Open market Operation refers to the purchase and sale of the Government securities by the Reserve bank of India from / to public on its account. But in India, as of now the market for government securities is not well developed, still OMO plays very important role. Here is how OMO works:
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When RBI sells government security in the markets, the bank purchase them.
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When the banks purchase Government securities, they have a reduced ability to lend to the industrial houses or other commercial sectors.
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This reduced surplus cash, contracts the Credit supply.
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When RBI purchases the securities, the commercial banks find them with more surplus cash and this would create more credit in the system.
pls add the issue of 3 norms???