Significance of Call Money Market in India

Significance of Call Money Market in India

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The call money market is a crucial part of the Indian financial system. It is a market where banks and financial institutions lend and borrow money for a short period of time. The call money market duration can extend up to 14 days depending on the terms of the transaction but generally, transactions are settled within a day or two. The short-term nature of the call money market makes it ideal for meeting short-term funding requirements and managing liquidity needs.

Some of the outstanding call money market features includes fast cash availability and hassle-free transaction. It makes availability of funds for a short duration possible so that borrowers can easily take care of their requirements. Additionally, the market is characterized by the absence of collateral, which means that lenders rely on the creditworthiness of the borrower. Another feature of the call money market is the role of brokers, who act as intermediaries between borrowers and lenders.

In the Indian financial system, there are several call money market functions. One of the primary functions of the call money market is to provide a source of short-term funding to banks and financial institutions. Additionally, the market serves as a tool for managing liquidity requirements, allowing institutions to borrow funds as and when needed. The call money market also acts as an indicator of the liquidity conditions in the Indian financial system.

The call money market in India is a well-developed market that operates under the guidance of the Reserve Bank of India (RBI). The RBI regulates the market by setting policy rates and implementing monetary policies. The market is open to all commercial banks, primary dealers, and select financial institutions. Transactions in the call money market are settled through the Clearing Corporation of India Limited (CCIL), which acts as a central counterparty and ensures the timely settlement of transactions.

Thus, the call money market is an essential part of the Indian financial system providing a source of short-term funding and managing liquidity requirements. The market operates on several unique features, including the absence of collateral and the role of brokers. Understanding the time frames, features, and functions of the call money market can help investors and businesses make informed decisions about their financial activities in India.