Call Money Notice Money Definition of Call Money Definition of Notice Money FEATURES OF CALL MONEY CALL MONEY MARKET REASONS FOR EXISTENCE OF CALL MONEY IMPACT OF CALL MONEY

1. CALL MONEY
AND
NOTICE MONEY
Submitted by
Dishika Agrawal

2. • Call money is money loaned by a bank that
must be repaid on demand. Unlike a term
loan, which has a set maturity and payment
schedule, call money does not have to follow a
fixed schedule. Brokerages use call money as a
short-term source of funding to cover margin
accounts or the purchase of securities. The
funds can be obtained quickly.

3. • Short term finance.
• The money is lent for 1 day.
• The interest rate paid on call money is known as
the call rate.
• Schedule and repayment of loan is not fixed.
• The loan can be called at any time, it is riskier
than other forms of loans.
• It helps in meeting liquidity needs at short notice.

4. • Call money refers to day to day fund
requirements of banks. When a bank faces
cash crunch it borrow from other bank that
has surplus and excess funds. For a period of 1
to 14 days.
• When money is lent for 1 day or overnight
basis it is known a call money and when the
period extends from 2 to 14 days it is termed
as notice money.

5. • The call money market is the most important
segment in the Indian money market. In this
market only banks and primary dealers are
allowed to both borrow and lend.

6. • Banks have to maintain a mandatory minimum
cash balance known as the cash reserve ratio
(CRR). They also have to maintain sufficient
liquidity for their day-to-day operations.
• Banks sometimes need to borrow funds to meet
a sudden demand which may arise due to large
cash withdrawals during festivals, long bank
holidays and cash supply at ATMs etc. Any surplus
/ shortfall could be met through call money route

7. • The interest paid on call money is called call rate.
Eligible participants are free to decide on what the
interest rates would be. This is very liquid money
market and is the main indicator of the day to day
interest rates. If the call money rates fall, this means
there is a rise in the liquidity and vice versa.
• The call money rates have implications on the
monetary policy. If the call rates consistently trade at
levels which are not in line with the RBI’s policy rates
then RBI may conduct Open Market Operations (OMO)
to infuse or suck liquidity from the market.

8. • It is a highly volatile rate that varies from day
to day and sometimes even from hour to hour.
There is an inverse relationship between call
rates and other short-term money
market instruments such as certificates of
deposit and commercial paper. A rise in call
money rates makes other sources of finance,
such as commercial paper and certificates of
deposit, cheaper in comparison for banks to
raise funds from these sources.