Is an integral part of the Indian money market where

day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration (1 to 14 days). Money lent for one day is called call money; if it exceeds 1 day but is less than 15 days it is called notice money. Money lent for more than 15 days is term money The borrowing is exclusively limited to banks, who are temporarily short of funds. Call loans are generally made on a clean basis- i.e. no collateral is required
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The main function of the call money market is to

redistribute the pool of day-to-day surplus funds of banks among other banks in temporary deficit of funds The call market helps banks economize their cash and yet improve their liquidity It is a highly competitive and sensitive market It acts as a good indicator of the liquidity position

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scheduled and non-scheduled commercial banks. Foreign banks State, district and urban cooperative banks.

Discount & Finance House of India (DFHI)

Securities Trading Corporation of India (STCI) LIC, GIC, UTI and other institutions

DFHI and STCI borrow as well as lend in call money market.

Small & non scheduled banks also started participating Foreign banks Since 1970s SBI is a major lender and small borrower in call

market Direct participation of LIC, GIC, UTI & indirect participation by other term lending FIs like IDBI, ICICI, IFC
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Call Money markets are mainly located in big industrial and

commercial centers e.g. Mumbai, Delhi, Calcutta, Chennai, Ahmadabad Among these centers, Mumbai & Calcutta are more significant from the point of view of the size and buoyancy of the market Predominant role of Mumbai is due to head offices of RBI & many other banks, LIC & UTI are located there, biggest stock exchange etc Apart from these, there are a large number of local call market development and operated by ingenious local bankers e.g.. in Saurashtra in Gujarat when large payments are to be made, the local banks help each other with overnight funds Among some banks there are regular arrangements without the payment of interest or at a very low rate of interest e.g.. 2 paise per hundred rupees per night

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Dept. of Mgmt. Studies (MIMIT) FINANCIAL SERVICES

The call market in India suffers from the following drawbacks: Uneven Development: The call money market in India is confined to only big industrial and commercial centres like Mumbai, Calcutta, Chennai, Delhi, Bangalore and Ahmadabad. Generally call markets are associated with stock exchanges. Hence the market is not evenly developed Lack of Integration: The call markets in different centres are not fully integrated. Besides, a large number of local call markets exist without any integration Volatility in Call Money Rates: Another drawback is the volatile nature of the call money rates. Call rates vary to a greater extent in different centres in different seasons on different days within a fortnight. The rates vary between 12% and 85%. One can not believe 85% being charged on call loans
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Advantages
High Liquidity: Money lent in a call market can be called back at any time

when needed. So, it is highly liquid. It enables commercial banks to meet large sudden payments and remittances by making a call on the market. High Profitability: Banks can earn high profits by lending their surplus funds to the call market when call rates are high and volatile. It offers a profitable parking place for employing the surplus funds of banks temporarily. Maintenance of SLR: Call market enables commercial banks to maintain their statutory reserve requirements. Generally banks borrow on a large scale every reporting Friday to meet their SLR requirements. In the absence of call market, banks have to maintain idle cash to meet their reserve requirements. It will tell upon their profitability. Safe and Cheap: Though call loans are not secured, they are safe since the participants have a strong financial standing. It is cheap in the sense brokers have been prohibited from operating in the call market. Hence, banks need not pay brokerage on call money transactions.

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Advantages Contind
Assistance to Central Bank Operations: Call money market is the most sensitive part of any financial system. Changes in demand and supply of funds are quickly reflected in call money rates and it gives an indication to the central bank to adopt an appropriate monetary policy. Moreover, the existence of an efficient call market helps the central bank to carry out its open market operations effectively and successfully.
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