Context:
In a move aimed at aligning Indian financial markets with global standards and enhancing liquidity management, the Reserve Bank of India (RBI) has announced extended trading hours for key segments of the money market.
Key Changes
- Effective from July 1, 2025:
- Call Money Market trading hours will be extended until 7:00 PM (previously closed at 5:00 PM).
- Effective from August 1, 2025:
- Market Repo and Tri-Party Repo (TREP) markets will also see a revision in closing time to 4:00 PM.
Call Money Market
In finance, call money refers to short-term funds lent by banks or financial institutions that are repayable on demand, with a maturity ranging from overnight to 14 days. It is a core component of the Indian inter-bank money market.
Key Features
- Tenure:
- Call money: Loans for 1 day (overnight)
- Notice money: Loans for more than 1 day up to 14 days
- Purpose:
Primarily used by banks and financial institutions to:- Meet short-term liquidity requirements
- Maintain the Cash Reserve Ratio (CRR) with the RBI
- Manage short-term mismatches in cash flows
- Participants:
- Commercial banks (excluding RRBs and cooperative banks)
- Primary dealers
- RBI (as lender of last resort)
- Mutual funds and insurance companies (only as lenders)
- Interest Rate:
The rate at which these funds are borrowed/lent is known as the call rate.- Highly volatile
- Changes daily or intra-day
- Sensitive to liquidity conditions in the banking system
Economic Importance
- Monetary Policy Transmission:
- RBI monitors call money rates as part of its liquidity and interest rate management.
- Liquidity Indicator:
- A high call rate signals tight liquidity, while a low call rate indicates surplus liquidity in the banking system.
- Alternative Instruments:
- When call rates are high, banks prefer to raise funds through commercial paper (CP) or certificates of deposit (CD) due to lower cost.
RBI Extends Call Money Market Trading Hours:
- Effective July 1, 2025, trading hours for the call money market have been extended till 7 PM.
- Aim: To ease end-of-day liquidity pressures and align with global best practices.
- Earlier closing time: 5 PM
- Part of RBI’s broader strategy to deepen money markets and promote efficient liquidity management.
TOI
