Call money:
- In day to day transactions it is quite likely that each bank faces a shortage of money even for as short as 24 hours or even lesser. In such cases the bank may borrow money from another bank at an interest rate which is determined by the shortage of money or say demand or supply pattern in the market.
- This money is known as ‘Call money’ or ‘Inter-bank-call money’.
Notice money: When money is borrowed or lent for 2 to 14 days, it is called notice money.
The need of Call money and Notice money:
- Every commercial bank has to maintain minimum cash balance as per the
rules and regulations of Reserve Bank of India. This is called cash reserve or cash reserve ratio (CRR).
- It is quite a routine that one bank borrows money from the other bank to maintain minimum cash balance. All the banks have to maintain ratio of cash reserve.
- This gives rise to the call money market. Call money market includes call money and notice money. No mortgage is to be given for call money and notice money.
