INDIAN

FINANCIAL
SYSTEM
 FINANCE
The term "finance" in our simple understanding it is perceived as equivalent
to 'Money'. We read about Money and banking in Economics, about
Monetary Theory and Practice and about "Public Finance". But finance
exactly is not money; it is the source of providing funds for a particular
activity. Thus public finance does not mean the money with the
Government, but it refers to sources of raising revenue for the activities and
functions of a Government. Here some of the definitions of the word
'finance’ both as a source and as an activity i.e. as a noun and a verb.

• The American Heritage® Dictionary of the English

Language, Fourth Edition defines the term as under-

1:"The science of the management of money and other assets.";

2: "The management of money, banking, investments, and credit. ";
3: "finances Monetary resources; funds, especially those of a government or
corporate body"
4: "The supplying of funds or capital."
 • Finance as a function (i.e. verb) is defined by the same
dictionary as under-

1:"To provide or raise the funds or capital for": financed a new car
2: "To supply funds to": financing a daughter through law school.
3: "To furnish credit to".

• Another English Dictionary, "WordNet ® 1.6, ©

1997Princeton University " defines the term as under-

1:"the commercial activity of providing funds and capital"

2: "the branch of economics that studies the management of money and
other assets"
3: "the management of money and credit and banking and investments"

• The same dictionary also defines the term as a function in

similar words as under-

1: "obtain or provide money for;" " Can we finance the addition to our
home?"
2:"sell or provide on credit "
All definitions listed above refer to finance as a source of funding an
activity. In this respect providing or securing finance by itself is a distinct
activity or function, which results in Financial Management, Financial
Services and Financial Institutions. Finance therefore represents the
resources by way funds needed for a particular activity. We thus speak of
'finance' only in relation to a proposed activity. Finance goes with
commerce, business, banking etc. Finance is also referred to as "Funds" or
"Capital", when referring to the financial needs of a corporate body. When
we study finance as a subject for generalising its profile and attributes, we
distinguish between 'personal finance" and "corporate finance" i.e. resources
needed personally by an individual for his family and individual needs and
resources needed by a business organization to carry on its functions
intended for the achievement of its corporate goals.
INDIAN FINANCIAL SYSTEM

The economic development of a nation is reflected by the progress of the

various economic units, broadly classified into corporate sector, government
and household sector. While performing their activities these units will be
placed in a surplus/deficit/balanced budgetary situations.

There are areas or people with surplus funds and there are those with a
deficit. A financial system or financial sector functions as an intermediary
and facilitates the flow of funds from the areas of surplus to the areas of
deficit. A Financial System is a composition of various institutions,
markets, regulations and laws, practices, money manager, analysts,
transactions and claims and liabilities.

Financial System;

The word "system", in the term "financial system", implies a set of complex
and closely connected or interlined institutions, agents, practices, markets,
transactions, claims, and liabilities in the economy. The financial system is
concerned about money, credit and finance-the three terms are intimately
related yet are somewhat different from each other. Indian financial system
consists of financial market, financial instruments and financial
intermediation. These are briefly discussed below;

FINANCIAL MARKETS

A Financial Market can be defined as the market in which financial assets

are created or transferred. As against a real transaction that involves
exchange of money for real goods or services, a financial transaction
involves creation or transfer of a financial asset. Financial Assets or
Financial Instruments represents a claim to the payment of a sum of money
sometime in the future and /or periodic payment in the form of interest or
dividend.

Money Market

The money market ifs a wholesale debt market for low-risk, highly-liquid,
short-term instrument. Funds are available in this market for periods
ranging from a single day up to a year. This market is dominated mostly by
government, banks and financial institutions.

Capital Market

The capital market is designed to finance the long-term investments. The

transactions taking place in this market will be for periods over a year.

Forex Market

The Forex market deals with the multicurrency requirements, which are met
by the exchange of currencies. Depending on the exchange rate that is
applicable, the transfer of funds takes place in this market. This is one of the
most developed and integrated market across the globe.

Credit Market

Credit market is a place where banks, FIs and NBFCs purvey short, medium
and long-term loans to corporate and individuals.

Constituents of a Financial System

FINANCIAL INTERMEDIATION

Having designed the instrument, the issuer should then ensure that these
financial assets reach the ultimate investor in order to garner the requisite
amount. When the borrower of funds approaches the financial market to
raise funds, mere issue of securities will not suffice. Adequate information
of the issue, issuer and the security should be passed on to take place. There
should be a proper channel within the financial system to ensure such
transfer. To serve this purpose, Financial intermediaries came into
existence. Financial intermediation in the organized sector is conducted by a
wide range of institutions functioning under the overall surveillance of the
Reserve Bank of India. In the initial stages, the role of the intermediary was
mostly related to ensure transfer of funds from the lender to the borrower.
This service was offered by banks, FIs, brokers, and dealers. However, as
the financial system widened along with the developments taking place in
the financial markets, the scope of its operations also widened. Some of the
important intermediaries operating ink the financial markets include;
investment bankers, underwriters, stock exchanges, registrars, depositories,
custodians, portfolio managers, mutual funds, financial advertisers financial
consultants, primary dealers, satellite dealers, self regulatory organizations,
etc. Though the markets are different, there may be a few intermediaries
offering their services in move than one market e.g. underwriter. However,
the services offered by them vary from one market to another.
Intermediary Market Role
Secondary Market to
Stock Exchange Capital Market
securities
Corporate advisory
Capital Market, Credit
Investment Bankers services, Issue of
Market
securities
Capital Market, Money Subscribe to unsubscribed
Underwriters
Market portion of securities
Issue securities to the
Registrars, Depositories, investors on behalf of the
Capital Market
Custodians company and handle
share transfer activity
Primary Dealers Satellite Market making in
Money Market
Dealers government securities
Ensure exchange ink
Forex Dealers Forex Market
currencies
 What Constitutes the Money Market in India?

Money market refers to the market for short term assets that are close
substitutes of money, usually with maturities of less than a year. A well
functioning money market provides a relatively safe and steady income-
yielding avenue, for short term investment of funds both for banks and
corporate and allows the investor institutions to optimize the yield on
temporary surplus funds. The RBI is a regular player in the money market
and intervenes to regulate the liquidity and interest rates in the conduct of
monetary policy to achieve the broad objective of price stability, efficient
allocation of credit and a stable foreign exchange market. As per definition
given by RBI the money market is "the centre for dealings, mainly short-
term character, in money assets. It meets the short-term requirements of
borrower and provides liquidity or cash to the lenders. It is the place where
short-term surplus investible funds at the disposal of financial and other
institutions and individuals are bid by borrowers, again comprising
Institutions, individuals and also the Government itself" The main segments
of the money market are the call/notice money, term money, commercial
bills, treasury bills, commercial paper and certificate deposits. Mr.G.
Crowther in his treatise "An Outline of Money defines money market as "the
collective name given to the various firms and institutions that deal in the
various grades of near-money". The money market is as concrete as any
other market and one could see it in operation in London's Lambard Street
or New York's Wall Street. Typical of any other commodity market, there is
very close relationship between different segments of the money market,
(like bankers' Call Money market, commercial paper, treasury bills) that the
one is affected by the other. In other words different segments of the money-
market are broadly integrated.
MONEY MARKET INSTRUMENT

Call /Notice-Money Market

The most active segment of the money market has been the call money
market, where the day to day imbalances in the funds position of scheduled
commercial banks are eased out. The call notice money market has
graduated into a broad and vibrant institution .

