research paper on money market in india

Monetary policy framework in India

• Policy Review
• Published: 23 June 2020
• Volume 55 , pages 117–154, ( 2020 )

Cite this article

• Pami Dua 1  

49k Accesses

22 Citations

31 Altmetric

Explore all metrics

In 2016, the monetary policy framework moved towards flexible inflation targeting and a six member Monetary Policy Committee (MPC) was constituted for setting the policy rate. With this step towards modernization of the monetary policy process, India joined the set of countries that have adopted inflation targeting as their monetary policy framework. The Consumer Price Index (CPI combined) inflation target was set by the Government of India at 4% with ± 2% tolerance band for the period from August 5, 2016 to March 31, 2021. In this backdrop, the paper reviews the evolution of monetary policy frameworks in India since the mid-1980s. It also describes the monetary policy transmission process and its limitations in terms of lags and rigidities. It highlights the importance of unconventional monetary policy measures in supplementing conventional tools especially during the easing cycle. Further, it examines the voting pattern of the MPC in India and compares this with that of various developed and emerging economies. The synchronization of cuts in the policy rate by MPCs of various countries during the global slowdown in 2019 and the COVID-19 pandemic in the early 2020s is also analysed.

Similar content being viewed by others

Monetary Policy Framework in India

Monetary Policy: Global Trends and the Development of Bank of Russia’s Approaches

Inflation Targeting, Monetary Policy: The Way Forward

Avoid common mistakes on your manuscript.

1 Introduction

The monetary policy framework in India has evolved over the past few decades in response to financial developments and changing macroeconomic conditions. The operational framework of monetary policy has also gone through significant changes with respect to instruments and targeting mechanisms. The preamble of the Reserve Bank of India (RBI) Act, 1934 was also amended in 2016, which now clearly provides the mandate of the RBI. It reads as follows:

“to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy; to maintain price stability while keeping in mind the objective of growth.”

The aim of monetary policy in the initial years of inception of RBI was mainly to maintain the sterling parity, with exchange rate being the nominal anchor of monetary policy. Liquidity was regulated through open market operations (OMOs), bank rate and cash reserve ratio (CRR). Soon after independence and through the late 1960s, the role of the central bank was aligned with the planned development process of the nation in accordance with the 5-year plans. Thus, it played a major role in regulating credit availability, employing OMOs, bank rate, and reserve requirement towards this end.

With the nationalization of major banks in 1969, the main objective of monetary policy through the 1970s till the mid-1980s was the regulation of credit in accordance with the developmental needs of the country. This period was marked by monetization of fiscal deficit while inflationary consequences of high public expenditure necessitated frequent recourse to CRR.

In 1985, on the recommendation of the Committee set up to Review the Working of the Monetary System (Chairman: Dr. Sukhamoy Chakravarty), a new monetary policy framework, monetary targeting with feedback was implemented based on empirical evidence of a stable demand for money function. However, financial innovations in the 1990s implied that demand for money may be affected by factors other than income. Further, interest rates were deregulated in the mid-1990s and the Indian economy was getting increasingly integrated with the global economy. Therefore, the RBI began to deemphasize the role of monetary aggregates and implemented a multiple indicator approach (MIA) to monetary policy in 1998 encompassing all economic and financial variables that influence the major objectives outlined in the Preamble of the RBI Act. This was done in two phases—initially MIA and later augmented MIA (AMIA) which included forward looking variables and time series models.

Based on RBI’s Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework ( 2014 , Chairman: Dr Urjit R Patel), a formal transition was made in 2016 towards flexible inflation targeting and a six member Monetary Policy Committee (MPC) was constituted for setting the policy repo rate. The Monetary Policy Framework Agreement (MPFA) was signed between the Government of India and the RBI in February 2015 to formally adopt the flexible inflation targeting (FIT) framework. This was followed up with the amendment to the RBI Act, 1934 in May 2016 to provide a statutory basis for the implementation of the FIT framework. With this step towards modernization of the monetary policy process, India joined the set of countries that adopted inflation targeting, starting from 1990 by New Zealand, as their monetary policy framework. The Central Government notified in the Official Gazette dated August 5, 2016, that the Consumer Price Index (CPI) inflation target would be 4% with ± 2% tolerance band for the period from August 5, 2016 to March 31, 2021. At the time of writing (April 2020), this period is drawing to a close in less than a year. In this backdrop, this paper discusses the evolution of the monetary policy framework in India and describes the workings of the current framework.

The paper is divided into the following sections. Section  2 presents a schematic representation of the main components of a general monetary policy framework and describes its key features. Section  3 describes the genesis of the monetary policy framework in India since 1985 covering the Monetary Targeting Framework, Multiple Indicator Approach and Flexible Inflation Targeting. The main recommendations of RBI’s Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework ( 2014 , Chairman: Dr Urjit R Patel) are also discussed. Composition, workings and voting pattern of the Monetary Policy Committee from October 2016 to March 2020 are also provided. Further, a comparison of voting patterns with various countries across the globe is undertaken.

Section  4 discusses a general framework for monetary policy transmission and applies the framework to India. It also describes interest rate linkages at the global level. Section  5 examines unconventional monetary policy measures adopted in late 2019 and early 2020. Section  6 concludes the paper.

2 Schematic representation of a monetary policy framework

The specification of the monetary policy framework facilitates the conduct of monetary policy. The general framework comprises well-defined objectives/goals of monetary policy along with instruments, operating targets and intermediate targets that aid in the implementation of monetary policy and achievement of the ultimate objectives. A schematic representation of a monetary policy framework is shown in Fig.  1 (Laurens et al. 2015 ; Mishkin 2016 ).

Source: Author

Instruments are tools that the central bank has control over and are used to achieve the operational target. Examples of instruments include open market operations, reserve requirements, discount policy, lending to banks, policy rate. Operational targets are the financial variables that can be controlled by the central bank to a large extent through the monetary policy instruments and guide the day-to-day operations of the central bank. These can impact the intermediate target and thus help in the delivery of the final goal of monetary policy. Examples of operational targets include reserve money and short-term money market interest rates.

Intermediate targets are variables that are closely related with the final goals of monetary policy and can be affected by monetary policy. Intermediate targets may include monetary aggregates and short-term and long-term interest rates. Goals refer to the final policy objectives. These may include price stability, economic growth, financial stability and exchange rate stability.

This general framework is applied to the monetary targeting framework with feedback that prevailed from 1985 to 1998 and to the inflation targeting framework that exists from 2016 onwards. The multiple indicator approach that was operational from 1998 to 2016 was based on a number of financial and economic variables and was not exactly specified on the basis of this framework although broad money was treated as an intermediate target and the goals of monetary policy are the same across the various frameworks.

3 Genesis of monetary policy in India since 1985

3.1 monetary targeting with feedback: 1985–1998.

In the 1970s through the mid-1980s, monetization of the fiscal deficit exerted a dominant influence on monetary policy with inflationary consequences of high public expenditure necessitating frequent recourse to CRR. Against this backdrop, in 1985, on the recommendation of the Committee set up to Review the Working of the Monetary System (RBI 1985 ; Chairman: Dr. Sukhamoy Chakravarty), a new monetary policy framework, monetary targeting with feedback was implemented based on empirical evidence of a stable demand for money function. The recommendation of the committee was to control inflation within acceptable levels with desired output growth. Further, instead of following a fixed target for money supply growth, a range was followed which was subject to mid-year adjustments. This framework was termed “Monetary Targeting with Feedback” as it was flexible enough to accommodate changes in output growth.

This operational framework is depicted in Fig.  2 . (Definitions of variables shown in Fig.  2 are given in Appendix 1 ). The main instruments in this framework were cash reserve ratio (CRR), open market operations (OMOs), refinance facilities and foreign exchange operations. Broad money (M3) was chosen as the intermediate target while reserve money (M0) was the main operating target. However, an analysis of money growth outcomes during the monetary targeting framework reveals that targets were rarely met (RBI 2009–2012). Even with increases in CRR, money supply growth remained high and fuelled inflation.

(1) Primary objective of monetary policy in India is to maintain price stability, while keeping in mind the objective of growth.

(2) Definitions of variables are given in Appendix 1

Further, financial innovations in the 1990s implied that demand for money may be affected by factors other than income. Since the mid-1990s, with global integration, factors such as swings in capital flows, volatility in the exchange rate and global growth also impacted the economy. Moreover, interest rates were deregulated allowing for changing interest rates and a market determined management system of exchange rates was also adopted.

3.2 Multiple Indicator Approach: 1998–2016

Against the backdrop of changing domestic and global dynamics, RBI implemented a multiple indicator approach (MIA) to monetary policy in 1998 encompassing various economic and financial variables based on the recommendations of RBI’s Working Group on Money Supply (RBI 1998 ; Chairman: Dr YV Reddy). These variables included several quantity variables such as money, credit, output, trade, capital flows, fiscal indicators as well as rate variables such as interest rates, inflation rate and the exchange rate. The information on these variables provided a broad-based monetary policy formulation, which not only encompassed a diverse set of information, but also accorded flexibility to the conduct of monetary management. The MIA was conceptualized when Dr Bimal Jalan was Governor and was implemented in two stages—MIA and later augmented MIA, by including forward looking variables and a panel of time series models, in addition to the economic and financial variables (Mohanty 2010 ; Reddy 1999 ). Forward looking indicators were drawn from RBI’s industrial outlook survey, capacity utilization survey, inflation expectations survey and professional forecasters’ survey. All the variables together with time series models provided the projection of growth and inflation while RBI provided the projection for broad money (M3) and treated this as the intermediate target.

The operational framework of AMIA is illustrated in Fig.  3 . Compared to the Monetary Targeting Framework, the goals of monetary policy remained the same and broad money continued to serve as the intermediate target while the underlying operating mechanism of MIA evolved over time. In May 2011, the weighted average call money rate (WACR) was explicitly recognized as the operating target of monetary policy while the repo rate was made the only one independently varying policy rate. These measures improved the implementation and transmission of monetary policy along with enhancing the accuracy of signaling of monetary policy stance (Mohanty 2011 ).

