Problems of Indian Money Markets

Indian money market is relatively underdeveloped when compared with advanced markets like New York and London Money Markets. Various problems of money markets in India include Dichotomy, Lack of Coordination & Integration, Diversity in the Interest Rates, Seasonality in the markets, shortage of funds, absence of a developed Bill market, Inefficient management etc. They have been discussed below:


A major feature of Indian Money Market is the existence of dichotomy i.e. existence of two markets: -Organised Money Market and Unorganised Money Market. Organised Sector consist of RBI, Commercial Banks, Financial Institutions etc. The Unorganised Sector consist of IBs, MLs, Chit Funds, Nidhis etc. It is difficult for RBI to integrate the Organised and Unorganised Money Markets. Several segments are loosely connected with each other. Thus there is dichotomy in Indian Money Market.

Lack Of Co-ordination And Integration

It is difficult for RBI to integrate the organised and unorganised sector of money market. RBT is fully effective in organised sector but unorganised market is out of RBI’s control. Thus there is lack of integration between various sub-markets as well as various institutions and agencies. There is less co-ordination between co-operative and commercial banks as well as State and Foreign banks. The indigenous bankers have their own ways of doing business.

Diversity In Interest Rates

There are different rates of interest existing in different segments of money market. In rural unorganised sectors the rate of interest are high and they differ with the purpose and borrower. There are differences in the interest rates within the organised sector also. Although wide differences have been narrowed down, yet the existing differences do hamper the efficiency of money market.

Seasonality Of Money Market

Indian agriculture is busy during the period November to June resulting in heavy demand for funds. During this period money market suffers from Monetary Shortage resulting in high rate of interest. During slack season rate of interest falls &s there are plenty offunds available. RBI has taken steps to reduce the seasonal fluctuations, but still the variations exist.

Shortage Of Funds

In Indian Money Market demand for funds exceeds the supply. There is shortage of funds in Indian Money Market an account of various factors like inadequate banking facilities, low savings, lack of banking habits, existence of parallel economy etc. There is also vast amount of black money in the country which have caused shortage of funds. However, in recent years development of banking has improved the mobilisation of funds to some extent.

Absence Of Organised Bill Market

A bill market refers to a mechanism where bills of exchange are purchased and discounted by banks in India. A bill market provides short term funds to businessmen. The bill market in India is not popular due to overdependence of cash transactions, high discounting rates, problem of dishonour of bills etc.

Inadequate Banking Facilities

Though the commercial banks, have been opened on a large scale, yet banking facilities are inadequate in our country. The rural areas are not covered due to poverty. Their savings are very small and mobilisation of small savings is difficult. The involvement of banking system in different scams and the failure of RBI to prevent these abuses of banking system shows that Indian banking system is not yet a well organised sector.

Inefficient And Corrupt Management

One of the major problem of Indian Money Market is its inefficient and corrupt management. Inefficiency is due to faulty selection, lack of training, poor performance appraisal, faulty promotions etc. For the growth and success of money market, there is need for well trained and dedicated workforce in banks. However, in India some of the bank officials are inefficient and corrupt.

The above discussion makes it clear that money markets in India are still relatively less developed and has yet to acquire sufficient depth and width. The deficiencies are slowly and steadily overcome by policy measures undertaken by RBI from time to time.

Video from our Channel

Tags: ,

Random Articles