Call Money Market

The call money market is the part of India's organized money market in which scheduled commercial banks, cooperative banks, and primary dealers borrow and lend funds on an unsecured, very short-term basis to manage day-to-day liquidity mismatches. Its legal and regulatory foundation rests with the Reserve Bank of India, which derives its authority over money-market instruments from the Reserve Bank of India Act, 1934, and supervises participation through directions issued under the Banking Regulation Act, 1949. Trades in this market are reported on the Negotiated Dealing System–Call (NDS-CALL) platform operated by Clearcorp Dealing Systems, a subsidiary of the Clearing Corporation of India Limited (CCIL). The market is "uncollateralized," distinguishing it from the parallel collateralized segments, and its pricing is the proximate transmission point for the RBI's monetary policy stance.

The mechanics turn on the tenor of borrowing. When funds are lent for a single business day—repayable the next working day—the transaction is "call money," repayable on demand or "at call." When the tenor runs from two to fourteen days, the transaction is termed notice money; beyond fourteen days and up to one year it becomes "term money," though term lending among banks remains thin. A bank facing a reserve shortfall at the close of business—needing to meet its Cash Reserve Ratio (CRR) obligation or settle clearing—borrows from a counterparty bank holding surplus balances, agreeing a rate bilaterally or through brokered matching on NDS-CALL. No security or collateral changes hands; the lender relies wholly on the borrower's creditworthiness, which is why the market is restricted to a defined set of regulated entities. Settlement occurs through the participants' current accounts with the RBI.

Access to the call/notice money market is deliberately narrow. Following recommendations of the Narasimham Committee and subsequent RBI reforms in the early 2000s, non-bank participants—mutual funds, insurance companies, corporates, and financial institutions—were progressively phased out, leaving only banks and primary dealers as both borrowers and lenders. The RBI also imposes prudential limits: a bank's lending and borrowing in the call market is capped as a percentage of its capital funds on a fortnightly average and daily basis, preventing excessive dependence on overnight funds for structural needs. The weighted average call rate (WACR), computed across the day's transactions, is the RBI's explicit operating target for monetary policy; the central bank conducts liquidity operations precisely to keep the WACR anchored close to the policy repo rate within the Liquidity Adjustment Facility corridor bounded by the Standing Deposit Facility (floor) and the Marginal Standing Facility (ceiling).

In contemporary practice, the call rate is watched daily by the RBI's Financial Markets Operations Department in Mumbai and by bank treasuries nationwide as a barometer of system liquidity. During the March quarter-end and advance-tax outflow periods, when liquidity tightens, the WACR can spike toward the MSF rate, prompting the RBI to inject funds through variable rate repo (VRR) auctions; conversely, in surplus conditions the rate drifts toward the SDF floor and the RBI absorbs liquidity through variable rate reverse repo (VRRR) auctions. The Monetary Policy Committee, established under the amended RBI Act in 2016, sets the repo rate, but it is the call market's WACR that signals whether transmission is working. Episodes such as the September 2018 IL&FS default and the COVID-19 liquidity surge of 2020 demonstrated how sharply the call rate responds to credit stress and central-bank intervention.

The call money market must be distinguished from adjacent overnight markets that are collateralized. The market repo and the Tri-Party Repo (TREPS) segments perform the same overnight liquidity function but against government securities as collateral, which makes them lower-risk and, in volume terms, far larger than the uncollateralized call market today. The Collateralized Borrowing and Lending Obligation (CBLO), introduced by CCIL in 2003, was discontinued in 2018 and superseded by TREPS. Whereas the call market admits only banks and primary dealers, the collateralized segments accommodate mutual funds, insurers, and corporates—which is precisely why most surplus liquidity now flows through TREPS and market repo. The call rate nonetheless retains primacy as the policy operating target because it reflects pure interbank credit conditions unmasked by collateral.

A recurring controversy concerns the thinness and volatility of the uncollateralized segment. Because volumes are modest relative to TREPS, the WACR can be moved by a handful of large transactions, raising questions about whether it remains the optimal operating target. Internal RBI working groups have periodically examined shifting toward a broader rate such as a secured overnight benchmark, mirroring the global transition from LIBOR-style unsecured benchmarks to secured rates like SOFR. The RBI has also developed the Mumbai Interbank Outright Rate (MIBOR), administered by Financial Benchmarks India Pvt Ltd (FBIL) and derived from NDS-CALL trades, as a reference benchmark for floating-rate instruments and overnight indexed swaps. Reforms to MIBOR computation were proposed by an RBI committee in 2024.

For the working practitioner—a bank treasurer, a UPSC General Studies III candidate, or a policy desk officer—the call money market is the clearest window into the daily plumbing of monetary policy transmission. Its rate tells whether the central bank's stance is biting at the short end before that signal propagates to deposit and lending rates. Understanding the distinction between the unsecured call segment and the collateralized TREPS and market-repo segments, the role of the LAF corridor in fencing the WACR, and the prudential caps on bank participation is essential to reading RBI policy statements and liquidity operations accurately. The call market remains small in volume yet outsized in analytical importance.