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Call money market: meaning, participants and call rate
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The call money market is the segment of the money market where banks lend and borrow money for very short periods, mostly overnight, without giving any collateral. It lets banks with surplus cash lend to banks with a shortfall. The interest rate paid is the call rate, and it is determined by demand and supply, not fixed by the RBI.
The three segments
| Segment | Maturity |
|---|---|
| Call money | Overnight (one day) |
| Notice money | 2 to 14 days |
| Term money | More than 14 days, up to one year |
Who takes part
The market is mostly for banks and primary dealers, which are institutions that deal in government securities. Non-bank participants were gradually phased out so that the call market stayed an interbank market, and their short-term lending moved to collateralised markets such as TREPS (tri-party repo), which replaced CBLO in 2018.
Why banks borrow overnight
A bank may need cash to meet its CRR on the reporting day, to settle payments or to meet a sudden withdrawal. Instead of selling securities, it borrows for a night in the call market. A bank with extra cash earns something instead of keeping it idle.
Why the call rate matters
The weighted average call rate (WACR) is the operating target of India's monetary policy. The RBI uses the liquidity adjustment facility so that the call rate stays inside the corridor around the repo rate. If liquidity is tight, the rate climbs towards the upper limit; if it is plentiful, it falls toward the floor set by the standing deposit facility.
Example (hypothetical)
Bank A is short of ₹200 crore for one night and borrows from Bank B at a call rate of 6% a year. Interest for the night = 200 crore × 6% ÷ 365 = about ₹0.033 crore, or roughly ₹3.3 lakh.
How bank exams ask about it
Questions run along: "borrowing and lending of funds for one day", "notice money period" (2 to 14 days), "call money is part of which market" (money market), and "the operating target of monetary policy". Remember that call money is uncollateralised while repo is collateralised. See the money market block in banking awareness.
Where to check
The RBI's daily and weekly money market statistics at rbi.org.in report the call rate.
Frequently asked questions
Is the call rate set by the RBI?
No. It is determined by the market, but the RBI's corridor and liquidity operations keep it close to the policy rate.
Can individuals borrow in the call money market?
No. It is for banks and primary dealers.
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