4 Major Defects of Indian Money Market Defects of the Indian Money Market essay

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4 Major Defects of Indian Money Market

Defects of the Indian Money Market


The main defects of the Indian money market are the following:

1. Narrow coverage:

The organized banking system is still a very large component of the Indian money market. The  Indian banking system widely covers metropolitan cities and the towns. But, The organized sector of the banking system is conspicuous by its absence in many rural areas.

This means that lower income groups in many rural areas still do not enjoy banking facilities.

2. Imbalance between demand and supply:

The Indian money market is characterized by inadequate supply of short-term assets. This creates a peculiar situation.

On the one hand banks with surplus funds cannot invest them profitably short period. On the other hand, those who require short-term funds are unable to raise them from the market at competitive rates.

3. Lack of coordination:

There is hardly any coordination between the different segments of the money market. The reason in easy to find out. The different segments of the money market are very loosely interrelated at present. As a consequence there exists different interest rates in different sub-markets.

4. Only domestic coverage:

Finally, the Indian money market mainly targets the domestic market. So, it is very difficult to attract foreign funds. The main reason seems to be that rupee is not a major currency in the leading foreign exchange markets of the world.

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