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institutions, investment companies etc. The 4) National Electronic Fund Transfer (NEFT)
category of borrowers is also different. and Real Time Gross Settlement (RTGS)
3) Shortage of funds : Money market faces were introduced as an improved payment
shortage of funds due to inadequate savings. infrastructure.
Low per capita income, poor banking 5) Electronic dealing system was introduced
habits among the people, indulgence in to bring about technological upgradation.
wasteful consumption, inadequate banking
facilities in the rural areas etc. have also Do you know?
been responsible for the paucity of funds in Recent developments in banking sector :
the money market. • Small Finance Banks : Small finance
4) Seasonal fluctuations : Demand for funds banks aim to promote financial inclusion
varies as per the seasons. During the peak through supply of credit to small business
season, from October to June, finance units, small and marginal farmers, micro
is required on a large scale for various and small industries and other unorganized
purposes such as trading in agricultural sector entities through high technology but
produce, investment in business activities low cost operations.
etc. This results in wide fluctuations in the • Payments Banks : A payments bank is like
money market. any other bank, but operating on a smaller
5) Lack of financial inclusion : Banking scale without involving any credit risk. In
facilities in the country are still inadequate simple words, it can carry out most banking
and inaccessible to the vulnerable groups operations but can’t advance loans or issue
such as the weaker sections and the low credit cards. It can accept demand deposits
income groups. This shows lack of financial (up to ` 1 lakh), offer remittance services,
inclusion. mobile payments / transfers / purchases and
6) Delays in technological upgradation : other banking services like ATM/debit cards,
Use of advanced technology is a pre- net banking and third party fund transfers.
requisite for the development and smooth • Universal Banks : Universal banks refer
functioning of financial markets. Delays to those banks that offer a wide range of
in upgradation of technology hampers the financial services, such as, commercial
working of the money market. banking and investment banking and other
activities especially insurance. It is a multi-
Reforms introduced in the Money Market :
Following are some of the important purpose and multi-functional financial
reforms introduced in the money market : supermarket providing both banking and
1) Introduction of new instruments such as financial services through a single window.
Treasury bills of varying maturity periods, • Local Area Banks : Local area bank
Commercial Papers (CPs), Certificate of scheme was introduced in August, 1996 to
Deposits (CDs) and Money Market Mutual enable mobilization of rural savings by local
Mutual Funds (MMMFs). institutions especially private local banks
and make them available for investments
2) RBI Repos and Reverse Repos were
introduced under the Liquidity Adjustment in the local areas. This helps to bridge the
Facility (LAF). gap in credit availability and strengthen the
institutional credit from work in the rural
3) Interest rates to be largely determined by and semi-urban areas.
market forces.
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