Call/Notice money is the money borrowed or lent on demand for a very

short period. When money is borrowed or lent for a day, it is known as Call
(Overnight) Money. Intervening holidays and/or Sunday are excluded for
this purpose. Thus money, borrowed on a day and repaid on the next
working day, (irrespective of the number of intervening holidays) is "Call
Money". When money is borrowed or lent for more than a day and up to 14
days, it is "Notice Money". No collateral security is required to cover these
transactions.

The entry into this field is restricted by RBI. Commercial Banks, Co-
operative Banks and Primary Dealers are allowed to borrow and lend in this
market. Specified All-India Financial Institutions, Mutual Funds, and certain
specified entities are allowed to access to Call/Notice money market only as
lenders. Reserve Bank of India has recently taken steps to make the
call/notice money market completely inter-bank market. Hence the non-bank
entities will not be allowed access to this market beyond December 31,
2000.
From May 1, 1989, the interest rates in the call and the notice money market
are market determined. Interest rates in this market are highly sensitive to
the demand - supply factors. Within one fortnight, rates are known to have
moved from a low of 1 - 2 per cent to dizzy heights of over 140 per cent per
annum. Large intra-day variations are also not uncommon. Hence there is a
high degree of interest rate risk for participants. In view of the short tenure
of such transactions, both the borrowers and the lenders are required to have
current accounts with the Reserve Bank of India. This will facilitate quick
and timely debit and credit operations. The call market enables the banks
and institutions to even out their day to day deficits and surpluses of money.
Banks especially access the call market to borrow/lend money for adjusting
their cash reserve requirements (CRR). The lenders having steady inflow of
funds (e.g. LIC, UTI) look at the call market as an outlet for deploying funds
on short term basis.

Inter-Bank Term Money

Inter-bank market for deposits of maturity beyond 14 days is referred to as

the term money market. The entry restrictions are the same as those for
Call/Notice Money except that, as per existing regulations, the specified
entities are not allowed to lend beyond 14 days.

The market in this segment is presently not very deep. The declining spread
in lending operations, the volatility in the call money market with
accompanying risks in running asset/liability mismatches, the growing desire
for fixed interest rate borrowing by corporates, the move towards fuller
integration between forex and money markets, etc. are all the driving forces
for the development of the term money market. These, coupled with the
proposals for rationalisation of reserve requirements and stringent guidelines
by regulators/managements of institutions, in the asset/liability and interest
rate risk management, should stimulate the evolution of term money market
sooner than later. The DFHI (Discount & Finance House of India), as a
major player in the market, is putting in all efforts to activate this market.

Treasury Bills.

Treasury Bills are short term (up to one year) borrowing instruments of the
union government. It is an IOU of the Government. It is a promise by the
Government to pay a stated sum after expiry of the stated period from the
date of issue (14/91/182/364 days i.e. less than one year). They are issued at
a discount to the face value, and on maturity the face value is paid to the
holder. The rate of discount and the corresponding issue price are
determined at each auction.

The salient features of the auction system of T-Bills are :

• The 14/91/182/364-days bills are issued for a minimum value of

Rs.25,000 and multiples thereof.
• They are issued at a discount to face value.
• Any person in India including individuals, firms, companies,
corporate bodies, trusts and institutions can purchase the bills.
• The bills are eligible securities for SLR purposes.
• All bids above a cut-off price are accepted and bidders are permitted
to place multiple bids quoting different prices at each auction. Till
November 6, 1998, all types of T-Bills auctions were conducted by
means of 'Multiple Price Auction'. However, since November 6, 1998,
 auction of 91-days T-Bills are being conducted by means of 'Uniform
Price Auction'. In the case of 'Multiple Price Auction' method
successful bidders pay their own bid prices, whereas under 'Uniform
Price Auction' method, all successful bidders pay an uniform price,
i.e. the cut-off price emerged in the auction.
• The bills are generally issued in the form of SGL - entries in the books
of Reserve Bank of India. The SGL holdings can be transferred by
issuing a SGL transfer form. For non-SGL account holders, RBI has
been issuing the bills in scrip form.

French Auction or Multiple Price Auction System

After receiving written bids at various levels of yield expectations, a

particular yield is decided as the cut-off rate of the security in question.
Auction participants (bidders) who bid at yield levels lower than the yield
determined as cut-off get full allotment although at a premium. The
premium is equal to the yield differential expressed in rupee terms. The yield
differential is the difference between the cut-off yield and the yield at which
the bid is made. All bids made at yield levels higher than that determined as
cut-off yield get entirely rejected.

Dutch Auction or Uniform Price Auction System

This system of auction is exactly identical to that of the French Auction

System as far as the price discovery mechanism part is concerned. The
difference is observed only at the stage of payment obligation. After
determination of the market related cut-off rate, allotment is made to all the
bidders at a uniform price. The concept of premium on account of yield
differential does not exist here.
OTHER INSTRUMENTS

New money market instruments like Certificates of Deposits (CDs) and

Commercial Paper (CPs) were introduced in 1989-90 to give greater
flexibility to investors in the deployment of their short-term surplus funds

Certificates of Deposit

Certificates of Deposit (CDs) - introduced since June 1989 - are negotiable

term deposit certificates issued by a commercial banks/Financial Institutions
at discount to face value at market rates, with maturity ranging from 15 days
to one year.

Being securities in the form of promissory notes, transfer of title is easy, by

endorsement and delivery. Further, they are governed by the Negotiable
Instruments Act. As these certificates are the liabilities of commercial
banks/financial institutions, they make sound investments.

DFHI trades in these instruments in the secondary market. The market for
these instruments is not very deep, but quite often CDs are available in the
secondary market. DFHI is always willing to buy these instruments thereby
lending liquidity to the market.
 • Salient features:

• CDs can be issued to individuals, corporations, companies, trusts,

funds, associates, etc.
• NRIs can subscribe to CDs on non-repatriable basis.
• CDs attract stamp duty as applicable to negotiable instruments.
• Banks have to maintain SLR and CRR on the issue price of CDs. No
ceiling on the amount to be issued.
• The minimum issue size of CDs is Rs.5 lakhs and multiples thereof.
• CDs are transferable by endorsement and delivery.
• The minimum lock-in-period for CDs is 15 days.

CDs are issued by Banks, when the deposit growth is sluggish and credit
demand is high and a tightening trend in call rate is evident. CDs are
generally considered high cost liabilities and banks have recourse to them
only under tight liquidity conditions.

