Page 46 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 3: Financial Markets

8. IDBI bank Notes
9. SBI Mutual Fund
10. Select UCBs
11. Can bank Mutual Fund

12. IFCI
13. DFHI
14. NABARD
15. NHB

16. SCICI
17. TFCI
18. Exim Bank
19. LIC Mutual Fund

20. SIDBI, etc.
Among these, DFHI is a major player in providing rediscounting facility to the institutions
discounting trade bills. DFHI obtains refinance from the RBI. The DFHI offers two-way quotes
for buying and selling rediscounted bills.

3.7 Financial Instruments of Indian Money Market

Indian money market at present has wide variety of instruments with varying maturity
denominations, claims to income and assets and controlling power traded in the market so as to
satisfy the diverse needs of both supplier of fund and those who need them. These instruments
are:
 Commercial Bills: Commercial bill is an instrument used in the Indian money market to
finance the movement and storage of agricultural and industrial goods in domestic and
foreign trade. Bill finance has not been popular in India mainly because of the absence of
adequate number of genuine bills and lack of discounting facilities. Until 1981-82, the RBI
provided rediscounting facility to the banks whereafter this task was assumed by DFHI.
 Treasury Bills: Treasury bills constitute an important instrument of short-term borrowing
of the government. Treasury bill market, as noted earlier, has had chequered growth
history. At present, the Treasury issues consist of weekly 14-day and 91-day bill auctions
and 364-day bill auctions on a fortnightly basis combined with 14-day intermediate bills
available for state governments and foreign central banks. With the introduction of the
auction system interest rates on all types of Treasury bills are determined by the market
forces.
The 91-day Treasury bills are purchased by the RBI, commercial banks, state governments
and other approved bodies and financial institutions like the LIC, UTI. The RBI and banks
together account for about 90% of the sales of this bill every year. Other types of treasury
bills are purchased by foreign banks, Indian scheduled banks, cooperative banks, financial
institutions, companies, DFHI and others.

 Certificate of Deposits: Certificates of Deposits (CDs), representing essentially securitised
and tradable term deposits, were introduced by the RBI in June 1989 permitting banks to
issue CDs. This scheme was modified from time to time to soften the terms and conditions

LOVELY PROFESSIONAL UNIVERSITY 41