Call Money Market – Overnight Borrowing

Introduction

The Call Money Market is the most sensitive part of the money market. It deals in Overnight funds (1 Day).

1. Why do Banks need money for 1 Day?

• To maintain CRR (Cash Reserve Ratio) with RBI.
• To meet sudden huge payments (e.g., a big corporate withdrawal).
• If Bank A has a deficit, it calls Bank B (Surplus).

2. Features

1. Period: 1 Day (Overnight).
2. Rate: Call Rate. It is highly volatile. Can spike to 10-20% during liquidity crunch.
3. Participants:
   • Lenders & Borrowers: Commercial Banks, Cooperative Banks.
   • Borrowers Only: Primary Dealers (PDs).
   • (LIC, UTI, Mutual Funds specifically excluded now - they moved to Repo/CBLO).

3. MIBOR (Mumbai Inter-Bank Offer Rate)

• It is the benchmark rate for the Call Money Market.
• Calculated daily by NSE based on polluting rates from major banks.
• It acts as a reference for pricing other loans.

Summary

• Duration: 1 Day.
• Purpose: CRR maintenance / Liquidity mismatch.
• Benchmark: MIBOR.
• Players: Banks Only (mostly).

Quiz Time! 🎯

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