 CMM deals in one day to a fortnight loan which may or may not be renewed the next day. It is also known as call loans or call money.  It is the most active and sensitive part of the organised money market.

 As these loans are repayable on demand, they are highly liquid, their liquidity being exceeded only by cash.  The nature of this market is different from country to country. Differences in institutional structures accounts for differences in the nature, participants, purposes etc.

CMM IN INDIA  Call loans are used for the adjustment of reserves by banks.  Till 1978 transactions was done through brokers but the RBI has prohibited banks in paying brokerage on operations.

 Unlike other countries call loans in India are highly unsecured. The money credit situation in India is subject to seasonal fluctuations every year.  The need for call money is the highest during March every year which maybe due to withdrawal of deposits in this month to meet year end tax and also for FIs to meet their CRR, SLR etc.

 CMMs are located in big industrial and business centres like Mumbai, Kolkata, Chennai, Delhi and Ahmedabad.

PARTICIPANTS  Scheduled Commercial Banks  Non-Scheduled Commercial Banks  Foreign banks  State, district and urban Co-op Banks  DFHI  STCI

 LIC, UTI, GIC started participating directly from the 70s.  IDBI, ICICI and IFC participated indirectly.  Their participation has a potential for weakening the monetary policy of the RBI. An access to funds outside the banking system means that they can weaken the effect of monetary requirement such as SLR,BR etcs.

 The Vaghul Working Group 1987 recommended that the call market should be exclusively preserve for Commercial banks without any ceiling on call rates.  UTI, LIC etc can participate only temporarily with a ceiling on call rate fixed at 10% per year and also only as lenders but not borrower.

DEMAND & SUPPLY VARIATIONS OF CALL LOANS  The most significant factor determining the demand and supply of call loans is the resources position of the bank which depends on the deposits accrual to them.  The demand for call loans would depend upon the buoyancy of the stock market and increase in demand for loans.

CALL RATES  The rate of interest paid on call loans is known as the call rate. It is highly variable day to day and often hour to hour.. It varies form centre to centre. It is very sensitive to changes in the demand for and supply of call loans.

 Till determined by market forces.  1 st May ceiling on call rates withdrawn.  Volatility of call rates: Reasons.

 While the banks are the net lenders, Primary Dealers are the net borrowers. FIs’ invest substantially in the call market till today. Therefore, pure inter- bank call market developed only during