Year of Establishment of Call Money Scheme in India

The call money scheme in India was established in the year 1989. It was introduced by the Reserve Bank of India (RBI) with the aim of facilitating short-term borrowing and lending among banks. The call money market plays a crucial role in the functioning of the Indian money market by providing a platform for banks to borrow or lend funds to meet their short-term liquidity requirements.

Introduction of Call Money Scheme

The call money scheme was introduced as part of the broader reforms in the Indian financial system to enhance efficiency, transparency, and stability. Before the introduction of this scheme, there was no formal platform for banks to lend or borrow funds on a short-term basis. The absence of a well-organized call money market led to inefficiencies and higher costs for banks in managing their liquidity needs.

Key Features of Call Money Scheme

The call money scheme operates with certain key features, which include:

1. Participants: Banks and primary dealers are the primary participants in the call money market. They can borrow or lend funds for a period of one day, known as an overnight transaction.

2. Interest Rates: The interest rates in the call money market are market-driven and vary depending on the demand and supply dynamics of funds. The RBI acts as a regulator and monitors the interest rates to ensure stability in the market.

3. Clearing and Settlement: The transactions in the call money market are settled through the Clearing Corporation of India Limited (CCIL). The CCIL acts as a central counterparty, ensuring the settlement of funds among the participating banks.

4. Regulatory Oversight: The RBI regulates and supervises the call money market to maintain financial stability and prevent any systemic risks. It sets guidelines and rules for the participants to ensure transparency and fair practices.

Role and Significance of Call Money Scheme

The call money scheme plays a crucial role in the Indian money market. Some of its key significance are:

1. Liquidity Management: Banks utilize the call money market to manage their short-term liquidity requirements efficiently. They can borrow funds to meet temporary shortages or lend excess funds to earn interest income.

2. Monetary Policy Transmission: The call money market serves as a channel for the transmission of monetary policy actions by the RBI. Changes in the repo rate or other policy rates influence the interest rates in the call money market, which, in turn, impact the overall interest rate structure in the economy.

3. Interbank Coordination: The call money market facilitates interbank coordination and collaboration. Banks can borrow or lend funds to each other based on their liquidity positions, thereby ensuring stability in the banking system.

4. Money Market Stability: The call money market contributes to the overall stability of the Indian money market. It provides a mechanism for efficient allocation of funds and helps in maintaining a balance between demand and supply of short-term funds.

In conclusion, the call money scheme was established in India in 1989 by the RBI to provide a formal platform for banks to borrow and lend funds on a short-term basis. It has played a significant role in enhancing liquidity management, monetary policy transmission, interbank coordination, and overall stability in the Indian money market.