CPs enable highly rated corporate borrowers to diversify their sources of

short-term borrowings and raise a part of their requirement at competitive
rates from the market. The introduction of Commercial Paper (CP) in
January 1990 as an additional money market instrument was the first step
towards securitization of commercial bank's advances into marketable
instruments.

Commercial Papers are unsecured debts of corporate. They are issued in the
form of promissory notes, redeemable at par to the holder at maturity. Only
corporate who get an investment grade rating can issue CPs, as per RBI
rules. Though CPs are issued by corporate, they could be good investments,
if proper caution is exercised.

The market is generally segmented into the PSU CPs, i.e. those issued by
public sector unit and the private sector CPs. CPs issued by top rated
corporate are considered as sound investments.

DFHI trades in these certificates. It will buy these certificates, subject to its
perception of the instrument and will also be offering them for sale subject
to availability of stock.

Commercial Papers

Salient Features

• CPs are issued by companies in the form of usance promissory note,

redeemable at par to the holder on maturity.
• The tangible net worth of the issuing company should be not less than
Rs.4 crores.
• Working capital (fund based) limit of the company should not be less
than Rs.4 crores.
• Credit rating should be at least equivalent of P2/A2/PP2/Ind.D.2 or
higher from any approved rating agencies and should be more than 2
months old on the date of issue of CP.
• Corporates are allowed to issue CP up to 100% of their fund based
working capital limits.
• It is issued at a discount to face value.
• CP attracts stamp duty.
 • CP can be issued for maturities between 15 days and less than one
year from the date of issue.
• CP may be issued in the multiples of Rs.5 lakh.
• No prior approval of RBI is needed to issue CP and underwriting the
issue is not mandatory.
• All expenses (such as dealers' fees, rating agency fee and charges for
provision of stand-by facilities) for issue of CP are to be borne by the
issuing company,

The purpose of introduction of CP was to release the pressure on bank funds

for small and medium sized borrowers and at the same time allowing highly
rated companies to borrow directly from the market.

As in the case of CDs, the secondary market in CP has not developed to a

large extent.

Commercial Bills

Bills of exchange are negotiable instruments drawn by the seller (drawer) on

the buyer (drawee) for the value of the goods delivered to him. Such bills are
called trade bills. When trade bills are accepted by commercial banks, they
are called commercial bills. If the seller wishes to give some period for
payment, the bill would be payable at a future date (usance bill). During the
currency of the bill, if the seller is in need of funds, he may approach his
bank for discounting the bill. One of the methods of providing credit to
customers by bank is by discounting commercial bills at a prescribed
discount rate. The bank will receive the maturity proceeds (face value) of
discounted bill from the drawee. In the meanwhile, if the bank is in need of
funds, it can rediscount the bill already discounted by it in the commercial
bill rediscount market at the market related rediscount rate. (The RBI
introduced the Bill Market Scheme in 1952 and a new scheme called the Bill
Rediscounting Scheme in November 1970).

With a view to eliminating movement of papers and facilitating multiple

rediscounting, the RBI introduced an innovative instrument known as
"Derivative Usance Promissory Notes" backed by such eligible commercial
bills for required amounts and usance period (up to 90 days). Government
has exempted stamp duty on derivative usance promissory notes. This has
indeed simplified and streamlined the bill rediscounting by Institutions and
made commercial bill an active instrument in the secondary money market.
Rediscounting institutions have also advantages in that the derivative usance
promissory note, being a negotiable instrument issued by a bank, is good
security for investment. It is transferable by endorsement and delivery and
hence is liquid. Thanks to the existence of a secondary market the
rediscounting institution can further discount the bills anytime it wishes
prior to the date of maturity. In the bill rediscounting market, it is possible to
acquire bills having balance maturity period of different days upto 90 days.
Bills thus provide a smooth glide from call/overnight lending to short term
lending with security, liquidity and competitive return on investment. As
some banks were using the facility of rediscounting commercial bills and
derivative usance promissory notes for as short a period as one day merely a
substitute for call money, RBI has since restricted such rediscounting for a
minimum period of 15 days.

The eligibility criteria prescribed by the Reserve Bank of India for

rediscounting commercial bill inter-alia are that the bill should arise out of
genuine commercial transaction evidencing sale of goods and the maturity
date of the bill should not be more than 90 days from the date of
rediscounting.

RBI has widened the entry regulation for Bill Market by selectively
allowing, besides banks and PDs, Co-op Banks, mutual funds and financial
institutions.

DFHI trades in these instruments by rediscounting Derivative Usance

Promissory Notes (DPNs) drawn by commercial banks. DPNs which are
sold to investors may also be purchased by DFHI.

"Derivative Usance Promissory Notes"(DUPN)

IT is an innovative instrument issued by the RBI to eliminate movement of

papers and facilitating easy rediscounting. DUPN is backed by up to 90 days
Usance commercial bills. Government has exempted stamp duty on DUPN
to simplify and steam-line the instrument and to make it an active instrument
in the secondary market. The minimum rediscounting period is 15 days
Ready Forward Contracts (Repos)

Ready forward or Repo is a transaction in which the parties agree to buy and
sell the same security at an agreed price at a future date. It is a combination
of securities trading (involving a purchase and sale transaction) and money
market operation (lending and borrowing). The repo-rate represents the
borrowing/lending rate for use of the money in the intervening period.
Internationally repos are versatile instruments and used extensively in
money market operations. In India repos were discouraged by clamping
severe restrictions on their use on account of large-scale violations of laid
down guidelines leading to the 'securities scam' in 1992. However
subsequently repo trading was permitted to be resumed after plugging all
loopholes in their operation. All dated government securities are eligible for
trading in the repo market.

Repos can be for any period. While earlier there was a minimum period of 3
days, this has since been withdrawn. The RBI has been using repo
instrument effectively for its liquidity management, both for absorbing
liquidity and for injecting funds in to the system.
COVERAGE OF FINANCIAL SECTOR REFORMS

What constituents of the Financial Sector were covered by reforms? The

components of the financial markets that were chosen for effecting measures
under the reforms are:

1. Money Market
2. The Securities market (also called the debt market or
Government securities market).
3.

Objective Of Financial Sector Reforms By Government Of

India & RBI

To widen, deepen and integrate the different segments of financial sector,

namely, the money market, debt market (particularly Government securities)
and foreign exchange market.

Condition Of Money Market In The Pre-Reform Period

(Before 1991)

• Financial system functioned in an environment of constriction, driven

primarily by fiscal compulsions. It was geared to provide significant
support for Government expenditure.
• The monetary and debt management policy was underlined by
excessive monetisation of Central Government's fiscal deficit.
• Money and Govt. Securities market did not display any vibrancy and
had limited significance in the indirect conduct of monetary policy.
 • Money Market instruments were few
• Market had a narrow base and limited to a few participants -
commercial banks and six all India Financial Institutions
• Rate of interest on money market instruments was regulated.
• Money market instruments consisted of Treasury Bills (91-days T-
Bills) and term securities of different maturities issued by the Central
and State Governments.
• The average maturity of securities remained fairly long, that is above
20-years, reflecting the preference of more the Issuers than those of
the Investors
• Government borrowings were done at rates, which were far below the
market rates. For example, for 30-year securities the interest rate was
low at 6.5 per cent in 1977-78.
• The Policy led to distortions in the Banking System with high lending
rates on certain segments combined with relatively low interest rates
on deposits.

