Banks having surplus funds can thus build up and earn more on their assets over a certain period. The participating banks viz., the issuing and borrowing banks get access to funds against advances comparatively with less procedural complexities. The RBI has authorized the banks to fund their short term needs from within the system through issuance of IBPC in 1988. This is purely an inter-bank instrument to even out liquidity within the banking system. The objective is to provide some degree of flexibility in the credit portfolio of banks and smoothen consortium arrangements. Banks may be having long book debts and may be in necessity to find temporary support of funds to tide over. The participation certificates are issued by banks for periods of 91 days and 780 days. It is an inter-bank participation to fund their short-term needs. Participation Certificate or IBPC is another instrument introduced in the market following the recommendation of the working group known as the Vaghul Committee on money market. Inter-Bank Participation Certificates (IBPCs) : (iv) Since the interest rate is high, investors hold CDs till maturity, so the secondary market for CDs is not so active. (iii) This is an ideal instrument for the banks with short term surplus fund to invest. (ii) CDs also offer maximum liquidity as they are transferable by endorsement and delivery. (i) CDs are the most convenient instruments to depositors as they enable their short term surpluses to earn higher return. In Indian market RBI introduced this in 1989. Unlike traditional time deposits (Fixed Deposits) these are freely negotiable instruments and are often referred to as Negotiable Certificate of Deposits (NCDs). They are like bank term deposits accounts. It is issued by banks/financial Institutions (FIs) against deposits kept by individuals, companies and institutions. It is a debt instrument and bearer certificate which is negotiable in the market. They are short term time deposit instruments issued by banks and financial institutions to raise large sums of money. Certificate of Deposits (CDs):Ĭertificate of Deposits (CDs) is a negotiable money market instrument issued in dematerialized form as a usance promissory note, for funds deposited at a bank or with other eligible financial institution for a specified time period. The investors of CP prefer to hold them till maturity, so there is little activity in the secondary market for CP.
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