Source: RBI Bulletin, December 2011

Shift towards inflation targeting

The importance of focusing on inflation was first highlighted in the Report of the Committee on Financial Sector Reforms (Government of India 2009 ; Chairman: Dr. Raghuram Rajan) constituted by the Government of India. The report recommended that RBI can best serve the cause of growth by focusing on controlling inflation and intervening in currency markets only to limit excessive volatility. The report pointed out that the cause of inclusion can also be best served by maintaining this focus because the poorer sections are least hedged against inflation. Further, the report recommended that there should be a single objective of staying close to a low inflation number, or within a range, in the medium term, moving steadily to a single instrument, the short-term interest rate to achieve it.

Former RBI Governor, Dr. Raghuram Rajan set up an Expert Committee in 2013 to Review and Strengthen the Monetary Policy Framework (RBI 2014 ; Chairman: Dr Urjit R Patel). The mandate of the Committee, amongst others, was to review the objectives and conduct of monetary policy in a globalized and highly inter-connected environment. The committee was also required to review the organizational structure, operating framework and instruments of monetary policy, liquidity management framework, to ensure compatibility with macroeconomic and financial stability, as well as market development. The impediments to monetary policy transmission were to be identified and measures along with institutional pre-conditions to improve transmission across financial markets and real economy were to be suggested.

Some issues central to the report were selecting the nominal anchor for monetary policy, defining the inflation metric and specifying the inflation target. A nominal anchor is central to a credible monetary policy framework as it ties down the price level or the change in the price level to attain the final goal of monetary policy. It is a numerical objective that is defined for a nominal variable to signal the commitment of monetary policy towards price stability.

Generally five types of nominal anchors have been used, namely, monetary aggregates, exchange rate, inflation rate, national income and price level. The Expert Committee recommended inflation to be the nominal anchor of the monetary policy framework in India as flexible inflation targeting recognizes the existence of growth-inflation trade-off in the short-run and stabilizing and anchoring inflation expectations is critical for ensuring price stability on an enduring basis. Further, low and stable inflation is a necessary precondition for sustainable high growth and inflation is also easily understood by the public.

Regarding the inflation metric, the Committee recommended that RBI should adopt the all India CPI (combined) inflation as the measure of the nominal anchor. This is to be defined in terms of headline CPI inflation, which closely reflects the cost of living and influences inflation expectations relative to other available metrics. CPI is also easily understood as it is used as a reference in wage contracts and negotiations. Headline inflation was preferred against core inflation (headline inflation excluding food and fuel inflation) since food and fuel comprise more than 50% of the consumption basket and cannot be discarded.

The Committee recommended the target level of inflation at 4% with a band of ± 2% around it. The tolerance band was formulated in the light of the vulnerability of the Indian economy to supply and external shocks and the relatively large weight of food in the CPI basket.

The Expert Committee also recommended that decision-making should be vested in a Monetary Policy Committee (MPC).

3.3 Flexible inflation targeting: 2016 onwards

With the signing of the Monetary Policy Framework Agreement (MPFA) between the Government of India and the RBI on Feb 20, 2015, Flexible Inflation Targeting (FIT) was formally adopted in India. In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the FIT framework. The amended RBI Act, 1934 also provided that the Central Government shall, in consultation with the Bank, determine the inflation target in terms of the Consumer Price Index, once in every 5 years.

Accordingly, the Central Government has notified in the Official Gazette 4% Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6% and the lower tolerance limit of 2%. The amended RBI Act, 1934 also provides that RBI shall be seen to have failed to meet the target if inflation remains above 6% or below 2% for three consecutive quarters. In such circumstances, RBI is required to provide the reasons for the failure, and propose remedial measures and the expected time to return inflation to the target.

In 2016, India thus joined several developed and emerging market economies that have implemented inflation targeting. Figure  4 shows the timeline for implementation of inflation targeting for countries in this category, starting in 1990.

Source: Centre for Central Banking Studies (2012), Bank for International Settlements (2017), Russian Journal of Economics (2017), The Economist (2016), Central Bank websites of Kazakhstan and Ukraine

Monetary Policy Committee: composition, monetary policy framework and voting patterns

The amended RBI Act, 1934 provides for a statutory and institutionalized framework for a six-member Monetary Policy Committee (MPC) to be constituted by the Central Government by notification in the Official Gazette. The Central Government in September 2016 thus constituted the MPC with three members from RBI including the Governor as Chairperson and three external members as per Gazette Notification dated September 29, 2016. (Details of the composition of MPC are given in Appendix 3 ). The Committee is required to meet at least four times a year although it has been meeting on a bi-monthly basis since October 2016. Each member of the MPC has one vote, and in the event of equality of votes, the Governor has a second or casting vote. The resolution adopted by the MPC is published after conclusion of every meeting of the MPC. On the 14th day, the minutes of the proceedings of the MPC are published which includes the resolution adopted by the MPC, the vote of each member on the resolution, and the statement of each member on the resolution.

It may be noted that before the constitution of the MPC, a Technical Advisory Committee (TAC) on Monetary Policy was set up in 2005 which consisted of external experts from monetary economics, central banking, financial markets and public finance. The role of this committee was to enhance the consultative process of monetary policy by reviewing the macroeconomic and monetary developments in the economy and advising RBI on the stance of monetary policy. With the formation of MPC, the TAC on Monetary Policy ceased to exist.

The MPC is entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified tolerance band. The framework entails setting the policy rate on the basis of current and evolving macroeconomic conditions. Once the repo rate is announced, the operating framework looks at liquidity management on a day-to-day basis with the aim to anchor the operating target—the weighted average call rate (WACR)—around the repo rate. This is illustrated in Fig.  5 , where the intermediate targets are the short-term and long-term interest rates and the goals of price stability and economic growth are aligned with the primary objective of monetary policy to maintain price stability, keeping in mind the objective of growth. In addition to the repo rate, the instruments include liquidity facility, CRR, OMOs, lending to banks and foreign exchange operations (RBI 2018 ).

It is imperative here to note some of the key elements of the revised framework for liquidity management (RBI 2019 ) that are particularly relevant for the operating framework shown in Fig.  5 . As noted in the RBI Monetary Policy Report, 2020.

Liquidity management remains the operating procedure of monetary policy; the weighted average call rate (WACR) continues to be its operating target.

The liquidity management corridor is retained, with the marginal standing facility (MSF) rate as its upper bound (ceiling) and the fixed reverse repo rate as the lower bound (floor), with the policy repo rate in the middle of the corridor.

The width of the corridor is retained at 50 basis points—the reverse repo rate being 25 basis points below the repo rate and the MSF rate 25 basis points above the repo rate. (The corridor width was asymmetrically widened on March 27 and April 17, 2020.)

Instruments of liquidity management continue to include fixed and variable rate repo/reverse repo auctions, outright open market operations, forex swaps and other instruments as may be deployed from time to time to ensure that the system has adequate liquidity at all times.

The current requirement of maintaining a minimum of 90% of the prescribed CRR on a daily basis will continue. (This was reduced to 80% on March 27, 2020.)

The first meeting of the MPC was held in October 2016. Between October 2016 and March 2020, the MPC has met 22 times. Table 1 shows the voting patterns for each meeting with respect to the direction of change in the policy rate, magnitude of change and the stance of monetary policy. Table 2 , on the other hand, provides an overall summary of the voting of all the meetings. It is interesting to note in Table 2 , that with respect to direction of change/status quo of the policy rate, consensus was achieved in 12 meetings out of 22. Of these 12 meetings, there were three meetings where there were differences in the magnitude of the change voted for although there was consensus regarding the direction of change. The diversity in voting of the MPC members reflects the differences in the assessment and expectations of individual members as well as their policy preferences.

To examine if this diversity exists in MPCs of other countries as well, we analyse the voting patterns of 18 countries across the globe during October 2018 to March 2020 in Table 3 . For many countries, we find dissents in some of the meetings, similar to the lack of consensus in some of the meetings of the Indian MPC.

It merits mention that the committee approach towards the conduct of monetary policy has gained prominence across globe. The advantages of this approach include confluence of specialized knowledge and expertise on the subject domain, bringing together different stakeholders and diverse opinions, improving representativeness and collective wisdom, thus making the whole greater than the sum of parts (Blinder and Morgan 2005 ; Maier 2010 ). Further, Rajan ( 2017 ) notes that MPC would bring more minds to bear on policy setting, preserve continuity in case a member has to quit or retire, and be less subject to political pressures.

4 Monetary policy transmission framework

This section presents a stylized representation of a framework for monetary policy transmission and also applies this framework to India.

Monetary policy transmission is the process through which changes in monetary policy affect economic activity in general as well as the price level. With developments in financial systems, the world over, and growing sophistication of financial markets, most central banks use the short-term interest rate as the policy instrument for the conduct of monetary policy. Monetary policy transmission is thus the process through which a change in the policy rate is transmitted first to the short-term money market rate and then to the entire maturity spectrum of interest rates covering the money and bond markets as well as banks’ deposit and lending rates. These impulses, in turn, impact consumption (private and government), investment and net exports, which affect aggregate demand and hence output and inflation.

There are five channels of monetary transmission—interest rate channel; exchange rate channel; asset price channel; credit channel and expectations channel. The interest rate channel is described above. Monetary transmission takes place through the exchange rate channel when changes in monetary policy impact the interest rate differential between domestic and foreign rates leading to capital flows (inflow or outflow) which in turn affects the exchange rate and hence the relative demand for exports and imports. Transmission through the asset price channel occurs when changes in monetary policy influence the price of assets such as equity and real estate that lead to changes in consumption and investment. A change in prices of assets can lead to a change in consumption spending due to the associated wealth effect. For example, if interest rates fall, people may consider purchasing assets that are non-interest bearing such as real estate and equity. A rise in demand for these assets may result in higher prices, a positive wealth effect and thus higher consumption. Further if equity prices rise, firms may increase investment spending. Transmission through the credit channel happens if monetary policy influences the quantity of available credit. This may happen if the willingness of financial institutions to lend changes due to a change in monetary policy. Further, debt obligations of businesses may also change due to a change in the interest rate. For instance, if the policy rate falls, debt obligations of firms may decrease, strengthening their balance sheets. As a result, financial institutions may be more willing to lend to businesses, thus increasing investment spending. Monetary policy changes can impact public’s expectations of output and inflation and accordingly, aggregate demand can be impacted via the expectations channel . For instance, expected future changes in the policy rate can impact medium-term and long-term expected interest rates through market expectations and thus affect aggregate demand. Further, if inflation expectations are firmly anchored by the central bank, this would imply price stability.

