Call Money Market in India: Treasury Guide (2026)

The call money market in India is the beating heart of short-term bank liquidity — an uncollateralised, overnight market where banks and primary dealers borrow and lend surplus funds among themselves to square their daily cash positions. When a treasury desk finds itself short of cash at the close of business, or flush with a surplus it cannot deploy overnight, this is the first window it turns to. Because loans here are settled the very next day, the market is the most sensitive barometer of how tight or easy system liquidity really is.

For CAIIB Treasury Management aspirants, mastering the call money market in India is essential: it links directly to how the Reserve Bank of India steers interest rates, how banks manage their Cash Reserve Ratio, and how the entire money market prices itself off the overnight rate. This guide walks through the structure, the prudential limits, and the policy signal the market sends — the exact angles the IIBF loves to test.

💰 What Is the Call Money Market?

The call money market is the segment of the money market where funds are borrowed and lent for very short tenors without any collateral. Three related segments sit together: call money (overnight, repayable on the next working day), notice money (2 to 14 days, repayable at a short notice) and term money (15 days to one year). All three are purely interbank and uncollateralised, which is why access is tightly restricted to institutions the RBI trusts to manage counterparty risk.

Banks use this market chiefly to meet their reserve requirements. If a bank is running short of the average balances it must maintain for CRR, it borrows call money to plug the gap rather than let its reserve maintenance slip. Conversely, a bank sitting on idle balances lends them out to earn a return instead of parking everything at the Standing Deposit Facility. To see how this fits into the wider architecture, revisit the Financial Market chapter, which maps every short-term instrument and where each one trades. The call money market's defining feature — no collateral — makes it a pure measure of unsecured interbank trust.

💡 Exam Tip: Remember the tenor ladder — call is overnight, notice is 2 to 14 days, and term is 15 days to one year. IIBF frequently tests these exact ranges as one-mark objective questions.

📊 Call, Notice and Term Money: Key Differences

Although the three segments share the same participants and the same uncollateralised character, their tenor and use-cases differ. Call money handles the sharpest, most immediate liquidity mismatches; notice money bridges a slightly longer gap of up to a fortnight; and term money funds needs that stretch beyond two weeks. The table below is a quick revision aid — the kind of side-by-side comparison examiners build snippet-style questions around.

Notice that none of the three is collateralised — that single fact separates them from the collateralised triparty repo and market repo segments, where lenders hold government securities as security. Because these loans are unsecured, the RBI caps how much any bank may borrow or lend, a control we examine next. Candidates comparing secured and unsecured funding should also study the Treasury chapter, which places call money within the treasury's day-to-day funding toolkit.

🏦 Who Can Participate and the Prudential Limits

Participation is deliberately narrow. Only scheduled commercial banks (excluding regional rural banks in the borrowing sense as specified), cooperative banks and standalone Primary Dealers are permitted to lend and borrow in the call and notice money market. Non-bank entities such as mutual funds and insurers, which were once lenders, have long been eased out to keep the market strictly interbank. This exclusivity is what makes the overnight rate a clean signal of banking-system liquidity rather than broader market appetite.

The RBI imposes prudential limits keyed to a bank's capital funds (Tier I plus Tier II). On a fortnightly average basis, a bank's borrowing should not exceed 100% of its capital funds, though on any single day it may go up to 125%. On the lending side, the fortnightly average is capped at 25% of capital funds, with a daily peak of 50%. Standalone Primary Dealers work to separate limits benchmarked to their Net Owned Funds. These ceilings prevent any one institution from becoming dangerously dependent on volatile overnight money.

⚠️ Common Mistake: Students often swap the borrowing and lending caps. Borrowing average limit is 100% of capital funds (peak 125%); lending average limit is 25% (peak 50%). Do not reverse them in the exam.

These limits sit alongside the broader discipline of treasury risk limits and controls, which govern how far any desk can stretch its exposures. For the interest-rate side of treasury funding, the mechanics tie neatly into interest rate swaps in treasury management, another examinable derivative used to reshape funding costs.

📈 How the Weighted Average Call Rate Drives Policy

The single most important number this market produces is the Weighted Average Call Rate (WACR) — the volume-weighted average of all call money transactions on a given day. The RBI has designated the WACR as the operating target of its monetary policy. In plain terms, the central bank's whole liquidity operation is aimed at keeping the WACR close to the policy repo rate.

The RBI does this using the Liquidity Adjustment Facility corridor. The repo rate sits in the middle; the Standing Deposit Facility (SDF) rate forms the floor at 25 basis points below repo, and the Marginal Standing Facility (MSF) rate forms the ceiling at 25 basis points above repo. When the WACR drifts up toward the ceiling, liquidity is tight and the RBI injects funds; when it sags toward the floor, liquidity is surplus and the RBI absorbs it. So a treasury dealer reads the WACR every morning the way a doctor reads a pulse.

📌 Remember: WACR is the operating target; the policy repo rate is the target level; and the SDF-repo-MSF corridor (±25 bps around repo) is the band the RBI keeps the overnight rate within.

This overnight signal ripples outward into every other short-term rate, from treasury bills to commercial paper, and ultimately into how banks price loans. Traders managing this flow must also watch currency funding pressures — see our note on foreign exchange risk management for how offshore rupee demand can spill into onshore overnight rates. For a full topic map, browse the treasury management hub. You can also brush up bond-side sensitivity through the duration and convexity of bonds guide, since call-rate shifts feed straight into short-end yields. Want to test your grasp live? Try the treasury concept match game or head to the RBI rates reference.

🧠 Practice MCQs: Call Money Market in India

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❓ Frequently Asked Questions

The call money market in India is compact but powerful — a small, unsecured, overnight arena whose price signal, the WACR, anchors the entire short end of the yield curve and telegraphs the RBI's policy stance. Master the tenor ladder, the prudential caps and the LAF corridor, and you have locked down a reliably tested slice of CAIIB Treasury Management. Ready to convert this into marks? Explore the CAIIB Treasury course → and put your knowledge to the test.