Call Money refers to short-term funds borrowed and lent between banks and financial institutions for very short durations, typically overnight or up to 14 days. It is a crucial component of the money market that helps maintain liquidity, meet temporary fund requirements, and manage day-to-day financial operations in the banking system.

In a call money market, participants include commercial banks, cooperative banks, primary dealers, and other financial institutions. Borrowers use call money to meet reserve requirements, manage liquidity mismatches, or finance short-term obligations, while lenders earn interest on idle funds. The interest rate charged on these funds is known as the call rate, which fluctuates based on demand and supply conditions in the market.

Call money is highly liquid and unsecured, meaning it does not require collateral. Its short-term nature makes it an important tool for managing intra-day or temporary cash shortages. For instance, if a bank faces a shortfall in meeting the Cash Reserve Ratio (CRR) with the Reserve Bank of India (RBI), it may borrow call money from another bank to comply with regulatory requirements.

The call money market plays a critical role in the overall financial system. It helps stabilize liquidity, ensures smooth functioning of interbank operations, and influences short-term interest rates. The RBI monitors this market closely to manage monetary policy, liquidity conditions, and banking stability in India.

In summary, call money is short-term, unsecured funds borrowed and lent between banks and financial institutions. Understanding its purpose, mechanics, and role in liquidity management helps financial institutions, investors, and policymakers make informed decisions while complying with regulatory frameworks set by the RBI.