Overview of Call Money Market in India

Overview of Call Money Market in India

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The Call Money Market is an important segment of the Indian money market. It is a market where banks and financial institutions lend and borrow funds on a short-term basis, usually for a period of one to fourteen days. The Call Money Market size in India is relatively small compared to the other money markets in the country. As of 2021, the size of the Call Money Market was around Rs. 10,000 Crores. The size of the market has been relatively stable over the years, and it is mainly dominated by banks and financial institutions. The interest rate is known as the Call Money Rate and the Reserve Bank of India (RBI) regulates the Call Money Market in India.

In India, the Call Money Market is regulated by the RBI. The RBI has put in place various guidelines and regulations to ensure the smooth functioning of the market. The RBI regulates the Call Money Market through various measures such as setting the statutory liquidity ratio (SLR), the cash reserve ratio (CRR), and the repo rate. The RBI also conducts regular inspections of banks and financial institutions to ensure that they are following the guidelines and regulations set by the RBI.

Primarily, there are two types of Call Money Market products - Call Money and Notice Money. Call Money is the money that is borrowed or lent for a day while Notice Money is borrowed or lent for a period of two to fourteen days. The interest rate for Call Money is generally lower than the interest rate for Notice Money. Call Money is used by banks to meet their daily cash requirements, while Notice Money is used for short-term funding requirements.

The Call Money Market interest rates are determined by the market forces of demand and supply. The interest rate is set by the lender and is dependent on various factors such as the prevailing market conditions, the creditworthiness of the borrower, and the liquidity in the market. The interest rates in the Call Money Market are highly sensitive to changes in the monetary policy of the RBI.

Hence, the Call Money Market is an important segment of the Indian money market. It plays a critical role in providing short-term funding requirements to banks and financial institutions. The RBI regulates the market through various guidelines and regulations to ensure smooth functioning.