Understanding what ‘CALL MONEY’ is all about

De-coding call market

De-coding call market

The call money market plays a very significant role in economy of a country and its overall money market. The call money market is nothing else but a segment that fulfills the financial need of banks on a daily basis. In the times of fund shortage, one bank can utilize the scope of call market and borrow money from the other bank that has excess cash parked with it for duration of one or two days. The banks also require money to meet their CRR and SLR needs.

Tenor

The call money market provides short-term loan from 1 to 14 days. So, the call market plays an important role in filling the provisional mismatches of funds.The amount loaned for one day (overnight basis) is called “call money” and for a period of 2 to 14 days is called “notice money.”

Need of Call Money

Banks usually make use of cal money in order to maintain short-term liquidity. There are times when large money outflows are witnessed especially during festival seasons. During those times liquidity tightens in economy as currency circulation increases suddenly.

Participants

Scheduled commercial banks (excluding Regional Rural Banks), co-operative banks (other than land development banks) and primary dealers participate in the call money market.

Call Rate

The call rate is interest which is paid on the call money. It’s for the participants to decide what the call rate will be. The call rate is very volatile and changes from hour to hour basis. The minimum call rate on 1 November 2014 was 0.50% and the maximum 8%.

As the call money rate increases the other securities such as commercial paper in the market become more attractive to borrowers.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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