A stylized representation of the monetary policy transmission framework of a change in the policy rate is shown in Fig.  6 . Figure  7 depicts the monetary transmission through the interest rate channel with specific reference to India. (Definitions of all variables shown in Fig.  6 are given in Appendix 2 .) This shows that a change in the policy rate (repo rate) first impacts the call money rate (weighted average call money rate—WACR) and in turn all other money market rates as well as bond market rates including the repo market, certificates of deposit (CD) and commercial paper (CP) markets, Treasury Bill (T-Bill) market, Government Securities (G-Sec) market and the Bond Market. The lending rate of banks also changes as depicted by the marginal cost of funds based lending rate (MCLR). This further impacts consumption and investment decisions as well as net exports and through these, aggregate demand and ultimately the goals of monetary policy. Details of the monetary transmission process are given in RBI ( 2020c ).

(1) Definitions of variables are given in Appendix 2

The transmission mechanism is beset with lags. As explained in simple terms in Rangarajan ( 2020 ), there are two components of the transmission mechanism. The first is how far the signals sent out by the central bank are picked by the banks and the second is how far the signals sent out by the banking system impact the real economy. Rangarajan ( 2020 ) labels the first component as “inner leg” and the second as “outer leg”.

To illustrate monetary transmission of the first kind, we examine the impact of a cumulative reduction in the policy repo rate by 135 basis points between February 2019 and January 2020. During this period, transmission to various money and bond markets ranged from 146 basis points in the overnight call money market to 73 basis points in the market for 5-year government securities to 76 basis points in the market for 10-year government securities. Transmission to the credit market was also modest with the 1-year median marginal cost of funds-based lending rate (MCLR) declining by 55 basis points during February 2019 and January 2020. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks fell by 69 basis points while the WALR on outstanding rupee loans declined by 13 basis points during February to December 2019.

Monetary transmission increased somewhat after the introduction of the external benchmark system in October 2019 whereby most banks have linked their lending rates to the policy repo rate of the Reserve Bank. During October to December 2019, the WALRs of domestic banks on fresh rupee loans fell by 18 basis points for housing loans, 87 basis points for vehicle loans and 23 basis points for loans to micro, small and medium enterprises (MSMEs).

Monetary transmission in various markets is depicted in Figs. 8 , 9 and 10 . Figure  8 shows the policy corridor with the MSF rate as the ceiling and the reverse repo rate as the floor for the daily movement in the weighted average call money rate. The figure shows that the WACR moved closely in tandem with the policy rate (repo rate). Figure  9 shows that the G-Sec market rates followed the movements in the policy rate. Figure  10 shows that the direction of change of MCLR was more or less in synchronization with that of the repo rate. The WALR for fresh rupee loans tracked the repo rate much more than the WALR on outstanding loans.

Source: RBI Database on Indian Economy, RBI Weekly Statistical Supplement

Source: RBI Database on Indian Economy

Source: RBI Website

Figure  11 shows the 4% target inflation rate with the ± 2% tolerance band along with the headline inflation rate. This shows that the headline inflation generally stayed within the band. The average inflation rate from August 2016 to March 2020 was 3.93% and up to December 2019, it was 3.72%, i.e. close to 4%. The average GDP growth between Q2: 2016–2017 and Q3: 2019–2020 was 6.6% (Fig.  12 ).

Source: Ministry of Statistics and Programme Implementation, GOI

An interesting phenomena, world-wide is the synchronization in the movements in interest rates across the globe. Table 4 shows that MPCs in various countries have voted for a cut in their policy rate in 2019 at a time when many countries were simultaneously experiencing a slowdown. Due to COVID-19 pandemic, in early 2020, some countries have cut the policy rate sharply. This pattern of rate cuts in 2019 up to March 2020 is almost perfectly aligned with the movements in the repo rate (policy rate) in India. These global patterns are illustrated in Figs.  13 and 14 . Figure  13 shows that the policy rates for the BRICS nations moved in tandem from 2017 to 2020. Figure  14 indicates a similar pattern amongst policy rates of US, ECB, UK and Japan.

Source: Central Bank Websites. Brazil: Selic Rate; Russia: Key Rate; India: Repo Rate; China: Interest Rate; South Africa: Repo Rate

Source: Central Bank Websites. US: Fed Funds Rate; ECB: Interest Rate on the Deposit Facility; UK: Bank Rate; Japan: Policy Interest Rate

5 Unconventional monetary policy measures

We have so far discussed conventional monetary policy. As already described, monetary transmission of conventional monetary policy entails a change in the policy rate impacting financial markets from short-term interest rates to longer-term bonds and bank funding and lending rates. A change in the policy rate is thus expected to permeate through the entire spectrum of rates that further translates into affecting interest sensitive spending and thus economic activity. However, if there are problems in the monetary policy transmission mechanism or if additional monetary stimulus is required in the circumstances that the policy rate cannot be reduced further (or in addition to a change in the policy rate), then the central banks may employ unconventional monetary policy tools. Unconventional monetary measures target financial variables other than the short-term interest rate such as term spreads (e.g., interest rates on risk free bonds), liquidity, credit spreads (e.g. interest rates on risky assets) and asset prices. The objective of unconventional tools is to supplement the conventional monetary policy tools especially in the easing cycle to boost economic growth.

In the recent past, RBI has utilized various unconventional tools in addition to conventional monetary policy measures. To better understand the use of unconventional tools in the Indian economy, examples of unconventional monetary policy tools are first analysed and their applications to the Indian scenario are described. Broadly, unconventional measures can be classified into four categories—large scale asset purchases, lending operations, forward guidance and negative interest rates (BIS 2019 ). The key features of the measures and their applications in India are described in Table 5 .

Large scale asset purchases (also referred to as quantitative easing) by a central bank involve purchase of long-term government securities financed by crediting reserve accounts that commercial banks hold at the central bank. This purchase would lower government bond yields and serve as a signal that the policy rate will stay at a lower level for a longer period. Sellers of government bonds may, in turn, change their investment portfolios and invest in more risky assets (e.g., corporate bonds) leading to a decrease in the relevant interest rate and higher asset price and thus boost economic growth. Central banks can also purchase assets from the private sector.

Lending operations entail provision of liquidity to financial institutions by the central bank through the creation of new or extension of existing lending facilities. This mechanism is different from conventional lending since this is undertaken at looser or specific conditions, e.g., expanding the set of eligible collateral, extending maturity of the loan, providing funding at lower cost and channel/target lending to desired areas or activities with explicit conditions on loans. This lending increases the credit flows to the private sector and helps to restart flow of credit to credit-starved sectors. It can also lead to lower borrowing costs for the financial and real economy sectors.

Forward guidance involves central banks communicating future policy intentions and commitments regarding the policy rate to influence policy expectations. Forward guidance is given routinely by most central banks. Its use as an unconventional tool implies that a central bank uses this to signal that it is open to undertaking extraordinary policy actions for a longer duration. Forward guidance can be ‘time specific’ or ‘state specific’. Under the former, the central bank makes a commitment to keep interest rates low for a specified period. Under the latter, the central bank maintains low rates until specific economic conditions are met.

The rationale of a negative interest rate is that if an interest rate is charged on the reserves that commercial banks hold at the central bank, the banks may be induced to reduce their excess reserves by increasing lending.

The first three of these have been applied to India and are reported in Table 4 . These include Operations Twist in December 2019 and January as well as April 2020, long-term repo operation (LTRO) in February 2020, targeted long-term repo operations (TLTRO) in March and April 2020, and special refinance facilities to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB) in April 2020.

The application of these unconventional monetary tools was necessitated, first by the slowdown in the Indian economy in 2019, and second, by the impact of COVID-19 pandemic due to which economic activity and financial markets, the world over, came under severe stress. It was thus necessary for the Reserve Bank to employ measures to mitigate the impact of COVID-19, revive growth and preserve financial stability. Thus the unconventional monetary policy tools supplemented the conventional monetary policy measures to stimulate growth in the economy.

6 Conclusions

This paper reviews the evolution of monetary policy frameworks in India since the mid-1980s. It also describes the monetary policy transmission process and its limitations in terms of lags in transmission as well as the rigidities in the process. It also highlights the importance of unconventional monetary policy measures in supplementing conventional tools especially during the easing cycle.

At the time of writing (April 2020), three and a half years have passed since the implementation of the Flexible Inflation Targeting Framework and the constitution of the Monetary Policy Committee. With the implementation of FIT, India joined the group of various developed, emerging and developing countries that have implemented inflation targeting since 1990.

The inflation target specified by the Central Government was 4% for the Consumer Price Index (CPI) inflation for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6% and the lower tolerance bound of 2%. As shown in Fig.  11 , from August 2016 through March 2020, the headline inflation generally stayed within the tolerance band with the average inflation rate slightly less than 4% during this period. There were episodes of high/unusual inflation due to supply shocks (food inflation, oil prices) but these were suitably integrated in the policy decisions.

The Monetary Policy Committee has also been in existence since October 2016. The mandate of the MPC is to set the policy repo rate while taking cognizance of the primary objective of monetary policy—to maintain price stability while keeping in mind the objective of growth—as well as the target inflation rate within the tolerance band. Once the policy repo rate is set, the monetary transmission process facilitates the percolation of the change in the policy rate to all financial markets (money and bond markets) as well as the banking sector which further impacts interest sensitive spending in the economy and eventually increases aggregate demand and output growth.

In practice, however, there are rigidities as well as lags in the transmission process that impede the speed and magnitude of the transmission and thus question the efficacy of monetary policy with respect to the policy repo rate. Nevertheless, the external benchmarking system introduced by RBI from October 1, 2019 whereby all new floating rate personal or retail loans (housing, auto etc.) and floating rate loans to micro and small enterprises extended by banks were benchmarked to an external rate, strengthened the monetary transmission process with several banks benchmarking their lending rate to the policy repo rate. This requirement of an external benchmark system was further expanded to cover new floating loans to Medium Enterprises extended by banks with effect from April 1, 2020. This is expected to further improve the transmission process.

