The lending and borrowing of money for one day are called call money. normally banks depend on the call money market to raise funds for a day. And lending of money for one day to 14 days is called notice money. In the case of notice money, no specific date given for repayment of funds but generally borrowers have to make the payment on the given date. The rate of interest in call money is called call money rate which is determined by the demand and supply of funds.
Treasury bills issued by the Reserve Bank of India (RBI) on behalf of the Government of India. It is a short-term and main instrument borrowing by the government. Government issue three types of treasury bills by auction, 91 days, 182 days, and 364 days treasury bills.
The commercial bill is short term negotiable instrument drawn by a seller on the buyer for the value of goods delivered by the seller. This is a self-liquidating instrument with low risk. This bill also called trade bills which are accepted by commercial banks are called commercial bills. The maturity period of commercial bills generally 90 days but if the seller needs urgent funds, he can rediscount the bill from the banks.
Certificates of Deposits introduced in India in June 1989. Certificates of Deposits issued by commercial banks and development financial institutions. This helps the commercial banks to raise the funds from the market by CDs. The minimum size of issues for a single investor is Rs. 1 lakh and the maturity period is three months to one year.
Commercial Papers introduced in January 1990 in India with the aim to provide highly rated corporate borrowers to diversify short-term borrowing. It is unsecured money market instruments issued in the form of promissory notes with a fixed maturity. commercial papers are highly liquid and quite safe. The maturity of commercial papers for a minimum of 7 days and a maximum of one year.
Repo rate is the rate at which commercial bank borrows money from Reserve Bank of India by selling their securities in the case of shortage of funds to maintain liquidity. The Reserve repo rate is the rate at which the Reserve Bank of India(RBI) borrows money from the banks to flow away liquidity from the system.
MMMFs introduced by RBI in April 1992 to enable the small investors to participate in the money market. MMMFs mobilize savings of small investors and invest in short-term debt instruments or money market instruments like Call money, Repos, Treasury bills, CDs, CPs.
Reserve Bank of India introduced the Liquidity Adjustment Facility in June 2000. It is a monetary policy that allows banks to borrow money from the RBI by repurchase agreement. LAF consist of the Repo rate and Reserve rate.
Central Bank of India i.e. RBI introduced MSF in its monetary policy on 3rd many 2011 and is effective from 9th many 2011. Under this scheme, banks allow borrowing money for one day. This Scheme can be used when banks exhaust all borrowing options including LAF.
MCLR is a new method introduced by RBI on 1st April 2016. It is based on the marginal cost of borrowing and returns on net worth for banks. for example, if one-year deposits are 7.5%, then one-year MCLR will be 7.50% plus CRR, operation cost, and tenor premium.
References: Manan Prakashan,
Imaduddin Khan (MA in Business Economics, Mcom, BMS)