The Report of the Committee to Review the Working of the

Monetary System - 1985 (Sukkmoy Chakravarthi Committee)

The committee made several recommendations for the development of

money and government securities markets. As a follow up the RBI set up the
working group on money market (Chairman Mr.N.Vaghul), which submitted
its report in 1987
The working group recommended a four pronged strategy to activate the
money market.

1. Attempt to be made to widen and deepen the market by selective

increase in the number of participants
2. An endeavour to be made to activate existing instruments so as to
have a well-diversified mix of instruments suited to the different
requirements of borrowers and lenders.
3. A gradual shift from administered interest rates to market determined
rates.
4. to create an active secondary market for money and Securities,
through a process of establishing new sets of institutions, which
would impart sufficient liquidity to the system.

Follow up Measures initiated by R.B.I based on Chakravarthi

Committee and Vaghul Committee Reports during the period
1985-91

Measures taken to encouraging a secondary market in securities:

1. Maximum coupon rate, which was as low as 6.5 per cent in 1977-78,
was raised in stages to 11.5 per cent in 1985-86. Along with this the
maximum maturity period was reduced from 30 years to 20 years.
2. 182 days Treasury bills were introduced in November 1986 for the
first time
 3. The Discount and Finance House of India Ltd. was set up in April
1988 as a money market institution jointly by RBI, Public sector
banks and all India financial institutions, to develop a secondary
market for money market instruments and to provide liquidity to these
instruments.

Steps taken to strengthen Money Market

1. Interest rate ceiling was completely withdrawn for all operations in

the call/notice money market and also on rediscounting of commercial
bills in May 1989.
2. In May 1990 THE GIC, IDBI and NABARD were allowed to enter
the Call Money Market as lenders. Also 13 financial institutions,
which were already operating in the Bills Rediscounting Scheme,
were granted entry in the call money market as lenders in October
1990.
3. Certain other non-banking institutions were permitted in October 1991
to enter the call money market as lender through the DFHI
(Discounting and Finance of India Ltd.
4. New money market instruments viz. Certificate of Deposit (CD),
Commercial Paper (CP) and inter-bank participation certificates
entered the market in 1989-90. RBI framed guidelines for the issuance
of these instruments.
Recommendations of the Committee on Financial System (the
Narasimhan Committee)

A comprehensive package of stabilization and structural reform measures

was initiated by the Government in mid-1991, in the financial sector based
on the recommendations of the Narasimhan Committee. A second Report
was submitted by Narasimhan in 1987 called as the Report of Narasimhan
Committee II

Reforms with regards to Call, Notice, Term Money Market)

In pursuance of the recommendations of the Narasimhan Committee II, the

RBI has a taken a decision to restrict the call, notice, term money market as
a pure inter-bank market with additional access only to PDs. Steps have been
taken to phase out non-bank participants from the market by granting them
permission to operate in the repo market.

Reasons for the step

Since the withdrawal of the ceiling on the call rate, the call money rate has
shown a tendency to fluctuate significantly on occasions. The sharp
imbalances that arise in the demand and supply of money due to
combination of several factors have led to such volatile behaviour. The most
important of these has been bunching of banks' needs for short-term funds in
order to meet the CRR compliance.
Earlier steps by RBI to reduce instability in the Call Money Market
</P< span>>

In December 1992, RBI injected liquidity through the DFHI and the
Securities Trading Corporation of India. In subsequent years, RBI has been
moderating liquidity and volatalities through continuous use of repos and
refinance operations and changes in the procedure for maintenance of CRR
requirements.

Government Securities- Reform Process in Debt Management

As part of the reform process, debt management underwent significant

changes. The principal objectives of Debt Management were defined as
under :

a. to smoothen the maturity structure of debt

b. to enable debt to be raised at close to market rates
c. To improve the liquidity of government securities by developing an
active secondary market.
d. To make the government securities market vibrant, broad-based and
efficient in view of its role in setting a bench mark for the development of
the financial market as a whole and bringing about an effective and reliable
channel for the use of indirect instrument of monetary control.
Reforms in Primary market

• Auction system of issuing securities has been introduced for both

treasury bills and term securities since 1992-93, in order to pave the
way for market related rates of interest for government paper.
• The base for treasury bills market was widened with auctioning of
different types, introduction of 364-day TB in April 1992 and 91-day
TB in January 1993, and reintroduction of 182-day TBs in May, 1999.
• Funding of auctioned TBs into term securities at the option of holder
as part of debt management.
• New instruments such as Zero coupon bonds, tap stock, partly paid
tap and floating rate bonds were introduced.
• Bringing down the maximum maturity rate government securities
from 30 to 20 years.
• Developments of instruments for repurchase o agreements (repos)
between RBI and commercial banks beginning from December 1997.
• Since April 1997, a new approach was followed by the RBI in its open
market operations that is, sale/purchase operations in government
securities. In setting its price, the RBI responded to market
expectations. It was also prepared to purchase certain securities in
cash.

The effect of the above reform measures resulted in expanding the investor
base gradually to non-traditional investors. The auction system contributed
to a new treasury culture and progressive development of bidding and
portfolio management skills.
Reforms in Secondary market in Government Securities.

• A phased reduction in SLR requirements from an effective 37.4 per

cent in March 1992 to a little over 28 per cent in March 1996.It has
since been reduced to the statutory benchmark level of 25%.
• The DFHI was authorised to deal in government securities in 1992-93
• The Securities Trading Corporation of India (STCI) was set up in
1994 by the RBI jointly with public sector banks and all India
financial institutions with the main objective of fostering the
development of the government securities market (It commenced
operations in September 1994)
• Market transparency was achieved through regular publication of
details of SGL transactions in Government securities put though
Mumbai PDO since September 1994.
• After its establishment and becoming operational in June 1994, the
National Stock Exchange provided secondary market treading
facilities through its wholesale debt market segment.
• A system of Delivery Versus Payment (DVP) in Government
securities was introduced in Mumbai in June 1995 to ensure that the
transactions in government securities were fully secured.
• The Repo market has been activated by allowing repos/reverse repos
transactions in all government securities besides treasury bills of all
maturities.
• Non-bank entities which are holders of account with the RBI have
been allowed to enter reverse repo (but not direct) transactions with
banks/PDs
 • With a view to encouraging Mutual Funds to set up gilt funds in
government securities either by way of outright purchase or reverse
repos to the extent of 20 per cent of the outstanding investments.
• Guidelines for satellite dealers in government securities market were
announced in December 1996 And in April 1997 and the RBI granted
approval to 17 entities for registration as satellite dealers in
government securities, to promote/activate retailing in Government
securities

Primary Dealers in Government Securities

Two institutions - DFHI and STCI were accredited as PDs in March 1996
and subsequently four more PDs were allowed to come into operation - SBI
Gilts, PNB Gilts, Gilts Securities Trading Corporation, and ICICI Securities.
A scheme for payment of underwriting commission was introduced in May
1997 replacing earlier scheme for paying nominal commission.