Of course, the policy repo rate is not a panacea for all ills but serves well as a signaling rate. The RBI routinely brings out the Statement on Developmental and Regulatory Policies Footnote 1 that is released simultaneously with the resolution of the MPC. RBI has also taken recourse to unconventional measures to supplement the conventional tools to boost economic growth. More recently, with the slowdown in 2019 followed by the extraordinary slump in economic activity due to COVID-19 pandemic, RBI has been compelled to use rather innovative and unconventional tools starting in December 2019 as discussed in Table 5 .

Needless to say, in the unprecedented times of the global pandemic (and, in general, in periods of severe crises), a multi-pronged approach comprising monetary, fiscal and other policy measures is required to protect economic activity and minimize the negative impact of the pandemic (crisis) on economic growth. The importance of monetary-fiscal coordination is highlighted in the resolution of the Monetary Policy Committee dated March 27, 2020 (available on the RBI website) that states the following: “Strong fiscal measures are critical to deal with the situation.” Thus, in addition to monetary policy, fiscal policy has a major role in combating the economic effects of the COVID-19 pandemic. In response to the need of the hour, the Government of India has implemented various fiscal measures to provide a boost to the economy. While central banks across the globe have responded to the global pandemic with monetary and regulatory measures, various governments have reinforced the monetary measures by deploying massive fiscal measures to shield economic activity from the effect of the COVID-19 pandemic.

A few words about the workings of the MPC are also warranted. As discussed in the paper, the voting pattern of the Indian MPC is comparable to international standards, reflecting the healthy diversity in the assessment of the members. The workings of the MPC are transparent with the resolution being made available soon after the end of the meetings. Furthermore, each member of the Committee has to submit a statement that is made available in the public domain on the 14th day after the meeting. Thus, each member is individually accountable, making the process perhaps more stringent than that of MPCs in other countries.

Statement on Developmental and Regulatory Policies sets out various developmental and regulatory policy measures and macroprudential policies for strengthening financial markets and systems, regulation and supervision, banking sector etc. from time to time.

Interest rates on fixed rate loans of tenor below 3 years shall not be less than the benchmark rate for similar tenor.

In case of newly set up banks (either domestic or foreign banks operating as branches in India) where lending operations are mainly financed by capital, the weightage for this component may be higher in proportion to the extent of capital deployed for lending. This dispensation will be available for a period of three years from the date of commencing operations.

Bank for International Settlements. (2019). Unconventional monetary policy tools: a cross-country analysis. Report by a Working Group (Chaired by: Simon M. Potter, Federal Reserve Bank of New York and Frank Smets, European Central Bank). Committee on the Global Financial System. BIS.

Blinder, A., & Morgan, J. (2005). Are two heads better than one? An experimental analysis of group versus individual decision-making. Journal of Money, Credit and Banking, 35 (5), 789–811.

Google Scholar  

Government of India. (2009). A hundred small steps: Report of the committee on financial sector reforms (Chairman: Raghuram Rajan) . New Delhi: Planning Commission.

Hammond, G. (2012). State of the art of inflation targeting. Handbooks, Centre for Central Banking Studies, Bank of England, 4th edn, number 29

Hattori, M., Yetman, J. (2017). The evolution of inflation expectations in Japan. Bank of International Settlements Working Papers, No. 647. Bank of International Settlements, pp 1–3

Korhonen, L., & Nuutilainen, R. (2017). Breaking monetary policy rules in Russia. Russian Journal of Economics, 3 (4), 366–378.

Article   Google Scholar  

Laurens, B.J., Eckhold, K., King, D., Maehle, N., Naseer, A., Durré, A. (2015). The journey of inflation targeting: Easier said than done the case for transitional arrangements along the road. International Monetary Fund, WP/15/136.

Maier, P. (2010). How central banks take decisions: an analysis of monetary policy meetings. In P. L. Siklos, M. T. Bohl, & M. E. Woher (Eds.), Challenges in central banking: the current institutional environment and forces affecting monetary policy . Cambridge: Cambridge University Press.

Mishkin, F. S. (2016). The economics of money, banking, and financial markets . Pearson: Columbia University.

Mohanty, D. (2010). Monetary policy framework in India: Experience with multiple-indicators approach. In: Speech delivered at the Conference of the Orissa Economic Association in Baripada, Orissa on 21st February, 2010. Orissa

Mohanty, D. (2011). Changing contours of monetary policy in India . Mumbai: Reserve Bank of India Bulletin. (Dec 2011)

Rajan, R. G. (2017). I do what I do . New Delhi: Harper Collins.

Rangarajan, C. (2020). The new monetary policy framework—What it means. In: Prof. Sukhamoy Chakravarty Memorial Lecture, delivered at Annual Conference of the Indian Econometric Society at Madurai Kamaraj University in January 2020 . https://www.nipfp.org.in/media/medialibrary/2020/02/WP_297_2020.pdf

Reddy, Y.V. (1999) Monetary policy operating procedures in India. In: Bank of International Settlements. (Ed.) Monetary policy operating procedures in emerging market economies. BIS Policy Papers No. 5 , pp 99–109

Reserve Bank of India. (1985). Report of the committee to review the working of the monetary system (Chairman: Dr. Sukhamoy Chakravarty). Mumbai

Reserve Bank of India. (1998). Report of the working group on money supply: analytics and methodology of compilation (Chairman: Dr. Y. V. Reddy). Mumbai.

Reserve Bank of India. (2013). Report on currency and finance 2009–2012: fiscal-monetary co-ordination. Mumbai.

Reserve Bank of India. (2014). Report of the expert committee to revise and strengthen the monetary policy framework (Chairman: Dr. Urjit Patel). Mumbai.

Reserve Bank of India. (2017). Report of the internal study group to review the working of the marginal cost of funds based lending rate system (Chairman: Dr. Janak Raj). Mumbai.

Reserve Bank of India. (2018). Forex market operations and liquidity management (by—Janak Raj, Sitikantha Pattanaik, Indranil Bhattacharya and Abhilasha) . Mumbai: Reserve Bank of India Bulletin.

Reserve Bank of India. (2019). Report of the internal working group to review the liquidity management framework. Mumbai.

Reserve Bank of India. (2020a). Governor’s statement, sixth bi-monthly monetary policy statement, February 6, 2020. Mumbai.

Reserve Bank of India. (2020b). Governor’s statement, seventh bi-monthly monetary policy statement, March 27, 2020. Mumbai.

Reserve Bank of India. (2020c). Monetary policy transmission in India—Recent trends and impediments (by—Arghya Kusum Mitra and Sadhan Kumar Chattopadhyay). Reserve Bank of India Bulletin, March. Mumbai.

Reserve Bank of India. (2020d). Monetary Policy Report, April. Mumbai.

Reserve Bank of India. (2020e). Governor’s Statement, April 17, 2020. Mumbai.

The Economist Intelligence Unit. (2016). Argentine Central Bank adopts inflation-targeting regime. Financial Services, The Economist Group, September.

Vasudevan, A. (2017). Reflections on analytical issues in monetary policy: The Indian Economic Realities. Economic and Political Weekly, 52 (12), 45–52.

Download references

Acknowledgements

I am grateful to Michael Patra and Janak Raj, Deputy Governor and Executive Director respectively, Reserve Bank of India for useful and constructive suggestions. I also gratefully acknowledge help and support from Hema Kapur, Deepika Goel and Neha Verma, teachers in colleges of the University of Delhi, who also motivated me to write in a student-friendly manner. Special thanks are due to Naina Prasad for competent and diligent research assistance. I am grateful to the Editors of the Indian Economic Review for inviting me to contribute to the newly instituted section on Policy Review. Earlier versions of this paper were presented as a Public Lecture at the Delhi School of Economics in March 2020 and as a Keynote Address at the Annual Conference of the Indian Econometric Society at Madurai Kamaraj University in January 2020. I am grateful to the participants of these events for their feedback.

Author information

Authors and affiliations.

Department of Economics, Delhi School of Economics, University of Delhi, Delhi, India

You can also search for this author in PubMed   Google Scholar

Corresponding author

Correspondence to Pami Dua .

Additional information

Publisher's note.

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

The views expressed in this paper are of the author and not of the Monetary Policy Committee (MPC), of which she is a member.

Appendix 1: Glossary (Figs. 2 and 5 )

Source: Handbook on RBI’s Weekly Statistical Supplement; Reserve Bank of India Website

Appendix 2: Glossary (Fig. 8 )

Appendix 3: Constitution of the Monetary Policy Committee

The Gazette Notification of the Ministry of Finance dated September 29, 2016 notes the following.

“In exercise of the powers conferred by Section 45ZB of the Reserve Bank of India Act, 1934 (2 of 1934), the Central Government hereby constitutes the Monetary Policy Committee of the Reserve Bank of India, consisting of the following, namely:

The Governor of the Bank—Chairperson, ex officio;

Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;

One officer of the Bank to be nominated by the Central Board—Member, ex officio;

Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI)—Member;

Professor Pami Dua, Director, Delhi School of Economics (DSE)—Member; and

Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad, Member.”

The three external members have served on the Committee since its inception and continue to serve. There have been some changes in the RBI members as follows.

Former Governor, Dr. Urjit Patel chaired the Committee from October 2016 to December 2018. Governor, Shri Shaktikanta Das presided from the February 2019 meeting onwards.

Shri R. Gandhi, Former Deputy Governor attended the October and December meetings in 2016.

Dr. Viral Acharya, Former Deputy Governor in charge of Monetary Policy attended the meetings from February 2017 to June 2019.

Shri Bibhu Prasad Kanungo, Deputy Governor attended the meetings from August to December 2019.

Dr, Michael Patra attended all the meetings, first as Executive Director till December 2019 and continues to attend meetings as Deputy Governor in charge of Monetary Policy.

Dr. Janak Raj has attended meetings since February 2020 as Executive Director.

Rights and permissions

Reprints and permissions

About this article

Dua, P. Monetary policy framework in India. Ind. Econ. Rev. 55 , 117–154 (2020). https://doi.org/10.1007/s41775-020-00085-3

Download citation

Published : 23 June 2020

Issue Date : June 2020

DOI : https://doi.org/10.1007/s41775-020-00085-3

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Inflation targeting
• Monetary Policy Committee
• Monetary transmission process
• Unconventional monetary policy measures

JEL Classification

• Find a journal
• Publish with us
• Track your research

Information

• Author Services

Initiatives

You are accessing a machine-readable page. In order to be human-readable, please install an RSS reader.

