Who can participate into the call money market ?

Question

Accepted Answer

The correct option is 1:
The Call Money Market is an essential component of the Indian money market, serving as a platform for immediate, short-term lending and borrowing of funds, usually on an overnight basis (up to 15 days). Its primary function is to enable Commercial Banks, including scheduled and non-scheduled banks, to manage their day-to-day liquidity and meet the statutory reserve requirements set by the central bank (the Reserve Bank of India, or RBI), specifically the Cash Reserve Ratio (CRR). Participation in this market is strictly regulated by the RBI, and only entities designated by the central bank, chiefly the commercial banks, are permitted to both borrow and lend. Other financial institutions may sometimes be allowed to participate only as lenders, but commercial banks are the core participants and the primary entities that can both borrow and lend.

The incorrect option is 2:
Post offices are primarily engaged in providing postal and small savings services and are not authorized participants in the regulated inter-bank Call Money Market. They do not operate under the same reserve requirements (CRR/SLR) as commercial banks, which necessitates participation in this market.

The incorrect option is 3:
While Insurance Companies operate in the financial sector, the RBI typically restricts their participation in the Call Money Market to being only lenders, not borrowers. Therefore, they are not full participants in the market mechanism designed for inter-bank liquidity management.

The incorrect option is 4:
Cooperative Societies (including Cooperative Banks, generally) are not allowed to participate in the core Call Money Market, as this segment is reserved for commercial banks and select primary dealers for managing central bank reserve requirements. Cooperative societies focus on serving their members and generally raise funds through deposits and other specific instruments outside the pure call money mechanism.