PRESENTED BY:

DIVYA BODDU(07) , AIKTA DUBE(08), MEGHRAJ GAWANDE(09),

SAURABH GOSWAMI(10), HEMANT KALAMKAR(11), NAILESH
JACOB(09020242012)
 “Call Money" means deals in overnight funds

 "Notice Money" means deals in funds for 2 - 14 days

 "Fortnight" shall be on a reporting Friday basis and

mean the period from Saturday to the second
following Friday, both days inclusive

 "Bank” or “banking company" means a banking

company or a "corresponding new bank", "State
Bank of India" or "subsidiary bank“ and includes a
"co-operative bank"
 “Scheduled bank” means a bank included in
the Second Schedule of the Reserve Bank of
India Act, 1934
 "Primary Dealer" means a financial institution
which holds a valid letter of authorization as a
Primary Dealer issued by the Reserve Bank, in
terms of the "Guidelines for Primary Dealers
in Government Securities Market“

 "Capital Funds" means the sum of the Tier I

and Tier II capital as disclosed in the latest
audited balance sheet of the entity.
 The money market is a market for short-term
financial assets that are close substitutes of money.

 The most important feature of a money market instrument

is that it is liquid and can be turned over quickly at low cost
and provides an avenue for equilibrating the short-term
surplus funds of lenders and the requirements of borrowers.

 The call/notice money market forms an important segment

of the Indian Money Market.

 Under call money market, funds are transacted on

overnight basis and under notice money market, funds are
transacted for the period between 2 days and 14 days.
As per RBI definitions “ A market for short terms
financial assets that are close substitute for
money, facilitates the exchange of money in
primary and secondary market”.

The money market is a mechanism that deals

with the lending and borrowing of short term
funds (less than one year).

A segment of the financial market in which

financial instruments with high liquidity and very
short maturities are traded.
Money Market consists of a number of sub-
markets which collectively constitute the
money market. They are,
 Call Money Market

 Commercial bills market or discount

market
 Acceptance market

 Treasury bill market

 The call money is the money lent for one day

 Deals with overnight borrowing and lending

 The funds located through the money market can be utilized

 To provide financing for the purchase of securities that can be

added to the portfolio of the investment firm

 As a resource that will cover the margin accounts of the

firm’s clients.
 Helps Bank to manage short-term deficit or surplus of
money

 Provides funds that can be used to conduct transactions

between banks, or with other money market dealers

 The call money loan essentially works in the same

manner as a day to day loan

 Crosses international lines, with funding

opportunities located around the world
 Market for very short term funds, known as money on call

 The rate at which funds are borrowed in this market is called

`Call Money rate'

 The size of the market for these funds in India is between Rs

60,000 million to Rs 70,000 million

 Of which public sector banks account for 80% of borrowings

 Foreign banks/private sector banks account for the balance

20%.
 The money market is a market for short-term financial assets
that are close substitutes of money.
 It is liquid and can be turned over quickly at low cost.
 Provides an avenue for equilibrating the short-term surplus
funds of lenders and the requirements of borrowers.
 The call money market forms an important segment of the
Indian money market.
 Under call money market, funds are transacted on overnight
basis
 Banks borrow in this money market for the following
propose.

 To fill the gaps or temporary mismatches in funds

 To meet the CRR & SLR Mandatory requirements as

stipulated by the Central bank

 To meet sudden demand for funds arising out of large

outflows

 Thus call money usually serves the role of

equilibrating the short-term liquidity position of banks
 The call money market for India was first recommended by the
Sukhumoy Chakravarty

 Committee, was set up in 1982 to review the working of the

monetary system.

 They felt that allowing additional non-bank participants into

the call market would not dilute the strength of monetary
regulation by the RBI, as resources from non-bank participants
do not represent any additional resource for the system as a
whole, and their participation in call money market would only
imply a redistribution of existing resources from one
participant to another.

 In view of this, the Chakravarty Committee recommended

that additional nonbank participants may be allowed to
participate in call money market
 The Vaghul Committee (1990), while recommending the
introduction of a number of money market instruments to
broaden and deepen the money market, recommended that
the call markets should be restricted to banks.

 The other participants could choose from the new money

market instruments, for their short -term requirements.

 One of the reasons the committee ascribed to keeping the

call markets as pure inter-bank markets was the distortions
that would arise in an environment where deposit rates were
regulated, while call rates were market determined
 The Narasimham Committee II (1998) also
recommended that call money market in India,
like in most other developed markets, should
be strictly restricted to banks and primary
dealers.

 Since non- bank participants are not subject to

reserve requirements, the Committee felt that
such participants should use the other money
market instruments, and move out of the call
markets
 Affected by liquidity in the market

 One of the segments of the money market

 No physical address

 Interest rates undergo a change on a day to day basis

 RBI has prescribed prudential limits for banks

 Transactions not secured by any collateral

 Those who can both borrow and lend in the market –
RBI (through LAF), banks and primary dealers
 Once upon a time, select financial institutions viz.,
IDBI, UTI, Mutual funds were allowed in the call
money market only on the lender’s side
 These were phased out and call money market is
now a pure inter-bank market (since August 2005)
 From May 1, 1989, the interest rates in the call and the notice
money market have been market determined.

 Interest rates in this market are highly sensitive to the demand -

supply factors.

 Within one fortnight, rates are known to have moved from a low
of 1 - 2 per cent to dizzy heights of over 140 per cent per annum.

 Large intra-day variations are also not uncommon.

 Scheduled commercial banks: On a fortnightly
average basis, borrowing outstanding should
not exceed 100 per cent of capital funds.
However, banks are allowed to borrow a maximum of 125
% of their capital funds on any day, during a fortnight.

