The money market is where banks, companies and the government borrow and lend money for up to one year. Questions on T-bill tenors, CP and CD minimums and call money are common in bank exams and RBI Grade B. Here is a clear guide.
Money market vs capital market
| Point | Money market | Capital market |
|---|---|---|
| Period | Up to 1 year (short term) | More than 1 year (long term) |
| Purpose | Working capital, short-term liquidity | Long-term investment (projects, expansion) |
| Instruments | T-bills, CP, CD, call money, repo | Shares, bonds, debentures |
| Main regulator | RBI | SEBI (shares); RBI for government securities |
| Risk | Low | Higher |
All instruments at a glance
| Instrument | Issued by | Tenor | Minimum |
|---|---|---|---|
| Treasury Bills (T-bills) | Central Government (through RBI) | 91, 182, 364 days | ₹25,000 (multiples of ₹25,000) |
| Cash Management Bills (CMBs) | Central Government | Less than 91 days | ₹25,000 |
| Commercial Paper (CP) | Companies, NBFCs, AIFIs | 7 days to 1 year | ₹5 lakh (multiples of ₹5 lakh) |
| Certificate of Deposit (CD) | Banks | 7 days to 1 year | ₹5 lakh |
| Certificate of Deposit (CD) | All India Financial Institutions | 1 to 3 years | ₹5 lakh |
| Call money | Banks, PDs | Overnight (1 day) | – |
| Notice money | Banks, PDs | 2 to 14 days | – |
| Term money | Banks, PDs | 15 days to 1 year | – |
| Repo / reverse repo | Market participants | Usually overnight to short term | – |
| TREPS (Tri-party repo) | Through CCIL | Overnight to short term | – |
Treasury Bills
- Zero-coupon instruments: issued at a discount and repaid at face value. The difference is the investor’s return.
- Issued only by the Central Government. State governments do not issue T-bills (they borrow through State Development Loans).
- Auctioned by RBI every week (usually Wednesday), with settlement the next day.
- 14-day intermediate T-bills are used only by state governments to invest their surplus cash (not traded).
Cash Management Bills (CMBs)
- Introduced in 2009–10 to meet the government’s temporary cash-flow mismatches.
- Like T-bills, but for less than 91 days.
Commercial Paper (CP)
- An unsecured promissory note issued by companies, NBFCs and All India Financial Institutions to raise short-term funds.
- Introduced in India in 1990 (on the Vaghul Working Group’s recommendation).
- Issued at a discount; needs a credit rating.
- Tenor: 7 days to 1 year; minimum ₹5 lakh.
Certificate of Deposit (CD)
- A negotiable deposit receipt issued in dematerialised form.
- Introduced in 1989.
- Banks: 7 days to 1 year; AIFIs: 1 to 3 years.
- Banks cannot give loans against CDs and cannot buy back their own CDs before maturity (with limited exceptions).
- Regional Rural Banks and Local Area Banks cannot issue CDs.
Call, notice and term money
| Market | Period | Who can take part |
|---|---|---|
| Call money | Overnight | Scheduled commercial banks (except RRBs), co-operative banks, Primary Dealers |
| Notice money | 2–14 days | Same as above |
| Term money | 15 days–1 year | Same as above |
- It is unsecured inter-bank borrowing.
- The rate is called the call rate; the Weighted Average Call Rate (WACR) is RBI’s operating target of monetary policy.
- NBFCs, mutual funds and insurance companies are not allowed in the call money market (they use TREPS and repo instead).
Repo and TREPS
- Repo = sell securities today, agree to buy them back later; it is collateralised borrowing.
- TREPS (Tri-party Repo Dealing and Settlement) replaced CBLO in November 2018. It is run by CCIL (Clearing Corporation of India Ltd), which acts as the third party.
- Mutual funds, insurance companies and corporates use TREPS to park or borrow short-term money.
Key bodies
| Body | Role |
|---|---|
| RBI | Regulates the money market |
| CCIL (2001) | Clears and settles government securities, forex and money market deals |
| FIMMDA | Fixed Income Money Market and Derivatives Association; a self-regulatory body for the bond and money markets |
| Primary Dealers | Underwrite and market-make in government securities |
Exam-ready one-liners
- Money market covers borrowing and lending for up to one year.
- T-bills: 91, 182 and 364 days; issued only by the Central Government at a discount.
- CMBs are for less than 91 days.
- Commercial Paper: 7 days–1 year; minimum ₹5 lakh; issued by companies, NBFCs and AIFIs.
- Certificate of Deposit: banks 7 days–1 year; AIFIs 1–3 years; minimum ₹5 lakh.
- Call money: overnight; notice money: 2–14 days; term money: 15 days–1 year.
- WACR is RBI’s operating target for monetary policy.
- TREPS replaced CBLO in 2018 and is run by CCIL.
Related reading
Quiz: test yourself
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Based on RBI’s money market directions as reported. Tenors and minimums can change; check rbi.org.in for the latest.
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