All articles published by MDPI are made immediately available worldwide under an open access license. No special permission is required to reuse all or part of the article published by MDPI, including figures and tables. For articles published under an open access Creative Common CC BY license, any part of the article may be reused without permission provided that the original article is clearly cited. For more information, please refer to https://www.mdpi.com/openaccess .

Feature papers represent the most advanced research with significant potential for high impact in the field. A Feature Paper should be a substantial original Article that involves several techniques or approaches, provides an outlook for future research directions and describes possible research applications.

Feature papers are submitted upon individual invitation or recommendation by the scientific editors and must receive positive feedback from the reviewers.

Editor’s Choice articles are based on recommendations by the scientific editors of MDPI journals from around the world. Editors select a small number of articles recently published in the journal that they believe will be particularly interesting to readers, or important in the respective research area. The aim is to provide a snapshot of some of the most exciting work published in the various research areas of the journal.

Original Submission Date Received: .

• Active Journals
• Find a Journal
• Proceedings Series
• For Authors
• For Reviewers
• For Editors
• For Librarians
• For Publishers
• For Societies
• For Conference Organizers
• Open Access Policy
• Institutional Open Access Program
• Special Issues Guidelines
• Editorial Process
• Research and Publication Ethics
• Article Processing Charges
• Testimonials
• Preprints.org
• SciProfiles
• Encyclopedia

Article Menu

• Subscribe SciFeed
• Recommended Articles
• Google Scholar
• on Google Scholar
• Table of Contents

Find support for a specific problem in the support section of our website.

Please let us know what you think of our products and services.

Visit our dedicated information section to learn more about MDPI.

JSmol Viewer

The impact of fintech and digital financial services on financial inclusion in india.

1. Introduction

2. reviews of literature, 3. research gap and objectives, 4. research methodology, 4.1. sample design, 4.2. data collection method, 4.3. results, 4.4. estimates, 5. conclusions, 6. implications, 7. scope of future research, author contributions, informed consent statement, data availability statement, conflicts of interest.

• Ajzen, Icek. 1991. The Theory of Planned Behavior. Organizational Behavior and Human Decision Processes 50: 179–211. [ Google Scholar ] [ CrossRef ]
• Anagnostopoulos, Ioannis. 2018. Fintech and Regtech: Impact on Regulators and Banks. Journal of Economics and Business 100: 7–25. [ Google Scholar ] [ CrossRef ]
• Aron, Janine. 2018. Mobile Money and the Economy: A Review of the Evidence. The World Bank Research Observer 33: 135–88. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Bagozzi, Richard P., and Youjae Yi. 1988. On the Evaluation of Structural Equation Models. Journal of the Academy of Marketing Science 16: 74–94. [ Google Scholar ] [ CrossRef ]
• Banna, Hasanul, M. Kabir Hassan, and Mamunur Rashid. 2021. Fintech-Based Financial Inclusion and Bank Risk-Taking: Evidence from OIC Countries. Journal of International Financial Markets, Institutions and Money 75: 101447. [ Google Scholar ] [ CrossRef ]
• Black, William, and Barry. J. Babin. 2019. Multivariate Data Analysis: Its Approach, Evolution, and Impact. In The Great Facilitator . Berlin/Heidelberg: Springer, pp. 121–30. [ Google Scholar ] [ CrossRef ]
• Burns, Scott. 2018. M-Pesa and the ‘Market-Led’ Approach to Financial Inclusion. Economic Affairs 38: 406–21. [ Google Scholar ] [ CrossRef ]
• Cecchetti, Stephen G., and Kermit Schoenholtz. 2020. Finance and Technology: What Is Changing and What Is Not. CEPR Discussion Papers 15352: 1–40. [ Google Scholar ]
• Chang, Victor, Partricia Baudier, Hui Zhang, Qianwen Xu, Jingqi Zhang, and Mitra Arami. 2020. How Blockchain can Impact Financial Services–the Overview, Challenges and Recommendations from Expert Interviewees. Technological Forecasting and Social Change 158: 120–66. [ Google Scholar ] [ CrossRef ]
• Chavan, Palavi, and Bhaskar Birajdar. 2009. Micro Finance and Financial Inclusion of Women: An Evaluation. Reserve Bank of India Occasional Papers 30: 109–29. [ Google Scholar ]
• Chouhan, Vineet, Bibhas Chandra, Pranav Saraswat, and Shubham Goswami. 2020. Developing Sustainable Accounting Framework for Cement Industry: Evidence from India. Finance India 34: 1459–74. [ Google Scholar ]
• Chouhan, Vineet, Raj Bahadur Sharma, and Shubham Goswami. 2021a. Factor Affecting Audit Quality: A study of the companies listed in Bombay Stock Exchange (BSE.). International Journal of Management 25: 989–99. [ Google Scholar ]
• Chouhan, Vineet, Raj Bahadur Sharma, and Shubham Goswami. 2021b. Sustainable Reporting: A Case Study of Selected Cement Companies of India. Accounting 7: 151–60. [ Google Scholar ] [ CrossRef ]
• Chouhan, Vineet, Raj Bahadur Sharma, Shubham Goswami, and Abdul Wahid Ahmed Hashed. 2021c. Measuring Challenges in Adoption of Sustainable Environmental Technologies in Indian Cement Industry. Accounting 7: 339–48. [ Google Scholar ] [ CrossRef ]
• Chouhan, Vineet, Shubham Goswami, and Raj Bahadur Sharma. 2021d. Use of Proactive Spare Parts Inventory Management (PSPIM) Techniques for Material Handling Vis-À-Vis Cement Industry. Materials Today: Proceedings 45: 4383–89. [ Google Scholar ] [ CrossRef ]
• Chouhan, Vineet, Shubham Goswami, Manish Dadhich, Pranav Saraswat, and Pushpkant Shakdwipee. 2021e. Chapter 5 Emerging Opportunities for the Application of Blockchain for Energy Efficiency. In Blockchain 3.0 for Sustainable Development . Edited by Deepak Khazanchi, Ajay Kumar Vyas, Kamal Kant Hiran and Sanjeevikumar Padmanaban. Boston: De Gruyter, pp. 63–88. [ Google Scholar ] [ CrossRef ]
• Dang, Van Cuong, and Quang Khai Nguyen. 2021. Internal Corporate Governance and Stock Price Crash Risk: Evidence from Vietnam. Journal of Sustainable Finance & Investment . [ Google Scholar ] [ CrossRef ]
• Davis, Fred D., and Davis Fred. 1989. Perceived Usefulness, Perceived Ease of Use, and User Acceptance of Information Technology. MIS Quarterly 13: 319. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Demir, Ayse, Vanesa Pesqué-Cela, Yener Altunbas, and Victor Murinde. 2022. Fintech, Financial Inclusion and Income Inequality: A Quantile Regression Approach. The European Journal of Finance 28: 86–107. [ Google Scholar ] [ CrossRef ]
• Duncombe, Richard, and Richard Boateng. 2009. Mobile Phones and Financial Services in Developing Countries: A Review of Concepts, Methods, Issues, Evidence and Future Research Directions. Third World Quarterly 30: 1237–58. [ Google Scholar ] [ CrossRef ]
• Frost, Jon, Leonardo Gambacorta, Yi Huang, Hyun Song Shin, and Pablo Zbinden. 2019. BigTech and the Changing Structure of Financial Intermediation. Economic Policy 34: 761–99. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Gautam, Amit, and Siddhartha Rawat. 2017. Cashless and Digital Economy and its Effect on Financial Inclusion in India. Financial Sector in India 20: 77–85. [ Google Scholar ]
• Ghosh, Saibal. 2020. Financial Inclusion in India: Does Distance Matter? South Asia Economic Journal 21: 216–38. [ Google Scholar ] [ CrossRef ]
• Haque, Sabrina Sharmin, Monica Yanez-Pagans, Yurani Arias-Granada, and George Joseph. 2020. Water and Sanitation in Dhaka Slums: Access, Quality, and Informality in Service Provision. Water International 45: 791–811. [ Google Scholar ] [ CrossRef ]
• Iqbal, Sana, Ahmad Nawaz, and Sadaf Ehsan. 2019. Financial Performance and Corporate Governance in Microfinance: Evidence from Asia. Journal of Asian Economics 60: 1–13. [ Google Scholar ] [ CrossRef ]
• Jack, William, and Tavneet Suri. 2014. Risk Sharing and Transactions Costs: Evidence from Kenya’s Mobile Money Revolution. American Economic Review 104: 183–223. [ Google Scholar ] [ CrossRef ]
• Khan, Harun R. 2012. Issues and Challenges in Financial Inclusion: Policies, Partnerships, Processes and Products. Korea 18: 84–17. [ Google Scholar ]
• Khan, Shagufta, Vineet Chouhan, Bibhas Chandra, and Shubham Goswami. 2014. Sustainable Accounting Reporting Practices of Indian Cement Industry: An Exploratory Study. Uncertain Supply Chain Management 2: 61–72. [ Google Scholar ] [ CrossRef ]
• Kim, Minjin, Hanah Zoo, Heejin Lee, and Juhee Kang. 2018. Mobile Financial Services, Financial Inclusion, and Development: A Systematic Review of Academic Literature. The Electronic Journal of Information Systems in Developing Countries 84: e12044. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Li, Feng, Hui Lu, Meiqian Hou, Kangle Cui, and Mehdi Darbandi. 2021. Customer Satisfaction with Bank Services: The Role of Cloud Services, Security, E-Learning and Service Quality. Technology in Society 64: 101487. [ Google Scholar ] [ CrossRef ]
• Mader, Philip. 2018. Contesting Financial Inclusion. Development and Change 49: 461–83. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Maina, Enock M., Vineet Chouhan, and Shubham Goswami. 2020. Measuring Behavioral Aspect of IFRS Implementation in India and Kenya. International Journal of Scientific and Technology Research 9: 2045–48. [ Google Scholar ]
• Mannan, Morshed, and Simon Pek. 2021. Solidarity in the Sharing Economy: The Role of Platform Cooperatives at the Base of the Pyramid. In Sharing Economy at the Base of the Pyramid . Singapore: Springer, pp. 249–79. [ Google Scholar ] [ CrossRef ]
• Masino, Serena, and Miguel Niño-Zarazúa. 2018. Improving Financial Inclusion through the Delivery of Cash Transfer Programmes: The Case of Mexico’s Progresa-Oportunidades-Prospera Programme. The Journal of Development Studies 56: 151–68. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Mbiti, Isaac, and David N. Weil. 2013. The Home Economics of E-Money: Velocity, Cash Management, and Discount Rates of M-Pesa Users. American Economic Review 103: 369–74. [ Google Scholar ]
• Menz, Markus, Sven Kunisch, Julian Birkinshaw, David J. Collis, Nicolas J. Foss, Robert E. Hoskisson, and John E. Prescott. 2021. Corporate Strategy and the Theory of the Firm in the Digital Age. Journal of Management Studies 58: 1695–720. [ Google Scholar ] [ CrossRef ]
• Metzger, Martina, Tim Riedler, and Jennifer Pédussel Wu. 2019. Migrant Remittances: Alternative Money Transfer Channels, Working Paper, No. 127/2019 . Berlin: Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE). Available online: https://www.econstor.eu/bitstream/10419/204586/1/1678825786.pdf (accessed on 12 January 2023).
• Mia, Md Aslam, Miao Zhang, Cheng Zhang, and Yoomi Kim. 2018. Are Microfinance Institutions in South-East Asia Pursuing Objectives of Greening the Environment? Journal of the Asia Pacific Economy 23: 229–45. [ Google Scholar ] [ CrossRef ]
• Nguyen, Quang Khai. 2022. The effect of FinTech development on financial stability in an emerging market: The role of market discipline. Research in Globalization 5: 100105. [ Google Scholar ] [ CrossRef ]
• Okoye, Lawrence Uchenna, Kehinde Adekunle Adetiloye, Olayinka Erin, and Nwanneka Judith. 2017. Financial Inclusion as a Strategy for Enhanced Economic Growth and Development. Journal of Internet Banking and Commerce 22: 1–14. [ Google Scholar ]
• Omojolaibi, Joseph A., Adaobi Geraldine Okudo, and Deborah A. Shojobi. 2019. Are Women Financially Excluded from Formal Financial Services? Analysis of Some Selected Local Government Areas in Lagos State, Nigeria. Journal of Economic and Social Thought 6: 16–47. [ Google Scholar ]
• Orlov, Evgeniy Vladimirovi, Tatyana Mikhailo Rogulenko, Oleg Alexandr Smolyakov, Nataliya Vladimiro Oshovskaya, Tatiana Ivan Zvorykina, Victor Grigore Rostanets, and Elena Petrov Dyundik. 2021. Comparative Analysis of the Use of Kanban and Scrum Methodologies in IT Projects. Universal Journal of Accounting and Finance 9: 693–700. [ Google Scholar ] [ CrossRef ]
• Oskarsson, Patrik. 2018. Landlock: Paralyzing Dispute over Minerals on Adivasi Land in India . Canberra: Austrialian National University Press, p. 204. [ Google Scholar ] [ CrossRef ]
• Rathod, Saikumar, and Shiva Krishna Prasad Arelli. 2013. Aadhaar and Financial Inclusion: A Proposed Framework to Provide Basic Financial Services in Unbanked Rural India. In Driving the Economy through Innovation and Entrepreneurship . New Delhi: Springer New Delhi, pp. 731–44. [ Google Scholar ] [ CrossRef ]
• Reddy, Amith Kumar. 2021. Impact of E-Banking on Customer Satisfaction. PalArch’s Journal of Archaeology of Egypt/Egyptology 18: 4220–31. [ Google Scholar ]
• Russell, James A. 1980. A circumplex model of affect. Journal of Personality and Social Psychology 39: 1161–78. [ Google Scholar ] [ CrossRef ]
• Schuetz, Sebastian, and Viswanath Venkatesh. 2020. Blockchain, Adoption, and Financial Inclusion in India: Research Opportunities. International Journal of Information Management 52: 101936. [ Google Scholar ] [ CrossRef ]
• Singh, N. Dhaneshwar, and H. Ramananda Singh. 2012. Social Impact of Microfinance on SHG Members: A Case Study of Manipur. Prabandhan: Indian Journal of Management 5: 43–50. [ Google Scholar ] [ CrossRef ]
• Singh, Surender, S. K. Goyal, and Supran Kumar Sharma. 2013. Technical Efficiency and its Determinants in Microfinance Institutions in India: A Firm Level Analysis. Journal of Innovation Economics Management 1: 15–31. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Thomas, Howard, and Yuwa Hedrick-Wong. 2019. How Digital Finance and Fintech Can Improve Financial Inclusion 1. In Inclusive Growth . Bingley: Emerald Publishing Limited, pp. 27–41. [ Google Scholar ]
• Wieser, Christina, Miriam Bruhn, Johannes Philipp Kinzinger, Christian Simon Ruckteschler, and Soren Heitmann. 2019. The Impact of Mobile Money on Poor Rural Households: Experimental Evidence from Uganda. World Bank Policy Research Working Paper No. 8913. Available online: https://openknowledge.worldbank.org/handle/10986/31978 (accessed on 12 January 2023).
• Wry, Tyler, and Yanfei Zhao. 2018. Taking Trade-offs Seriously: Examining the Contextually Contingent Relationship between Social Outreach Intensity and Financial Sustainability in Global Microfinance. Organization Science 29: 507–28. [ Google Scholar ] [ CrossRef ]