 Co-Operative Banks: Banks on a daily basis should not

exceed 2.0 per cent of their aggregate deposits as at end
March of the previous financial year

 Primary Dealers: PDs are allowed to borrow, on average in

a reporting fortnight, up to 200 per cent of their net owned
funds (NOF) as at end-March of the previous financial year.
 Scheduled Commercial Banks: On a
fortnightly average basis, lending outstanding 
should not exceed 25% of their capital funds;
however, banks are allowed to lend a maximum
of 50 % of their capital funds on any day, during
a fortnight
 Co-Operative Banks: No Limits
 Primary Dealers: PDs are allowed to lend in call
money market, on average in a reporting fortnight, up to 25
per cent of their NOF
 Non-bank institutions are not permitted in the call money
market with effect from August 6, 2005.
 This is the interest rate charged by
banks to brokers for money used to
finance investors' margin loans.

 Eligible participants are free to

decide on interest rates in call
money market.

 This is the benchmark rate for what

investors pay to buy securities on
margin.

 A service charge or markup is

typically added by the broker.
 Borrowers and lenders contact each other over telephone.

The borrowers and lenders arrive at a deal

specifying the amount of loan and the rate of interest.

After the deal is over, the lender issues FBL cheque in favour of
the borrower.

The borrower in turn issues call money borrowing receipt.

When the loan is repaid with interest, the lender returns the
duly
discharged receipt.
 The deal can be directly negotiated by routing it through the Discount
and Finance House of India (DFHI).

The borrowers and lenders inform the DFHI about their fund
requirement and availability at a specified rate of interest.

Once the deal is confirmed, the Deal Settlement Advice is exchanged.

In case the DFHI borrows, it issues a call deposit receipt to the lender
and receives RBI cheque for the money borrowed. The reverse takes
place in the case of lendings by the DFHI.

The duly discharged call deposit receipt is surrendered at the time of

settlement.

 Call loans can be renewed upto a maximum period of 14 days only and
such renewals are recorded on the back of the deposit receipt by the borrower.
 The entry into this field is restricted by RBI.

 Commercial Banks, Co-operative Banks and Primary Dealers

are allowed to borrow and lend in this market.

 Specified All-India Financial Institutions, Mutual Funds, and

certain specified entities are allowed to access to Call/Notice
money market only as lenders.

 Reserve Bank of India has recently taken steps to make the

call/notice money market completely inter-bank market.

 Hence the non-bank entities will not be allowed access to

this market beyond December 31, 2000
 Both the borrowers and the lenders are required to have current
accounts with the Reserve Bank of India.

 This will facilitate quick and timely debit and credit operations.

 The call market enables the banks and institutions to even out their
day to day deficits and surpluses of money.

 Banks especially access the call market to borrow/lend money for

adjusting their cash reserve requirements (CRR).

 The lenders having steady inflow of funds (e.g. LIC, UTI) look at the
call market as an outlet for deploying funds on short term basis.
 A N C
ORT
IMP

E
There must be not only an outlet for the employment of funds
temporarily idle, but a large volume of call and short-time money is
essential to the successful and economical conduct of business.
 It is particularly essential to the international and domestic
commercial business, but the diversion of the use of the major
portion of such money to the securities markets is not in
accordance with sound banking principles.
 In India call loans on securities lack the essential quality of liquidity
required for quick and certain realization, and that this fact has now
been more generally taken into consideration by our lenders.
 But the safe and successful divorce in this country of the use of call
money from dependence upon investment securities as a basis
requires careful study in order that safe and adequate methods
may be substituted for the present methods of the securities
market.
 Call money market serves the role of equilibrating the short-term
liquidity position of the banks
 Most active segment of money market

 Day to day imbalances in the funds position

of commercial scheduled banks is eased out

 Graduated into a broad and vibrant

institution

 It’s a part of the organized money market

 The simple logic
behind a pure inter-
bank call money
market is that it allows
the central bank more
flexibility in managing
liquidity and short-
term interest rates in
the banking system
 Deals in the
call/notice money
market can be done
up to 5.00 pm on
weekdays and 2.30
pm on Saturdays or
as specified by RBI
from time to time
 All dealings do not require separate reporting

 It is mandatory for all Negotiated Dealing System (NDS)

members to report their deals on NDS.

 Deals should be reported within 15 minutes on NDS,

irrespective of the size of the deal or whether the counterparty
is a member of the NDS or not.

 In case there is repeated non-reporting of deals by an NDS

member, it will be considered whether non-reported deals by
that member should be treated as invalid.

 The reporting time on NDS is upto 5.00 pm on weekdays and

2.30 pm on Saturdays or as decided by RBI from time to time.
 With the stabilization of reporting of call money
transactions over NDS as also to reduce reporting
burden, the practice of reporting of call money
transactions by fax has been discontinued.

 Deals between non-NDS members will continue to

be reported to the Financial Markets Department
(FMD) of RBI by fax as hitherto.

 In case the situation so warrants, Reserve Bank may

call for information in respect of money market
transactions of eligible participants by fax
 To commercial banks to meet large payments,
large remittances, to maintain liquidity with the RBI
and so on.

 To the stock brokers and speculators to deal in

stock exchanges and bullion markets

 To the bill market for meeting matured bills.

 To the Discount and Finance House of India and the

Securities Trading Corporation of India to activate
the call market.

 To individuals of very high status for trade

purposes to save interest on O.D. or cash credit
 High Liquidity
 High Profitability

 Maintenance of SLR

 Safe and cheap

 Assistance to central bank operations

 Uneven Development
 Lack of Integration

 Volatility in Call Money rates

The withdrawal of non-bank entities from
the inter-bank call-money market is linked
to the improvement of settlement
systems.
 Any time-bound plan for the evolution of
a pure inter-bank call/notice money
market would be ineffective till the basic
issue of settlements is addressed.