In March 1995 the RBI announced guidelines for setting up of primary

dealers (PD) with the objectives of -

a. strengthening the infrastructure of the government securities market in

order to make it vibrant, liquid and broad based.
b. Ensuring development of underwriting and market capabilities of
government securities outside the RBI.
c. Improving the secondary market trading system, which could
contribute to price discovery, enhanced liquidity and to turn over and
encourage voluntary holdings of government securities outside the RBI.
d. Making PDs an effective conduit for conducting open market
operations.

The full extent of notified amount of the dated government securities were
offered for underwriting and the underwriting fees and amounts to be
allowed to each PD prior to auction of each security. In respect of TBs, the
PDs are required to give minimum holding commitments and fixed
underwriting fees are paid for successful bids. The RBI granted liquidity
support for PDs against their holding in SGL. Account.

Market trnsparency was established through regular publication of details of

SGL transactions in government securities put through at Mumbai PDO
since September 1994. The NSC which became operational in June 1994
also provided secondary market trading facilities through its wholesale debt
market segment since 1994-95.

Gudelines for satellite dealers in the government securities market were

announced in December 1996 and in April 1997. Satellite dealers in
government secuerities are expected to acticvate retailing of government
securities.
Satellite Dealer (SD)System Discontinued

In the Mid-term Review of October 2001, RBI announced its decision to

undertake a review of the Satellite Dealer (SD) system in consultation with
market participants. After obtaining the views of the Primary Dealers
Association of India (PDAI) and after further discussions in TAC and
considering their role in the present conditions, it has been decided to
discontinue the system. Accordingly: No new SDs will be licensed.Existing
SDs will be required to make action plans, satisfactory to RBI for
termination of their operations as SDs by May 31, 2002.
Money Market of India - Dated Government Securities

Governments (both central and the states) raise resources through issue of
market loans regularly. As these are the liabilities of Government of India
and the State Governments and because the repayment is made by RBI,
investment in these securities is considered safe and riskfree. These
securities are eligible as SLR investments. Since the date of maturity is
specified in the securities, these are known as dated Government securities.
The dated Government securities market in India has two segments :

1. Primary Market and

2. Secondary Market.

The Primary Market consists of the issuers of the securities, viz., Central and
Sate Government. The secondary market includes commercial banks,
financial institutions, insurance companies, Provident Funds, Trusts,
individuals, Primary Dealers and Reserve Bank of India.

DFHI buys, stocks and trades these securities regularly. Thus as on any day
government securities of any maturity can be purchased from or sold to
DFHI. Though the securities are initially floated for long terms, those
maturing in the near future can be bought as safe short term investments.

Investment in government securities is open to all types of investors

including individuals and there is a very active secondary market. All dated
Central and State Government securities are repo-able (can be traded in the
repo market). Thus these instruments are very liquid.
Further, as in the case of T-Bills, the transactions can be concluded over
telephone and investments parked in the Constituents SGL Account with
DFHI itself till maturity or resale. During last few years, Government of
India has issued new instruments such as Zero Coupon Bonds, Floating
Rates Bonds, Partly-paid Stocks, Capital Index Bonds, Tap Stock, etc.

The Role of Money Market in our National Economy

The money market is an integral part of the economy and it plays a vital role
in the development of the economy. This is endorsed by the fact that in the
less developed countries, money market too is undeveloped. Consequently,
in the absence of well-developed money market in these countries great
difficulty is experienced in pooling funds large enough to finance private
enterprise. Up to the latter half of the Eighties he money market in India was
lopsided. Reserve bank too the initiative and introduced financial sector
reforms to make the money market broad-based and integrated. These details
can be studied in the pages deal with Financial Sector Reforms

Definition of Technical Terms Used

Zero Coupon Bonds

Bonds issued at discount and repaid at face value. The difference between
the issue price and the redemption price represents the return to the investor.
No periodic interest payment is made. Zero Coupon Bonds bear no
reinvestment risk but they are prone to interest rate risk making their prices
highly volatile. The buyer of zero coupon bonds receives one and only one
payment, at maturity of the bond. In contrast, coupon bonds make a series of
periodic coupon payments to the buyer as well as paying face value at
maturity. Zero Coupon Bonds on auction basis was introduced in January
1994 by Government of India.

Floating Rate Bond

Floating Rate Bond is an instrument whose periodic interest or dividend

rates are indexed to some reference index such as Treasury security etc.
These instruments give a variable rate, a characteristic that allows both
issuer and investor to share the risk inherent in changing interest rates. The
volatility of interest rates have led to creation of these instruments designed
to offer some protection to the players. Thus, Floating Rate Bonds enable
investors to take advantage of movements in interest rates. Floating Rate
Bonds were introduced by Government of India on September 29, 1995
linking it to the 364 day Treasury Bill rate.

Tap Stock

A gilt edged security from an issue that has not been fully subscribed and is
released into the market slowly when its market price reaches predetermined
levels. Short taps are short dated stocks and long taps are long dated stocks.
These Stocks were introduced by Government of India on July 29, 1994.
Partly Paid Stock

An innovative instrument was (Government stock auctioned on November

15, 1994) for which the payment is made in instalments. It is designed for
institutions with regular flow of investible resources requiring regular
investment outlets. The instrument has attracted good market response and is
being traded actively.

Capital Indexed Bonds

These bonds were floated on December 29, 1997 on tap basis. The tap was
kept open upto 28th January 1998 and an amount of Rs.704.52 crore was
mobilised. These bonds are of four year maturity and carry a coupon rate of
6 per cent. The objective of the capital indexed bonds was to provide a
complete hedge against inflation for the principal amount of the investment.

Auction

A special market in which there is one seller and many buyers. An auction
sale is conducted by an auctioneer who permits buyers to bid one against
other, the goods going to the highest bidder. The auction system for the sale
of dated government securities is relatively new in India starting from June
2, 1992. The principal features of auction system in India are : wider
participation in the bidding process, a number of instruments sold under the
auction system (including 14 day, 91 day , 182 day and 364 day Treasury
Bills and dated securities of Government of India); bidders provide written
and sealed quotations restricted to notified amounts and the undersubscribed
portion of the notified amount devolving on the Primary Dealers (when
underwriting) and/or RBI, which conducts the auction.

Par Value (face value; nominal value)

It is the nominal price of a share or security. If the market value of a security

exceeds the par value it is said to be above par; if it falls below the par value
it is below par.

Premium

An amount in excess of the nominal value of the share, bond or security.

Discount

The amount by which the market price of a security is below its par value.

Multiple Price Auction

Under a multiple price auction, every bidder gets allocation according to his
bid and apparently the issuer collects a premium from all bidders quoting
lower than the cut-off yield. The drawbacks of the system is, occurrence of a
phenomenon called winner's curse.

