call money market

 CMM deals in one day to a fortnight
loan which may or may not be
renewed the next day. It is also known
as call loans or call money.
 It is the most active and sensitive part
of the organised money market.
 As these loans are repayable on
demand, they are highly liquid, their
liquidity being exceeded only by cash.
 The nature of this market is different
from country to country. Differences
in institutional structures accounts for
differences in the nature, participants,
purposes etc.
 Call loans are used for the adjustment of
reserves by banks.
 Till 1978 transactions was done through
brokers but the RBI has prohibited banks in
paying brokerage on operations.
 Unlike other countries call loans in India are
highly unsecured. The money credit situation
in India is subject to seasonal fluctuations
every year.
 The need for call money is the highest during
March every year which maybe due to
withdrawal of deposits in this month to meet
year end tax and also for FIs to meet their
CRR, SLR etc.
 CMMs are located in big industrial
and business centres like Mumbai,
Kolkata, Chennai, Delhi and
Scheduled Commercial Banks
Non-Scheduled Commercial Banks
Foreign banks
State, district and urban Co-op Banks
 LIC, UTI, GIC started participating directly
from the 70s.
 IDBI, ICICI and IFC participated indirectly.
 Their participation has a potential for
weakening the monetary policy of the RBI.
An access to funds outside the banking
system means that they can weaken the
effect of monetary requirement such as
SLR,BR etcs.
 The Vaghul Working Group 1987
recommended that the call market should
be exclusively preserve for Commercial
banks without any ceiling on call rates.
 UTI, LIC etc can participate only
temporarily with a ceiling on call rate fixed
at 10% per year and also only as lenders
but not borrower.
 The most significant factor determining
the demand and supply of call loans is the
resources position of the bank which
depends on the deposits accrual to them.
 The demand for call loans would depend
upon the buoyancy of the stock market
and increase in demand for loans.
 The rate of interest paid on call loans
is known as the call rate. It is highly
variable day to day and often hour to
hour.. It varies form centre to centre.
It is very sensitive to changes in the
demand for and supply of call loans.
 Till 1973- determined by market forces.
 1st May 1989- ceiling on call rates
 Volatility of call rates: Reasons.
 While the banks are the net lenders,
Primary Dealers are the net borrowers.
FIs’ invest substantially in the call
market till today. Therefore, pure interbank call market developed only during