Regulation of Money Market Instruments in India

December 18, 2019
SEBI Grade A Test Series

RBI exercise its powers conferred under sections 45K, 45L and 45W of the Reserve Bank of India Act, 1934 to issue guidelines related to Regulation of Money Market Instruments. The Reserve Bank of India has issued guidelines to the eligible market participants in regard to call/notice money market, Commercial Paper (CP), Certificates of Deposit (CD) and Non-Convertible Debentures (NCDs) of original or initial maturity up to one year.

Scheduled commercial banks (excluding RRBs), co-operative banks (other than Land Development Banks) and Primary Dealers (PDs), are permitted to participate in call/notice money market both as borrowers and lenders.

Regulation of Money Market Instruments

RBI Guidelines related to Commercial Paper

Companies, PDs and FIs are permitted to raise short term resources through Commercial Paper.

A company would be eligible to issue CP provided:

  • The tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs.4 crore;
  • The company has been sanctioned working capital limit by bank/s or FIs; and
  • The borrowal account of the company is classified as a Standard Asset by the financing bank/institution.

RBI Guidelines related to Certificates of Deposit

Certificates of Deposit can be issued by:

  • Scheduled commercial banks {excluding Regional Rural Banks and Local Area Banks}
  • Select All-India Financial Institutions (FIs) that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.

RBI Guidelines related to Non-Convertible Debentures

A corporate shall be eligible to issue Non-Convertible Debentures if it fulfills the following criteria, namely,

  • The corporate has a tangible net worth of not less than Rs.4 crore, as per the latest audited balance sheet. This shall not be applicable to Non-Banking Financial Companies (NBFCs) including Primary Dealers (PDs)
  • The corporate has been sanctioned working capital limit or term loan by bank/s or all-India financial institution/s; and
  • The borrowal account of the corporate is classified as a Standard Asset by the financing bank/s or institution/s.

Master Circular – Regulation of Money Market Instruments

Master Direction on Money Market Instruments

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