CALL MONEY MARKET

INTRODUCTION:-

1) Exists in all developed money markets.2) Deals in loans – short maturity – highly liquid.3) Money market in Mumbai operates just like the one in London money market & New York.

4) Mumbai the most prominent financial centre.5) Call money Market principal constituent of Indian Money Market.

MEANING:-

1)Day to Day surplus funds are traded by the banks.2)Market for short term Funds.3)Maturity 1 to 15 days.4)Repayable on demand draft at the option of lender or borrower.

5)It is also called interbank call money market.6)There is no surplus or deficit bank.7)Cash position changes from hour to hour.8)Call money market arranges for temporary deficit purpose.

9)Repayable on the immediate next working day.10) Banks invest their surplus funds when call rates are high.

HISTORY:-

1)Inaugurated after RBI in 1935.2)LIC and UTI permitted to operate in call money

market in 1970.

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3)SBI and subsidiaries entered in 1970 and institutional investor prohibited to operate.

4) Till 1973, rates were market determined ad at 39% therefore Indian Banking Association prescribed ceiled in 1973 with consultation of RBI.

5)1978, brokers were prohibited from deals.6)First recommended by Sukhomy Chakraborthy

Committee in 1982 reviewing the working of monetary System.

7)The Chukravorthy committee wanted total freeing of call money rates.

8)Following Vagul Group DFHI was set up in 1988. For active participation.

9)Partly freed in October 1988 and totally free from 1st May 1989.

IMPORTANCE OF CALL MONEY MARKET:-

1)Maintain Cash liquidity with the RBI.2)Institutional Arrangement for different cash

positions.3)RBI plays a very important role.

4)It meets CRR requirements, sudden withdrawal of funds, over extended credit position.

5)Money market of India does not satisfy the criteria of developed country.

6)RBI has controlled but still call money market has failed to develop short term assets.

7)It is the core of the central part of the money market.

Participation in Transactions:

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1. Scheduled commercial, non-scheduled commercial banks, foreign banks, co-op banks & DFHT.

2. Over the time market expanded so even small banks participate.

3. SBI regularly participating since 1970.4. Because of large size of SBI market became

more active.5. SBI- major lender & small borrower.6. 78% during 1980 & 1986. It is a monopoly

market.7. Direct participation by LIC, GIC, UTT, etc.8. 30.93 crores in 1960-1961 to 36,093 crore in

2002-03.9. Since 2001-02 non scheduled banks stopped

participation.10. In 1988 DFHI participation was crucial in

development of market.11. LFA (Liquidity Adjustment Facility)

introduced by RBI to absorb liquidity and day2day banks.

12. June 2002, commercial banks user not allowed to lend more then 25% of own funds on a dail, banks & borrowings more 2% of a separate deposits.Location of Call Money Market:

1. Located in big industries & commercial centres like Mumbai, Kolkata, Chennai & Ahmadabad.

2. Stock exchanges are located at these places.

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3. Apart from the popularity of Mumbai stock exchange indigenous local bankers are also operated.

4. Different calls vates prevails in different centres.

Size of Call Money Markets:1. Volume depends on:

Deposit accrual Possibility of quick inust Liquidation of other money market

instruments. Timing advance tax payers. Seasonal fluctuation. Fluctuations in demand for credit. Access of RBI refinances.

2. Increased from 21 crores in 1960-61 to 3106 crore in 1988-89.

3. Similar increase in state co-op banks also.4. As compared to USA & UK. India size of call

money market is small.5. Direct discount facilitates with RBI are available

10 banks. So need from money market.6. DD for call loans increase when a subscription to

govt. loans opens.7. DD increased in Dec, March, June when quarterly

advance tax payments are to be made.8. In restrictive monetary policy banks attempt to

utilize their resources more effectively.

Call Rates:1. Rate of interest paid on call loans is ‘Call Rate’

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2. Determined by DD & SS of money known as market forces.

3. Varies from day2day & hour2hour & location2location.

4. Call rate increased 30% highest in Dec 1973. During this time many banks defaulted in cash.

5. Indian banks as fired a ceilings of 15% in 1973 decreased to 10% in April 1980.

6. Vate increased in Kolkata due to the fact that DD>SS.

7. In Mumbai as SS>DD due to h.o of all major banks & financial institutions are situated.

8. At present the call rate is bet increased 4 to 5%.

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