Uniform Price Auction

In the case of this auction, competitive bids are accepted at the minimum
discounted price, called cut-off price, determined at the auction, irrespective
of the bid-prices tendered, below/at the cut-off price. This system eliminates
the problem of winner's curse.

Yield Curve

A curve on a graph in which the yield of fixed interest securities is plotted

against the length of time they have to run to maturity. The yield curve
usually slopes upwards indicating that investors expect to receive a premium
for holding securities that have a long time to run. However, when there are
expectations of changes in interest rate, the slope of the yield curve may
change.

Yield

The income from an investment. The nominal yield of a fixed interest

security is the interest it pays, expressed as a percentage of its par value.
However, the current yield (also called interest yield, running yield, earnings
yield or flat yield) will depend on the market price of the stock. Thus current
yield is equal to face value/market price x interest rate.

Cut-off Yield

Cut-off yield is the yield at which or below which the bids are accepted.

Redemption Yield

The redemption yield or yield to maturity covers the current yield plus the
capital gain or loss divided by the numbers of years to redemption.
Open Market Operations (OMO)

The purchase or sale by a Government of bonds (gilt edged securities) in

exchange for money. OMO is a flexible instrument of monetary policy
through which the Central Bank of a country, on its own initiative, can alter
the liquidity in the system by sale or purchase of marketable securities.

Derivatives

A financial instrument that is valued according to the expected price

movements of an underlying asset, which may be a commodity, currency or
a security. Derivatives can be used either to hedge a position or to establish
an open position. Examples of derivatives are futures, options, swaps, etc.

Futures

An agreement to buy or sell a fixed quantity of a particular commodity,

currency, or security for delivery at a fixed date in the future at a fixed price.
Unlike an option, a futures contract involves a definite purchase or sale and
not an option to buy or sell. However, futures provide an opportunity for
those who must purchase goods regularly to hedge against changes in price.

Options

The right to buy or sell a fixed quantity of a commodity, currency, security,

etc. at a particular date at a particular price (also called exercise price).
Unlike futures, the purchaser of an option is not obliged to buy or sell at the
exercise price and will only do so if it is profitable; the purchaser may allow
the option to lapse, in which case only the initial purchase price of the option
is lost. An option to buy is known as a call option and is usually purchased
in the expectation of a rising price; an option to sell is called a put option
and is bought in the expectation of a falling price.

Swaps

The means by which intending parties can exchange their cashflows, usually
through the intermediary of a bank. A currency swap will enable parties to
exchange the currency they possess for the currency they need. An interest
rate swap (IRS) is an agreement between two parties to exchange interest
obligations (or receipts) for a given national principal for a defined period.

Strips

"STRIPS" stands for separately Traded Registered Interest and Principal of

Securities Strips are created by separating the coupon from the principal and
trading them independently. Thus, if a conventional bond of five year
maturity has ten semi annual coupon payments and one payment of
principal, ten coupon STRIPS and one Principal STRIP will be created on
stripping the bond.

Bench-mark Rates

In developed markets, Treasury Bill rates set the course of other short term
rates in the system. In India, the cut-off yield rates arrived through the
competitive bids received in the auctions of Treasury Bills have emerged as
benchmark short term rates. Since April 1997 Bank Rate has been activated
as a bench-mark rate.

WHEN ISSUED MARKET

It refers to a security being allowed to be traded in the market well before its
actual date of issue, after the announcement about the issue.

Primary Dealers (PDs)

Primary Dealers are market makers in government securities. In India 2 PDs

(including DFHI) became fully operational from February 29, 1996, 4 PDs
from June 11, 1996 and 4 PDs from February 6, 1999 and 3 PDs from April
1999 - taking total number of PDs to 13. They have a minimum threshold
limit of Net Owned Funds of Rs.50 crore and are expected to strengthen the
government securities market by acting as underwriters and market makers
with commitments to bid in auctions and to offer two way quotes.(Presently
system ofsatellite dealers is withdrawn and not in vogue)

Satellite Dealers

Satellite Dealers form the second tier in government securities market after
PDs and are expected to provide a retail outlet for government securities
thereby encouraging voluntary holding of government securities among a
wider investor base. They have a lower minimum requirement of net owned
funds of Rs.5 crore. Nine Satellite Dealers have been registered with
Reserve Bank of India as on November 18, 1997. RBI have since abolished
the category of Satellite Dealers. There are now only primary Dealers.

Private Placements

Government may sell bonds by various ways. Some bone can be publicly
placed, whereas some bonds may be sold directly to one or only to few
buyers. When it is placed with few or one buyer it is referred to as private
placements.

Interest Rate Swaps and Forward Rate Agreements

An Interest Rate Swap (IRS) is a financial contract between two parties

exchanging or swapping a stream of interest payments for a 'notional
principal' amount on multiple occasions during a specified period. Such
contracts generally involve exchange of a 'fixed to floating' or 'floating to
floating' rates of interest. Accordingly, on each payment date that occurs
during the swap period-cash payments based on fixed/floating and floating
rates, are made by the parties to one another.

A Forward Rate Agreement (FRA) is a financial contract between two

parties to exchange interest payments for a 'notional principal' amount on
settlement date , for a specified period from start date to maturity date .
Accordingly , on the settlement date, cash payments based on contract
(fixed) and the settlement rate, are made by the parties to one another. The
settlement rate is the agreed bench-mark/ reference rate prevailing on the
settlement date.
Scheduled commercial banks (excluding Regional Rural Banks), primary
dealers (PDs), Mutual funds and all-India financial institutions (FIs) are free
to undertake FRAs/IRS as a product for their own balance sheet
management or for market making. Banks/FIs/PDs can also offer these
products to corporates for hedging their (corporates) own balance sheet
exposures.

The party intending to enter into IRS/FRA will have to collect all
information/documents relating to status of the Counterparty, duly executed
swap agreements etc.

1. Status of the counterparty:

Before entering into a deal, first determine whether the counterparty
has legal capacity, power and authority to enter into an interest rate
swap transaction. The Memorandum and Articles of Association,
Board resolution for authorisation of swap deals and signatures of
authorised persons should be obtained and scrutinised. Also a suitable
counterparty limit for entering into IRS/FRA has to be fixed.
2. Documentation :
The counterparties should sign ISDA master agreement before
entering into a swap deal. The parties should appropriately change the
Schedule to the agreement according to the terms and conditions
settled between them.
3. Accounting of IRS/FRA:
The parties can enter into swap deals for hedging interest rate risk on
their own portfolio or for market making. The parties should make
clear distinction between swaps that are entered into for hedging their
own balance sheet positions and more which are entered into for
trading. The transactions for market making purposes should be
marked to market (at least at fortnightly intervals), and those for
hedging purposes could be accounted for on accrual basis.
Money Market in India "Derivative Usance Promissory Notes"
(DUPN)

It is an innovative instrument issued by the RBI to eliminate movement of

papers and facilitating easy rediscounting. DUPN is backed by up to 90 days
Usance commercial bills. Government has exempted stamp duty on DUPN
to simplify and steam-line the instrument and to make it an active instrument
in the secondary market. The minimum rediscounting period is 15 days

