Q.Describe the structure of the Indian money market.
The Indian money market is traditionally described as having two broad segments:
1. Organised sector — the segment operating under the direct regulation and supervision of the RBI. It comprises:
- The Reserve Bank of India itself, at the apex.
- Commercial banks — public sector, private sector, and foreign banks operating in India.
- Co-operative banks and specialised financial institutions.
- The call money market, in which these institutions borrow and lend funds among themselves for extremely short periods (often overnight) to manage day-to-day liquidity.
2. Unorganised sector — the segment operating largely outside the RBI's direct regulatory framework. It comprises:
- Indigenous bankers, who combine banking, trading, and moneylending activities, especially in smaller towns.
- Moneylenders and other unregulated lenders, who continue to meet a real share of short-term credit demand, particularly in rural and semi-urban India.
The unorganised sector's interest rates and lending practices are far less standardised than the organised sector's, and the two segments have historically not been well integrated — a gap that Indian money market reforms since the 1980s have worked to narrow, though not fully eliminate, since a well-integrated structure is essential for RBI monetary policy to transmit effectively across the whole economy.
The Indian money market has an organised sector (RBI, commercial banks, co-operative banks, and the call money market — directly RBI-regulated) and an unorganised sector (indigenous bankers and moneylenders — largely outside that regulatory framework), historically weakly integrated with each other.
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