What Is Call Money?
We come across the term “Call Money” very frequently and it is one of the important terms in relation to the money and financial market in the world. In India the call money market forms a vital segment of our money market. It is is looked upon as one of the immediate sources of short-term money the absence of which can badly affect the liquidity position of the banking system. In our country Reserve Bank of India, Life Insurance Corporation of India, Unit Trust of India, Financial Institutions, commercial banks and State Co-operative banks are the participants in the call money market in India which are located in our metro cities of Mumbai, Kolkata and Chennai. In the early nineties some mutual funds and participants in the bill rediscounting scheme were given entry into this market.
It is interesting to note that State Bank of India, Life Insurance Corporation of India and Unit Trust of India are the prominent providers of money in the call money market to all the our nationalized public sector banks, foreign banks and co-operative banks which borrow money to meet their short-term requirements of funds.
The inter bank call market is a part of the domestic money market from where banks borrow and lend on a daily basis. All the scheduled commercial banks, financial institutions viz., all the term lending institutions and insurance companies and mutual funds, are paricipants in this market. Banks borrow in the call market to meet any temporary deficit in fund on a particular day and reasons behind such a deficit are mismatches in deposit mobilization and the amount
lent and call money market comes to the rescue in such an eventuality. Another important reason is to meet the CRR (Cash Reserve Ratio) which is the cash reserves a bank must park with Reserve Bank of India which is calculated on the basis of the borrowings of the bank or Net Demand and Time Liabilities on every alternate Friday. A bank can borrow these funds for between one-day upto 14 days . Normally funds are borrowed for one day and upto three days on weekends.
Over the years the Reserve Bank of India has added quite a few number of institutions which are eligible to participate in call money market. Some of which are permitted to act in the capacity of lenders.
The following instruments are generally associated with this segment which are also known as money market instruments which include call/notice money, repo and reverse repo, inter corporate deposits, commercial paper, certificate of deposit, treasury bills and inter bank participation certificates.
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