Call Money Market: Call Money, Notice Money, Term Money

September 27, 2021
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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 calibrating the short-term surplus funds of lenders and the requirements of borrowers. The call money market consists of three important instruments viz. Call Money, Notice Money and Term Money.

Call Money, Notice Money, Term Money

  • Call money refers to the unsecured segment of the money market that is designed for management of liquidity for a very short period of time – mostly overnight.
  • Notice Money: If the period of money lent is more than one day and upto 14 days it is called ‘Notice money’.
  • Term Money: Money lent for 15 days to 1 year is called ‘Term money’

Features of Call Money Market

  • This market is a purely unsecured market as no collateral is offered for securing the funds and there are no brokers involved.
  • Settlement is done between the participants through the current account maintained with the RBI
  • Call money is operating target of monetary policy in India
  • The market timings for Call, Notice and Term Money transactions is from 9:00 AM to 5:00 PM
  • Participants are free to decide on interest rates in the Call, Notice and Term Money Markets
  • The participants follow the standard market practices, methodologies and documentation prescribed by Fixed Income Money Market and Derivatives Association of India (FIMMDA)

Why banks require Call Money Market

The banks access the call money market for managing intra-day funding requirements. The most prominent use of this market is to help banks in maintaining reserve requirements i.e. CRR

RBI directed all deals in call/notice/term money among NDS members to be reported automatically through NDS

What is NDS-CALL?

NDS-CALL system developed and managed by CCIL (The Clearing Corporation of India Limited). It is a screen-based negotiated quote-driven system for all dealings in call/notice and term money markets – NDS-CALL was launched on September 18, 2006

The unique features of NDS-CALL system are:

  • Direct one to one negotiation feature
  • Real time quote and trade information
  • Preferred counterparty setup
  • Online exposure limit monitoring
  • Online regulatory limit monitoring
  • Dealing facilitated for T+0 settlement type for Call Money
  • Dealing facilitated for T+0 and T+1 settlement type for Notice and Term Money

This system has improved transparency and facilitated better rate discovery in the call money market. The system also helped to improve the ease of transactions, increase operational efficiency and resolve problems associated with asymmetry of information

Entities eligible to participate in Call Money Market

The following entities shall be eligible to participate in the Call, Notice and Term Money Markets, both as borrowers and lenders:

  • Scheduled Commercial Banks (excluding Local Area Banks);
  • Payment Banks;
  • Small Finance Banks;
  • Regional Rural Banks;
  • State Co-operative Banks, District Central Co-operative Banks and Urban Co-operative Banks (hereinafter Co-operative Banks); and
  • Primary Dealers.

Prudential limits

The Prudential limits for outstanding borrowing transactions in Call, Notice and Term Money Markets are as follows:

  • Scheduled Commercial Banks (including Small Finance Banks)
    • Call and Notice Money:
      • 100% of capital funds, on a daily average basis in a reporting fortnight, and
      • 125% of capital funds on any given day.
    • Term Money:
      • Internal board approved limit within the prudential limits for inter-bank liabilities.
  • Payment Banks, and Regional Rural Banks
    • Call, Notice and Term Money:
      • 100% of capital funds, on a daily average basis in a reporting fortnight, and
      • 125% of capital funds on any given day.
  • Co-operative Banks
    • Call, Notice and Term Money: 2.0% of aggregate deposits as at the end of the previous financial year
  • Primary Dealers
    • Call and Notice Money: 225% of Net Owned Fund (NOF) as at the end of the previous financial year on a daily average basis in a reporting fortnight.
    • Term Money: 225% of Net Owned Fund (NOF) as at the end of previous financial year.

Who regulates Call Money Market in India?

The call money market in India is regulated Reserve Bank of India (RBI).

References

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