CMM is the market for very short-term loans most probably – one-day loans traded by banks. Borrowers and lenders in the CMM are mainly banks themselves. Banks can access CMM to meet their reserve requirements or to cover a sudden shortfall in cash on any particular day. Besides this, banks also borrow to meet the CRR and SLR requirements. Since the CMM is dominated by banks, it is otherwise called as interbank call money market. Interest rate are reached through auction and it is called call rate.
Participants
Main feature of the call money market is that the banks themselves are the borrowers and lenders. Participants in the call money market are banks and related entities specified by the RBI. Hence, the call money market is known as interbank call money market. Surplus banks will give loans to other banks. Deficit banks that need funds will purchase it.
Scheduled commercial banks (excluding RRBs), co-operative banks (other than Land Development Banks) and Primary Dealers (PDs), are permitted to participate in call/notice money market both as borrowers and lenders.
Significance of CMM: the liquidity position of the banks can be known from the Call Money rate. If banks don’t have much liquidity, most of them will be borrowers and call rate shoot up. The RBI comes to know about this and can take follow up action. The call rate is thus the operating target of RBI’s monetary policy.
