royal Commission on Indian Currency and Finance which is also known as the Hilton-Young Commission recommended the creation of a central bank. .....:

The Reserve Bank of India Act, 1934 was enacted on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basisIn a futures market, basis is defined as the cash price (or spot price) of whatever is being traded minus its futures price for the ..... of the functioning of the Bank.

1. The central bank of the country is the Reserve Bank of India (RBI).
2. It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission.
3. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the begining.
4. The Government held shares of nominal value of Rs. 2,20,000.

With a view to have a cordinated regulation of Indian banking Indian Banking Act was passed in march 1949. To make RBI more powerful the Govt. of India nationalised RBI on January 1, 1949. The general superintendence and direction of the Bank is entrusted to Central Board of DirectorsRBI's business is overseen by Central Board of Directors, which delegates the functions to its committees and sub-committees. The Central Board of Directors is ..... of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi.

Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.

State Bank of India

State Bank of India (SBI) was nationalised in July 1955 under the SBI Act of 1955. Seven banks of SBI formed subsidiary and was nationalised on 19th July, 1960.

Note :

7 Associate banks of SBI :

1. State Bank of Bikaner & Jaipur
2. State Bank of Hyderabad
3. State Bank of Indore
4. State Bank of Mysore
5. State Bank of Saurastra
6. State Bank of Patiala
7. State Bank of Travancore

Nationalised Banks of India:
Imperial Bank of India was nationalised (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955.

Then on 19th July 1960, its seven subsidiaries were also nationalised with deposits over 200 crores.

However, the major nationalisation of banks happened in 1969 by the then-Prime Minister Indira Gandhi. The major objective behind nationalisation was to spread banking infrastructure in rural areas and make cheap finance available to Indian farmers.

The nationalised 14 major commercial banks were :

1. Bank of Baroda
2. Bank of India
3. Bank of Maharashtra
4. Canara Bank
5. Central Bank of India
6. Dena Bank
7. Indian Bank
8. Indian Overseas Bank
9. Punjab National Bank (PNB)
10. Syndicate Bank
11. UCO Bank
12. Union Bank of India
13. United Bank of India
14. Allhabad Bank

On April 15, 1980, the second phase of nationalisation of Indian banks took place, in which 6 private sector banks were nationalised with deposits over 200 crores. With this, the Government of India held a control over 91% of the banking industry in India. After the nationalisation of banks there was a huge jump in the deposits and advances with the banks.

1. Andhra Bank
2. Punjab & Sindh Bank
3. New Bank of India
4. Vijaya bank
5. Oriental Bank of Commerce
6. Corporation Bank

Latest Developments:

1. On September 4, 1993 Government of India merged the New Bank of India with Punjab National Bank.
2. On July 24, 2008 Govt. of India decided to issue an order sanctioning the Scheme of Acquisition of State Bank of Saurashtra by State Bank of India and to introduce Bill :-
   1. repealing the State Bank of Saurashtra Act, 1950 in the Parliament.
   2. to make consequential amendments in the State Bank of India (Subsidiary Banks) Act, 1959 to remove references to State Bank of Saurashtra wherever it occurs in the State Bank of India (Subsidiary) Banks Act, 1959. The Bill is called State Bank of India ( Subsidiary Banks) Amendment) Bill, 2008.
   State Bank of Saurashtra merged on 13 August 2008
3. On June 20, 2009 The State Bank of India (SBI) board has approved the mergerThe non-hostile and voluntary union of two companies. of its subsidiary, the State Bank of Indore, with itself. This would be the second acquisition by SBI of a subsidiary bank after the merger of State Bank of Saurashtra. The State Bank of Indore board, too, has approved the merger proposal. SBI holds 98.3% in the bank, and the balance 1.77% is owned by individuals, who held the shares prior to its takeover by the government.