Click here to enlarge figure

Share and Cite

Asif, M.; Khan, M.N.; Tiwari, S.; Wani, S.K.; Alam, F. The Impact of Fintech and Digital Financial Services on Financial Inclusion in India. J. Risk Financial Manag. 2023 , 16 , 122. https://doi.org/10.3390/jrfm16020122

Asif M, Khan MN, Tiwari S, Wani SK, Alam F. The Impact of Fintech and Digital Financial Services on Financial Inclusion in India. Journal of Risk and Financial Management . 2023; 16(2):122. https://doi.org/10.3390/jrfm16020122

Asif, Mohammad, Mohd Naved Khan, Sadhana Tiwari, Showkat K. Wani, and Firoz Alam. 2023. "The Impact of Fintech and Digital Financial Services on Financial Inclusion in India" Journal of Risk and Financial Management 16, no. 2: 122. https://doi.org/10.3390/jrfm16020122

Article Metrics

Article access statistics, further information, mdpi initiatives, follow mdpi.

Subscribe to receive issue release notifications and newsletters from MDPI journals

Academia.edu no longer supports Internet Explorer.

To browse Academia.edu and the wider internet faster and more securely, please take a few seconds to  upgrade your browser .

Enter the email address you signed up with and we'll email you a reset link.

• We're Hiring!
• Help Center

Blackbook project on money market 163426471

Related Papers

Mehul Chauhan

tania arora

charan pratap Singh

In India, traditionally, a large component of domestic government debt was incurred at low rates of interest, which was statutorily prescribed for subscription by the institutional investors. A substantial amount of domestic debt was also monetised. The fiscal domination of monetary policy left very little flexibility for the Reserve Bank of India, the central bank of the country, to pursue a monetary policy conducive to the overall objective of development of financial markets, price stability and economic growth. In the last decade, due to financial sector reforms undertaken since 1991, the money and government securities markets have developed with the offering of market-related rates of interest on government securities, introduction of new instruments, setting up of trading institutions, and improved regulatory and technological developments. The interest rates in the financial markets are converging and the markets are becoming integrated. The debt management functions and pra...

papers.ssrn.com

Francis Rathinam

The OTC derivatives markets all over the world have shown tremendous growth inrecent years. In the wake of the present financial crisis, which is believed to have beenexacerbated by OTC derivatives, increasing attention is being paid to analysing theregulatory environment of these markets. In this context, we analyse the regulatoryframework of the OTC derivatives market in India. The paper, inter alia, seeks toprove the point that the Indian OTC derivatives markets, unlike many otherjurisdictions, are well regulated. Only contracts where one party to the contract is anRBI regulated entity are considered legally valid in India. A good reporting systemand a post-trade clearing and settlement system, through a centralised counter party,has ensured good surveillance of the systemic risks in the Indian OTC market.From amongst the various OTC derivatives markets permitted in India, interest rateswaps and foreign currency forwards are the two prominent markets. However, byinternational standards, the total size of the Indian OTC derivatives markets stillremains small because credit default swaps were conspicuously absent in India untilnow. It appears that Indian OTC derivatives markets will grow fast once again afterthe present financial crisis is over. This research paper explores those open issues thatare important to ensure market stability and development. On the issue of the muchdiscussed competition between exchange-traded and OTC-traded derivatives, webelieve that the two markets serve different purposes and would contribute more torisk management and market efficiency, if viewed as complementary. Regarding theintroduction of new derivative products for credit risk transfer, the recentannouncement by the RBI that it would introduce credit default swaps is a welcomesign. We believe that routing of credit default swaps through a reporting platform andmanaging its post-trade activities through a centralised counterparty would providebetter surveillance of the market. Strengthening the position of the ClearingCorporation of India Ltd. (CCIL) as the only centralised counterparty for Indian OTCderivatives market and better supervision of the off-balance sheet business offinancial institutions are two measures that have been proposed to ensure the stabilityof the market.

Loading Preview

Sorry, preview is currently unavailable. You can download the paper by clicking the button above.

•   We're Hiring!
•   Help Center
• Find new research papers in:
• Health Sciences
• Earth Sciences
• Cognitive Science
• Mathematics
• Computer Science
• Academia ©2024

• Accountancy
• Business Studies
• Organisational Behaviour
• Human Resource Management
• Entrepreneurship

Indian Money Market: Concept, Structure, Characteristics and Defects

What is indian money market.

The Indian money market is an essential element of India’s financial system, facilitating short-term borrowing and lending among financial institutions and individuals. Its primary function is to ensure efficient fund allocation and provide liquidity to participants, contributing to the smooth functioning of the economy. The Indian money market serves as a platform for liquidity management and price discovery. 

Table of Content

What is Money Market?

Structure of the indian money market, characteristics of the indian money market, defects of the indian money market.

A market or a segment of the financial market in which lending and borrowing of short-term funds take place is known as a Money Market. A money market primarily deals with highly liquid and low-risk instruments having maturity, usually with a range from overnight to one year. In a money market, the short-term surplus investible funds with the banks and other financial institutions are bid by borrowers. It plays a crucial role in facilitating efficient fund allocation. It also helps meet short-term fund requirements of different participants of an economy. The basic objectives of the Money Market include short-term financing, liquidity management, low-risk investments, benchmark interest rates, market stability and transparency, and monetary policy implementation. 