Ready Forward Contracts (REPOS)

Ready forward or Repos or Buyback deal is a transaction in which two

parties agree to sell and repurchase the same security. Under such an
arrangement, the seller sells specified securities with an agreement to
repurchase the same at a mutually decided future date and a price. Similarly,
the buyer purchases the securities with an agreement to resell the same to the
seller on an agreed date in future at a prefixed price. For the purchaser of the
security, it becomes a Reverse Repo deal. In simple terms, it is recognised as
a buy back arrangement. In a standard ready forward transaction when a
bank sells its securities to a buyer it simultaneously enters into a contract
with him (the buyer) to repurchase them on a predetermined date and price
in the future. Both sale and repurchase prices of securities are determined
prior to entering into the deal. In return for the securities, the bank receives
cash from the buyer of the securities. It is a combination of securities trading
(involving a purchase and sale transaction) and money market operation
(lending and borrowing). The repo-rate represents the borrowing/lending
rate for use of the money in the intervening period. As the inflow of cash
from the ready forward transaction is used to meet temporary cash
requirement, such a transaction in essence is a short term cash management
technique.

The motivation for the banks and other organizations to enter into a ready
forward transaction is that it can finance the purchase of securities or
otherwise fund its requirements at relatively competitive rates. On account
of this reason the ready forward transaction is purely a money lending
operation. Under ready forward deal the seller of the security is the borrower
and the buyer is the lender of funds. Such a transaction offers benefits both
to the seller and the buyer. Seller gets the funds at a specified interest rate
and thus hedges himself against volatile rates without parting with his
security permanently (thereby avoiding any distressed sale) and the buyer
gets the security to meet his SLR requirements. In addition to pure funding
reasons, the ready forward transactions are often also resorted to manage
short term SLR mismatches.

Internationally, Repos are versatile instruments and used extensively in

money market operations. While inter-bank Repos were being allowed prior
to 1992 subject to certain regulations, there were large scale violation of laid
down guidelines leading to the 'securities scam' in 1992; this led
Government and RBI to clamp down severe restrictions on the usage of this
facility by the different market participants. With the plugging of loophole in
the operation, the conditions have been relaxed gradually.
RBI has prescribed that following factors have to be considered while
performing repo:

1. purchase and sale price should be in alignment with the ongoing

market rates
2. No sale of securities should be affected unless the securities are
actually held by the seller in his own investment portfolio.
3. Immediately on sale, the corresponding amount should be reduced
from the investment account of the seller.
4. The securities under repo should be marked to market on the balance
sheet date.

The relaxations over the years made by RBI with regard to repo transactions
are:

i. In addition to Treasury Bills, all central and State Government

securities are eligible for repo.
ii. Besides banks, PDs are allowed to undertake both repo/reverse repo
transactions.
iii. RBI has further widened the scope of participation in the repo market
to all the entities having SGL and Current with RBI, Mumbai, thus
increasing the number of eligible non-bank participants to 64.
iv. It was indicated in the 'Mid-Term Review' of October 1998 that in line
with the suggestion of the Narasimham Committe II, the Reserve
Bank will move towards a pure inter-bank (including PDs) call/notice
money market. In view of this non-bank entities will be allowed to
borrow and lend only through Repo and Reverse Repo. Hence
 permission of such entities to participate in call/notice money market
will be withdrawn from December 2000.
v. In terms of instruments, repos have also been permitted in PSU bonds
and private corporate debt securities provided they are held in
dematerialised from in a depository and the transactions are done in a
recognised stock exchange.

Apart from inter-bank repos RBI has been using this instrument effectively
for its liquidity management, both for absorbing liquidity and also for
injecting funds into the system. Thus, Repos and Reverse Repo are resorted
to by the RBI as a tool of liquidity control in the system. With a view to
absorbing surplus liquidity from the system in a flexible way and to prevent
interest rate arbitraging, RBI introduced a system of daily fixed rate repos
from November 29, 1997.

Reserve Bank of India was earlier providing liquidity support to PDs

through the reverse repo route. This procedure was also subsequently
dispensed with and Reserve Bank of India began giving liquidity support to
PDs through their holdings in SGL A/C. The liquidity support is presently
given to the Primary Dealers for a fixed quantum and at the Bank Rate based
on their bidding commitment and also on their past performance. For any
additional liquidity requirements Primary Dealers are allowed to participate
in the reverse repo auction under the Liquidity Adjustment Facility along
with Banks, introduced by RBI in June 2000.

The major players in the repo and reverse repurchase market tend to be
banks who have substantially huge portfolios of government securities.
Besides these players, primary dealers who often hold large inventories of
tradable government securities are also active players in the repo and reverse
repo market.

DFHI is very active in the Repo Market. It has been selling and purchasing
on repo basis T-Bills and eligible dated Government Securities.

Scheme of Liquidity Adjustment Facility

Pursuant to the recommendations of the Narasimham Committee Report on

Banking Reforms (Narasimham Committee II), it was decided in principle,
to introduce a Liquidity Adjustment Facility (LAF) operated through repo
and reverse repo since 5th June 2000.

Under this scheme, (i) Repo auctions (for absorption of liquidity) and (ii)
reverse repo auctions (for injection of liquidity) will be conducted on a daily
basis (except Saturdays). But for the intervening holidays and Fridays, the
repo tenor will be one day. On Friday, the auctions will be held for three
days maturity to cover the following Saturday and Sunday. With the
introduction of the Scheme, the existing Fixed Rate Repo has been
discontinued. The liquidity support extended to all scheduled commercial
banks (excluding RRBs) and Primary Dealers through Additional
Collaterialised Lending Facility (ACLF) and refinance/reverse repos under
Level II, have also been withdrawn. Export Refinance and Collateralised
Lending Facility (CLF) at Bank Rate will continue as per the existing
procedures. Like-wise, Primary Dealers will continue to avail of liquidity
support at level I at Bank Rate. The funds from the Facility are expected to
be used by the banks/PDs for their day-to-day mismatches in liquidity.
Interest rates in respect of both repos and reverse repos will be decided
through cut off rates emerging from auctions on "uniform price" basis
conducted by the Reserve Bank of India, at Mumbai
LATEST CHANGE IN RATE
Call Money rate
Date
(max)
10/26/2007 6.2
10/19/2007 6.64
10/12/2007 6.65
10/5/2007 6.55
9/28/2007 9.5
9/21/2007 8
9/14/2007 7.5
9/7/2007 6.58
8/31/2007 8.4
8/24/2007 45
8/17/2007 55
8/10/2007 6.75
8/3/2007 5
7/27/2007 1.5
7/20/2007 0.65
7/13/2007 4.75
7/6/2007 4.9
6/29/2007 9.5
6/22/2007 7.15
6/15/2007 4.75
6/8/2007 4
6/1/2007 8.1
5/25/2007 8.25
5/18/2007 9.5
5/11/2007 7.75
5/4/2007 14
4/27/2007 15
4/20/2007 20
4/13/2007 7.5
4/6/2007 16
 Rate %

