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Indian Financial System

Notes 8. Primary Dealers (PDs)
9. Satellite Dealers (SDs)
Commercial banks and cooperative banks are the major participants operating as both lenders
and borrowers, while a large number of financial institutions and mutual funds are operating
only as lenders. The behaviour among banks in the market has not been found uniform. There
are some banks, mainly foreign banks and new private sector banks, which are active borrowers
and some public sector banks that are major lenders. Earlier, foreign banks operated in the call
money market primarily as lenders. But subsequently, they extended their participation as
borrowers for meeting CRR requirements. The problems faced by these banks in garnering
deposits through branch expansion and increase in the cost of servicing deposits have also kept
depositors away from call market till 1970 whereafter they have been participating in the
market on a regular basis.
In order to widen the participation of call money market and increase its depth, the RBI permitted
special institutions such as GIC, IDBI and NABARD to operate in the market as lenders with
effect from May 2, 1989, and 13 more institutions already operating in the bills rediscounting
market, were allowed in call money market as lenders from October 1990. The RBI also set up
new institutions, viz., DFHI, STC and money market mutual funds (MMMFs). DFHI was set up
in 1988 to take active part in the call money market operations by borrowing and lending call
funds. Call money rates were partially freed up in October 1988, when DFHI was permitted to
operate outside the purview of the ceiling rates fixed by the Indian Bankers Association (IBA).
The rates were made totally free and became market determined with effect from May 1, 1989.
So as to develop a secondary market in Government securities, DFHI started buying and selling
securities to a limited extent. The RBI decided to provide rediscounting facility to DFHI for this
purpose.

3.6.2 Participants in Treasury Bills Market in India

The participants in the Treasury bills market include the RBI, SBI, Commercial banks, State
governments and other approved bodies, DFHI, STCI, other financial institutions such as LIC,
UTI, GIC, NABARD, IDBI, IFCI, ICICI, etc., corporate entities and general public and foreign
institutional investors.
Among the above, the RBI plays predominant role in Treasury bill market buying/holding
over three-fourths of the total outstanding bills. Commercial banks are the next important
player as subscribers to such treasury bills followed by State governments and others. Treasury
bills are least popular among the corporate entities and the general public.

3.6.3 Participants in Commercial Bill Market in India

The following are the players of Indian bill market:
1. All Scheduled Commercial Banks
2. LIC and its subsidiaries

3. GIC and its subsidiaries
4. ICICI bank
5. UTI
6. IRCI

7. ECGC

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