A Money Market is not the same as a Capital Market . The former is a market that deals with borrowing and lending of short-term funds; however, the latter is a market that deals with long-term funds. Even though these markets are different from each other, they are closely related as there is some overlapping between the short-term and long-term loan transactions. A money market is a part or segment of the financial market . A financial market includes a money market, capital market, government securities market, and foreign exchange market.

The Indian Money Market can be categorised into two sectors; viz., Organised or Modern Sector, and Unorganised or Indigenous Sector. 

The banks included in the organised or modern sector of the Indian Money Market are SBI, RBI, Private Scheduled Commercial Banks, Non-scheduled Commercial Banks, Nationalised Banks, Foreign Exchange Banks, and Cooperative Banks. However, the participants included in the unorganised or indigenous sector of the Indian Money Market are Sarrafs, Mahajans, Sahukars, Chettiars, and Seths. These participants carry on the moneylending business in the rural and semi-urban areas of India. The organised and the unorganised sectors of the Indian Money Market have little contact between them. 

The Reserve Bank of India has more or less complete control over the modern sector of the Indian Money Market. However, despite the fact that a major portion of the trade credit and industry credit is provided by the unorganised sector, RBI does not have control over it. 

Some of the key characteristics or features of the Indian Money Market are as follows:

1. Segmented Structure: The Indian money market can be categorised into organised and unorganised sectors. The organised sector includes institutions like the Reserve Bank of India (RBI), commercial banks, cooperative banks, and other financial institutions. However, the unorganised sector comprises indigenous bankers and money lenders.

2. Regulatory Oversight by the RBI: The Reserve Bank of India plays a pivotal role in regulating and supervising the Indian money market. It controls the money supply in the economy, manages liquidity, and ensures the stability of the financial system.

3. Focus on Short-Term Financing: The Indian money market predominantly deals with short-term financial instruments having maturities of up to one year. It enables participants to fulfil their short-term funding requirements and efficiently manage liquidity.

4. Diverse Array of Instruments: The Indian money market offers a wide range of instruments , including treasury bills, certificates of deposit, commercial papers, call money, etc. These instruments serve as avenues for short-term borrowing, lending, and investment activities.

5. High Liquidity: The Indian money market is known for its high liquidity due to the presence of diverse participants and instruments. Market participants can readily buy or sell their holdings without significant price fluctuations.

6. Low-risk Instruments: Instruments in the Indian money market are generally considered low-risk because of their short maturities and backing by credible issuers such as the government, banks, and financial institutions. Consequently, they are attractive to risk-averse investors.

7. Significance in Monetary Policy Transmission: The money market plays a critical role in transmitting monetary policy decisions. The RBI employs various tools, such as open market operations, repo rate, and reverse repo rate, to regulate liquidity in the money market and influence overall interest rates in the economy.

8. Dominance of Institutional Investors: Institutional investors, including banks, financial institutions, and mutual funds, primarily dominate the Indian money market. Individual retail investors have limited direct participation, although they can indirectly access the money market through mutual funds and other investment vehicles.

9. Interconnectedness with Other Financial Markets : The Indian money market exhibits interconnections with other segments of the financial market, such as the capital market and foreign exchange market. Funds from the money market can flow into long-term investments or be utilised for currency trading.

10. Ongoing Infrastructure Development: The Indian money market has experienced significant growth and development in recent years. Efforts have been made to enhance market infrastructure, improve transparency, and introduce new instruments to cater to the evolving needs of participants.

The Indian money market has been associated with several defects that hinder its efficient functioning. Some of the defects of the Indian money market are as follows:

1. Existence of Unorganised Money Market: The Indian money market consists of both organised and unorganised sectors. The unorganised sector, which includes indigenous bankers and moneylenders, lacks proper regulations and operates outside the purview of RBI. This leads to issues such as lack of transparency, high-interest rates, and exploitation of borrowers. Borrowers may face difficulties in accessing fair and transparent lending practices, affecting the overall efficiency of the market.

2. Absence of Cooperation amongst the Members of the Money Market: The lack of cooperation and coordination among the various participants in the money market, including banks, financial institutions, and the government, hampers the smooth functioning of the market. Without effective collaboration, the market may experience inefficiencies, liquidity problems, and a fragmented structure. Cooperative efforts are necessary to ensure the stability and optimal functioning of the money market.

3. Lack of Uniformity in Interest Rates in the Money Market: In the Indian money market, interest rates are not uniform across different segments and participants. This lack of uniformity creates disparities and uncertainties, making it difficult for market participants to make informed decisions. It also affects the transmission of monetary policy and the overall stability of the market. Transparent and consistent interest rate mechanisms are essential for an efficient money market.

4. Absence of Organised Bill Market: A well-developed bill market is crucial for the functioning of the money market. However, in India, the bill market is not adequately organised. This absence of an organised bill market limits the availability of short-term credit instruments, such as treasury bills and commercial bills, which are essential for liquidity management and financing trade transactions. A well-regulated bill market is necessary to facilitate efficient short-term financing.

5. Seasonal Financial Stringency: The Indian money market experiences seasonal fluctuations in liquidity and financial stringency. This is primarily due to factors like agricultural cycles, festive seasons, and government borrowing patterns. These fluctuations can lead to volatility in interest rates and create uncertainties for market participants. Strategies to manage these seasonal fluctuations are necessary for maintaining stability.

6. Shortage of Capital in the Money Market: The Indian money market faces a shortage of capital to meet trade and industry requirements. The limited availability of capital hampers the development of various sectors and restricts the growth potential of the overall economy. Adequate availability of capital is crucial for sustaining economic growth and meeting the funding needs of businesses and individuals.

7. Lack of Development of the Indian Money Market: The Indian money market is not as developed as other major global money markets. It lacks depth, breadth, and sophistication in terms of financial products and instruments. This hinders the efficient allocation of funds and impedes the overall growth and stability of the financial system. Developing a diverse range of financial products and instruments can enhance the market’s efficiency.

8. Excessive Number of Indigenous Bankers in the Money Market: The presence of a large number of indigenous bankers, such as moneylenders and unregulated non-banking financial entities, creates issues of unfair practices, lack of accountability, and high-interest rates. It also contributes to the unorganised nature of the money market. Proper regulation and oversight are necessary to mitigate these issues and ensure fair and transparent practices.

9. Absence of Specialised Institutions in the Money Market: The Indian money market lacks specialised institutions that can cater to specific financial needs and provide specialised financial services. This absence limits the options available to market participants and hampers the overall efficiency of the money market. The establishment and strengthening of specialised institutions can enhance the market’s ability to meet diverse financial requirements.

10. Non-availability of Credit Instruments: The Indian money market suffers from a lack of diverse and readily available credit instruments. The absence of a wide range of credit instruments restricts the flexibility and effectiveness of financing options for borrowers and lenders. Developing a comprehensive range of credit instruments can provide market participants with more options for managing their financing needs.

Addressing these defects requires various measures. Regulatory reforms are necessary to ensure proper oversight and regulation of all market participants. Improved coordination among market participants, including banks, financial institutions, and the government, is essential for efficient market functioning. Developing organised bill markets and specialised institutions can enhance the availability of credit instruments and cater to specific financial needs. Furthermore, promoting financial literacy among market participants can empower them to make informed decisions and contribute to a more efficient money market.

Please Login to comment...

Similar reads.

• Money & Banking

Improve your Coding Skills with Practice

What kind of Experience do you want to share?

• Number of Visitor : 11625965

• About Research
• Advisory Committee
• Research Paper/ Articles
• Upcoming Conferences

• Certifications
• Long Term Programs
• NISM Newsletters
• Investor Education

Decoding Investment Pattern of FIIs and DIIs in Indian Stock Market Using Decision Tree

International Journal of Advanced Research in Computer Science, 8 (3), March - April -2017, pp 911-916

Posted: 14 Aug 2024

Manminder Singh Saluja

Devi Ahilya University (DAVV) - International Institute of Professional Studies (IIPS)

Yasmin Shaikh

International Institute of Professional Studies, Devi Ahilya University

Date Written: 2017

Investing in stock market has always been a riskier venture. Market participants had always tried to correctly time the market to make more money. It is not only about the timing in the market but also about a correct decision of either to buy or sell the respective stock. Big institutional players had always been more successful in making money compared to the smaller ones like retail investors. The main objective of this paper is to decode the investment pattern of these big players like Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) using decision tree method of machine learning techniques. Using J48 technique of C4.5 classification program it was found that FIIs had more predictable and correct investment pattern compared to DIIs. The information gain ratio made HIGH attribute as the prime node of the tree for both FIIs and DIIs with an accuracy level of 66.17% and 59.35% respectively. FIIs are the net buyers if HIGH and CLOSE attributes are positive and net sellers if HIGH and LOW are negative. However, DIIs ironically are the net buyers with a negative HIGH.

Keywords: Decision Tree, Stock Market, FIIs, DIIs, Investment

JEL Classification: G11

Suggested Citation: Suggested Citation

Manminder Singh Saluja (Contact Author)

Devi ahilya university (davv) - international institute of professional studies (iips) ( email ).

Takshashila Campus Khandwa Road Indore, MP 452001 India

HOME PAGE: http://www.iips.edu.in

International Institute of Professional Studies, Devi Ahilya University ( email )

Indore Khandwa Road Indore, MP 452017 India

Do you have a job opening that you would like to promote on SSRN?

Paper statistics, related ejournals, behavioral & experimental finance ejournal.

