Call Money Market & Notice Money Market
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CALL MONEY MARKET AND NOTICE MONEY MARKET It is a key segment of the Indian money market and accounts for the major part of the total turnover of the money market. It is the market where the borrowings and lendings for short term funds are done. When a bank is in deficit of funds, it can borrow from a bank which is in surplus. When money is borrowed or lent for one day (overnight) then that is called call money. Generally the money borrowed on a day and repaid on the next working day. It is also called as overnight money market. When money is borrowed or lent for more than one day but upto 14 days then that is called notice money. When money is borrowed for more than 14 days but less than one year then that is called term money. No collateral security is required to cover these transactions. It is required mostly by the commercial banks because commercial banks need to maintain a minimum cash balance i.e. CRR (cash reserve ratio) and for this they need inter bank
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Transcript of Call Money Market & Notice Money Market
CALL MONEY MARKET AND NOTICE MONEY MARKET
It is a key segment of the Indian money market and accounts for the major part of the total turnover of the money market.
It is the market where the borrowings and lendings for short term funds are done.
When a bank is in deficit of funds, it can borrow from a bank which is in surplus.
When money is borrowed or lent for one day (overnight) then that is called call money. Generally the money borrowed on a day and repaid on the next working day. It is also called as overnight money market.
When money is borrowed or lent for more than one day but upto 14 days then that is called notice money.
When money is borrowed for more than 14 days but less than one year then that is called term money.
No collateral security is required to cover these transactions. It is required mostly by the commercial banks because
commercial banks need to maintain a minimum cash balance i.e. CRR (cash reserve ratio) and for this they need inter bank borrowings. This is the prime reason what has led to the development of the call money market.
CRR is a technique for monetary control effected by RBI for achieving specific macro-economic objectives like maintaining desired level of inflation, growth exchange rates etc.
Right now it is 6%. The daily minimum CRR was reduced to enable the smooth
adjustment of liquidity between surplus and deficit segments and
better cash management to avoid sudden increase in overnight call rates.
It is basically an over- the- counter (OTC) market without the intermediation of the brokers.
Commercial banks and primary dealers can both borrow and lend. RBI as regulator routinely participates in the market to inject
liquidity (lend) or to mop up liquidity (borrow). LIC, UTI, GIC, IDBI, NABARD, ICICI, Mutual Fund Managers, etc. can
lend money in this market but they are not allowed to borrow from this market.
From August 6, 2005 call money market is now a pure inter- bank money market.
ROLL OF RBI IN THE CALL MONEY MARKET :-
-By providing lines of finance (additional funding) to the DFHIs and other call money dealers
-By conducting REPO auctions (This increases liquidity in the market and brings down call money rates). Reserve REPO absorbs excess liquidity.