0
10
20
30
40
50
4/6/2007
60
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007

Date
7/20/2007
7/27/2007
Call Money rate (max)

8/3/2007

Call Money rate (max)

8/10/2007
8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
 Call money rate
Date
(min)
10/26/2007 3.75
10/19/2007 3
10/12/2007 4
10/5/2007 4
9/28/2007 2.75
9/21/2007 5.5
9/14/2007 1
9/7/2007 5.25
8/31/2007 2.5
8/24/2007 4
8/17/2007 4.75
8/10/2007 2.5
8/3/2007 0.05
7/27/2007 0.1
7/20/2007 0.2
7/13/2007 0.01
7/6/2007 0.08
6/29/2007 0.3
6/22/2007 0.07
6/15/2007 0.5
6/8/2007 0.05
6/1/2007 0.1
5/25/2007 1.95
5/18/2007 3
5/11/2007 1
5/4/2007 5.25
4/27/2007 4
4/20/2007 5
4/13/2007 1.5
4/6/2007 5.25
 Rate

0
1
2
3
4
5
4/6/2007 6
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007

Date
7/20/2007
7/27/2007
Call money rate (min)

8/3/2007

Call money rate (min) 8/10/2007

8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
 Call Money Borrowing Rate
Date
(Max)
10/26/2007 6.2
10/19/2007 6.64
10/12/2007 6.65
10/5/2007 6.55
9/28/2007 9.5
9/21/2007 8
9/14/2007 7.5
9/7/2007 6.58
8/31/2007 8.4
8/24/2007 45
8/17/2007 55
8/10/2007 6.75
8/3/2007 5
7/27/2007 1.5
7/20/2007 0.65
7/13/2007 4.75
7/6/2007 4.9
6/29/2007 9.5
6/22/2007 7.15
6/15/2007 4.75
6/8/2007 4
6/1/2007 8.1
5/25/2007 8.25
5/18/2007 9.5
5/11/2007 7.75
5/4/2007 14
4/27/2007 15
4/20/2007 20
4/13/2007 7.5
4/6/2007 16
 Rate %

0
10
20
30
40
50
60
4/6/2007
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007

Date
7/20/2007

Series1
7/27/2007
8/3/2007
8/10/2007
Call money Market Bor. Max. Rate

8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
 Call Money Borrowing Rate
Date (Min)
10/26/2007 3.75
10/19/2007 3
10/12/2007 4
10/5/2007 4
9/28/2007 2.75
9/21/2007 5.5
9/14/2007 1
9/7/2007 5.25
8/31/2007 2.5
8/24/2007 4
8/17/2007 4.75
8/10/2007 2.5
8/3/2007 0.05
7/27/2007 0.1
7/20/2007 0.2
7/13/2007 0.01
7/6/2007 0.08
6/29/2007 0.3
6/22/2007 0.07
6/15/2007 0.5
6/8/2007 0.05
6/1/2007 0.1
5/25/2007 1.95
5/18/2007 3
5/11/2007 1
5/4/2007 5.25
4/27/2007 4
4/20/2007 5
4/13/2007 1.5
4/6/2007 5.25
 Rate %

0
1
2
3
4
5
6
4/6/2007
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007

Date
7/20/2007

Series1
7/27/2007
8/3/2007
8/10/2007
Call Money Market Bor. Min Rate

8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
Date C.R.R.
10/26/2007 7
10/19/2007 7
10/12/2007 7
10/5/2007 7
9/28/2007 7
9/21/2007 7
9/14/2007 7
9/7/2007 7
8/31/2007 7
8/24/2007 7
8/17/2007 7
8/10/2007 7
8/3/2007 6.5
7/27/2007 6.5
7/20/2007 6.5
7/13/2007 6.5
7/6/2007 6.5
6/29/2007 6.5
6/22/2007 6.5
6/15/2007 6.5
6/8/2007 6.5
6/1/2007 6.5
5/25/2007 6.5
5/18/2007 6.5
5/11/2007 6.5
5/4/2007 6.5
4/27/2007 6.25
4/20/2007 6.25
4/13/2007 6
4/6/2007 6
 Rate %

5.4
5.6
5.8
6
6.2
6.4
6.6
6.8
7
7.2
4/6/2007
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007
CRR

Date
7/20/2007

Series1
7/27/2007
8/3/2007
8/10/2007
8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
Date Deposit Rate Max
10/26/2007 9.5
10/19/2007 9.5
10/12/2007 9.5
10/5/2007 9.5
9/28/2007 9.5
9/21/2007 9.5
9/14/2007 9.5
9/7/2007 9.5
8/31/2007 9.5
8/24/2007 9.5
8/17/2007 9.5
8/10/2007 9.6
8/3/2007 9.6
7/27/2007 9.6
7/20/2007 13.25
7/13/2007 9.6
7/6/2007 9.6
6/29/2007 9.6
6/22/2007 9
6/15/2007 9
6/8/2007 9
6/1/2007 9
5/25/2007 9
5/18/2007 9
5/11/2007 9
5/4/2007 9
4/27/2007 9
4/20/2007 9
4/13/2007 9

4/6/2007 9
 Rate %

0
2
4
6
8
10
12
14
4/6/2007
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007

Date
7/20/2007
7/27/2007
Deposit rate Max

8/3/2007
8/10/2007
8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
 Deposit Rate
Date Min
10/26/2007 8
10/19/2007 8
10/12/2007 8
10/5/2007 8
9/28/2007 8
9/21/2007 8
9/14/2007 8
9/7/2007 8
8/31/2007 8
8/24/2007 8
8/17/2007 8
8/10/2007 7.5
8/3/2007 7.5
7/27/2007 7.5
7/20/2007 12.75
7/13/2007 7.5
7/6/2007 7.5
6/29/2007 7.5
6/22/2007 7.5
6/15/2007 7.5
6/8/2007 7.5
6/1/2007 7.5
5/25/2007 7.5
5/18/2007 7.5
5/11/2007 7.5
5/4/2007 7.5
4/27/2007 7.5
4/20/2007 7.5
4/13/2007 7.5
4/6/2007 7.5
 Rate %

0
2
4
6
8
10
12
14
4/6/2007
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007

Date
7/20/2007

Series1
Deposit rate Min

7/27/2007
8/3/2007
8/10/2007
8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007
 Rate %

0
10
20
30
40
50
60

4/6/2007
4/13/2007
4/20/2007
4/27/2007
5/4/2007
5/11/2007
5/18/2007
5/25/2007
6/1/2007
6/8/2007
6/15/2007
6/22/2007
6/29/2007
7/6/2007
7/13/2007
Date

7/20/2007
7/27/2007
IDBI Min Term Lending Rate

8/3/2007
8/10/2007
IDBI Min Term Lending Rate

8/17/2007
8/24/2007
8/31/2007
9/7/2007
9/14/2007
9/21/2007
9/28/2007
10/5/2007
10/12/2007
10/19/2007
10/26/2007