Subscribe to this free journal for more curated articles on this topic

Capital Markets: Market Efficiency eJournal

Subscribe to this fee journal for more curated articles on this topic

Information Systems & Economics eJournal

• Market News
• My Portfolio
• My Watchlist
• International Markets
• Mutual Fund

Xolopak India Files IPO Draft Papers on NSE Emerge

By Rediff Money Desk , New Delhi   Aug 19, 2024 16:02

You May Like To Read

Cash Ur Drive Marketing IPO: NSE Emerge Filing - Funds... Aug 01, 2024 17:19

Coal Mines Allocated for Fly Ash Disposal | India News Jul 09, 2024 18:01

Punjab FM Disappointed by Union Budget: No Crop... Jul 23, 2024 17:41

German Government Averts Budget Crisis: Stimulus Package... Jul 05, 2024 18:47

Kerala Seeks Special Package, Higher Borrowings From Centre Jun 27, 2024 21:05

Kerala Seeks Rs 24,000 Crore Financial Package from Centre Jul 30, 2024 15:23

Tesla Shareholders to Vote on Elon Musk's Pay Package Again May 31, 2024 22:17

Coca-Cola Introduces Recycled PET Bottles in India Jun 19, 2024 22:13

Pakistan & IMF Begin Talks for New Bailout Package May 14, 2024 17:06

TODAY'S MOST TRADED COMPANIES

• Company Name
• GTL Infrastructure
• 2.87 (+ 4.74)
• Vodafone Idea L
• 15.96 (+ 0.50)
• Srestha Finvest
• 2.31 (+ 3.13)
• 1.15 (+ 4.55)
• Filatex Fashions
• 1.33 ( -2.21)

More »

Prudent Corporate Advisory Services promoters sold a 2.47% stake for Rs 251 crore, with...

Quick commerce platforms like Blinkit, Zepto, and Instamart saw a surge in sales during...

Bajaj Auto will increase its provision for deferred tax by Rs 211 crore due to the...

Moneywiz Live!

Hindenburg vs Sebi Chief: Who said what and how it has impacted stock market

Hindenburg research published a report on saturday claiming that whistleblower documents showed securities and exchange board of india (sebi) chairperson madhabi puri buch and her husband had a stake in the obscure offshore entities used in the 'adani money siphoning scandal'..

Listen to Story

• Hindenburg alleges Sebi Chairperson's offshore stakes
• Adani Group, Sebi Chief rejects Hindenburg's allegations
• Markets witness little affect despite claims from Hindenburg

US-based short seller firm Hinderburg created buzz on Friday by sharing a cryptic post on X, hinting at a big revelation pertaining to India.

Something big soon India — Hindenburg Research (@HindenburgRes) August 10, 2024

It then published a report on Saturday claiming that whistleblower documents showed Securities and Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch and her husband had a stake in the obscure offshore entities used in the 'Adani money siphoning scandal'.

This report came in a long series of events in which Seb issued a 'show cause' notice to Hindenburg after its report claiming Adani Group's involvement in 'brazen stock manipulation and accounting fraud scheme' was published in January last year.

"We had previously noted Adani’s total confidence in continuing to operate without the risk of serious regulatory intervention, suggesting that this may be explained through Adani’s relationship with Sebi Chairperson, Madhabi Buch," the Hindenburg report claimed.

What did Sebi Chairperson say?

In response to the allegations, Madhabi Puri Buch and Dhaval Buch said that the claims in the Hindenburg report were "groundless" and "without merit."

They highlighted that their financial records were transparent and described the claims as an effort at "character assassination."

The Buchs later issued a detailed joint statement, countering the allegations made by the US short-seller Hindenburg Research .

The Buchs said that their investment in the fund, which Hindenburg claimed is linked to the alleged "Adani stock manipulation", was made two years before Madhabi joined Sebi.

In the statement, the Buchs stated that they made an investment in the said fund, IPE Plus Fund 1, managed by 360 ONE Asset and Wealth Management (earlier IIFL Wealth Management) in 2015.

Industry leaders back Sebi chief

The latest Hindenburg Report claims prompted a range of responses, with industry leaders voicing support for the Sebi Chairperson.

Mohandas Pai, former Infosys CFO, backed Sebi Chairperson Madhabi Puri Buch and criticized Hindenburg Research.

360 ONE Asset issues clarification

360 ONE Asset and Wealth Management (earlier known as IIFL Wealth Management) in 2015 issued a clarification after being named by Hindenburg in its latest report.

"Throughout the fund's tenure, IPE-Plus Fund 1 made zero investments in any shares of the Adani Group either directly or indirectly through any fund," the wealth management firm said in an exchange filing .

Hindenburg claimed that the IPE Plus Fund, a small offshore Mauritius fund linked to an Adani director, was used by Vinod Adani to invest in Indian markets with funds allegedly siphoned through inflated power equipment invoices.

What did Sebi say?

The Securities and Exchange Board of India (Sebi) dismissed allegations from Hindenburg Research that changes to Real Estate Investment Trust (REIT) rules were influenced by Sebi Chairperson Madhabi Buch’s husband, Dhaval Buch, who is employed by Blackstone.

Sebi said that all amendments to REIT regulations follow a thorough consultation process and described the claims as inappropriate.

The regulator clarified that Dhaval Buch has not been involved with Blackstone’s real estate sector and mentioned that regulatory changes are made transparently, with input from industry stakeholders and approval from the Sebi Board.

How did Adani Group respond?

Adani Group has strongly rejected the latest allegations by Hindenburg Research, calling them “malicious, mischievous and manipulative”.

In a statement on Sunday, the Adani Group said the latest allegations are "recycling of discredited claims" that have been proven baseless in court.

How did market react to Hindenburg report?

SenSex, Nifty closed slightly lower on Monday after a brief rally, despite Hindenburg Research's recent claims against Sebi chief Madhabi Puri Buch.

The S&P BSE Sensex fell by 56.99 points to end at 79,648.92, while the NSE Nifty50 dropped 20.50 points to 24,347.

Most broader market indices showed mixed results, with increased volatility due to Hindenburg’s allegations against the Sebi chief and her husband.

Despite this, the negative claims had little effect on Dalal Street, as investors largely dismissed the allegations concerning Sebi and offshore funds linked to the Adani Group.

Vinod Nair, Head of Research, Geojit Financial Services, said, "The Indian market concluded relatively flat, with its initial path being eclipsed by continuation of the Adani-Hindenburg-Sebi saga."

• Marketplace
• Marketplace Morning Report
• Marketplace Tech
• Make Me Smart
• This is Uncomfortable
• The Uncertain Hour
• How We Survive
• Financially Inclined
• Million Bazillion
• Marketplace Minute®
• Corner Office from Marketplace

• Latest Stories
• Collections
• Smart Speaker Skills
• Corrections
• Ethics Policy
• Submissions
• Individuals
• Corporate Sponsorship
• Foundations

Why Canada has become a critical supplier of crude oil to the U.S.

Share Now on:

• https://www.marketplace.org/2024/08/13/why-canada-has-become-a-critical-supplier-of-crude-oil-to-the-u-s/ COPY THE LINK

HTML EMBED:

Sign up for the Marketplace newsletter to get the day’s biggest business stories, our economic analysis, and explainers to help you live smarter, straight to your inbox every weekday evening.

In the car-centric United States, we have a bit of a love affair with oil. And that romance is really an international love story — one where our neighbors to the north play a starring role, accounting for a growing share of oil that the U.S. refines and imports.

If Canadian crude and U.S. refineries were in a rom-com, Canadian crude would be the boy next door, the one U.S. refiners overlooked when they were courting Latin American oil back in the late 1980s and early ’90s.  

“So, you can think of Venezuela, Mexico,” said Kevin Birn with S&P Global Commodity Insights, alluding to when the world thought we were running out of oil. “The Gulf Coast refineries were looking for security of supply. A lot of these refiners entered into long-term joint-venture agreements with the suppliers to get access to security of that heavy barrel supply.” 

Big money was put into refining capacity that catered to the heavy Latin American oil, which is more expensive to refine into diesel or gasoline, Birn said.

“You need the ability to reach higher temperatures, and you need to have specially designed facilities that can handle that as well,” Birn said. “And so those joint ventures led to an expansion in U.S. refining capacity to process heavy barrels, first in the Gulf Coast region in the early ’90s, and that continued through to the early 2000s.” 

Those refineries had really invested in their relationship with heavy Latin American oil.

“But as we entered this century, millennia, we saw that kind of slow down,” Birn said. “A lot of those deals were rolling off, and the Latin American supply began to slow.” 

And even though we saw fracking and horizontal drilling transform the Permian Basin in West Texas into one of the most significant oil producing regions in the world, the oil there was not as compatible with the expensive new U.S. refineries, said Ryan Kellogg with the University of Chicago. 

“All of that capacity was built before the shale boom started. And all of a sudden, we had all this really nice, light, sweet crude available in the U.S.,” Kellogg said. “So, we’re now in this position where we have these very high-tech refineries that can process the really heavy crude.” 

We needed to get that heavy crude from somewhere else.  

“Think about the oil sands or tar sands of Alberta. Basically, this is like really thick, heavy, goopy crude oil,” Kellogg said.

And Chuck Mason with the University of Wyoming said Alberta’s oil sands also had a geographical advantage.

“In the grand scheme of things, not super-duper far away from the refining sector,” Mason said.

And for Canada, exporting heavy crude by pipeline and rail to its oil-hungry southern neighbor made sense. 

“This source of production that we’re talking about is the very epitome of land a landlocked resource,” Mason said. “U.S. refiners were just better buyers, because they were there easier to connect. The transactions costs associated with connecting up with them are massively smaller.”

It was a sensible match. 

“The relationship was very symbiotic,” Birn said, and that has only strengthened over the years. “Canadian growth occurred at such a rate and scale that it overwhelmed that region, and additional infrastructure was designed to deliver that crude oil into the Gulf Coast region of the United States, and increasing volumes and then making it to the U.S. Gulf Coast.” 

Many miles of new pipeline later, 60% of   U.S. crude oil imports come from Canada, according to the U.S. Energy Information Administration.   A decade ago, it was just 33%.

Stories You Might Like

U.S. oil refiners are doing well, even though gasoline prices are down

Despite lifted sanctions on Venezuelan energy, don’t expect a boom in oil exports

With Keystone XL scrapped, oil companies look for workarounds

Record hurricane season could hurt oil and gas production

Crude oil prices are down, but oil companies’ profits are doing just fine

Why do we import Russian (and other foreign) oil when we have a lot of it in the U.S.?

There’s a lot happening in the world.  Through it all, Marketplace is here for you.  

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.  

Your donation today powers the independent journalism that you rely on . For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.  

Also Included in

• Oil production

Latest Episodes From Our Shows

Will the Justice Department break up Google?

Will U.S. consumers keep the economy going?

Realtors settlement may lead to more agents serving buyer and seller

Housing a big driver of inflation in the July CPI, but there's a lag