At 5:15 PM on any working day, a treasury manager at a mid-sized Indian bank stares at a number that will determine whether her bank faces a penalty or a profit: the closing cash balance at the RBI. If it falls short of the Cash Reserve Ratio, the bank must borrow overnight from the interbank market — borrowing unsecured, at whatever rate the market demands, from a bank that happened to have surplus cash that day. This daily scramble to balance CRR obligations is the beating heart of the Indian money market. Every overnight rate, every repo transaction, every term money deal traces back to this single regulatory requirement: banks must hold a prescribed percentage of their deposits with the RBI, and they must meet that requirement on a daily average basis within each reporting fortnight. The structure the RBI has built around this requirement — call money, notice money, term money, TREPS, bilateral repos — is the plumbing through which monetary policy actually reaches the real economy.
See also: SLR, CRR & the Liquidity Adjustment Framework | From MCLR to EBLR: How Lending Rate Benchmarks Changed | Interest Rate Policy: The Complete Timeline
What is call money, and why does it exist?
Call money is the simplest instrument in the Indian money market: one bank lends unsecured funds to another bank overnight. No collateral. No documentation beyond the deal ticket. The borrower returns the money the next morning with interest calculated at an annualised rate agreed at the time of the deal.
The Master Direction on Call, Notice and Term Money Markets (RBI_MD_12061) defines the instrument precisely:
"'Call Money' means borrowing or lending in unsecured funds on overnight basis."
Why does this market exist at all? Because of CRR mechanics. The RBI requires every scheduled commercial bank to maintain a cash reserve ratio — currently 4 percent of net demand and time liabilities — as deposits with the Reserve Bank. This ratio must be maintained as a daily average over each reporting fortnight, with the additional constraint that the daily balance cannot fall below 90 percent of the required average. On any given day, some banks have surplus reserves (their deposits exceeded requirements) and others have deficits (their outflows exceeded inflows). Call money allows surplus banks to earn a return on excess reserves and deficit banks to avoid the penalty for CRR shortfall.
The participants are strictly limited. Only banks and primary dealers can operate in the call money market — no corporates, no mutual funds, no insurance companies. The 2002 prudential norm circular (Reliance on Call/Notice Money Market: Prudential N) set the pattern that persists today:
"Lending of scheduled commercial banks in the call/notice money market, on a fortnightly average basis, should not exceed 50 per cent of their owned funds."
This prudential cap matters because call money is unsecured. A bank that over-relies on overnight unsecured borrowing is exposing itself to liquidity risk: if the market suddenly refuses to lend, the bank cannot meet its CRR obligation. The cap forced banks to diversify their funding sources, which is precisely why the RBI imposed it.
The call money rate — the weighted average rate at which these overnight deals are struck — is the most immediate signal of liquidity conditions in the banking system. When the RBI injects liquidity through its Liquidity Adjustment Facility, the call rate falls. When the RBI drains liquidity, it rises. The Statement on Developmental and Regulatory Policies (Statement on Developmental and Regulatory Policies) that launched the comprehensive review of money market directions in June 2019 was motivated by the recognition that the plumbing governing this rate transmission needed modernisation.
Who can participate, and what are the borrowing limits?
The Call, Notice and Term Money Directions (RBI_MD_12061) restrict participation to six categories of entities. Scheduled commercial banks (excluding Local Area Banks), Payment Banks, Small Finance Banks, Regional Rural Banks, co-operative banks, and Primary Dealers may both borrow and lend.
The borrowing limits differ by entity type. Scheduled commercial banks must set internal board-approved limits within the broader prudential limits for inter-bank liabilities. Small Finance Banks face a tighter constraint: borrowing in call and notice money cannot exceed 100 percent of capital funds on a daily average basis in a reporting fortnight, and 125 percent on any given day. Co-operative banks are limited to 2 percent of aggregate deposits as at the end of the previous financial year. Primary Dealers get the most generous limit: 225 percent of Net Owned Fund on a daily average basis.
Why the differentiation? It reflects the RBI's assessment of each entity's systemic importance and funding stability. A large scheduled commercial bank with diversified deposit bases can withstand overnight funding stress better than a small co-operative bank whose deposit base may be concentrated in a few large depositors. The limits are calibrated to prevent exactly the kind of funding crisis that occurs when a bank becomes too dependent on overnight money.
What happened to CBLO, and why did TREPS replace it?
Before November 2018, the most active overnight money market instrument in India was not call money but CBLO — the Collateralised Borrowing and Lending Obligation. CBLO was a collateralised instrument where borrowers pledged government securities as collateral, eliminating credit risk. It was managed by the Clearing Corporation of India Limited (CCIL) and had become the dominant overnight instrument because its collateralised nature allowed a much wider set of participants — mutual funds, insurance companies, corporates — to participate in overnight lending and borrowing.
The RBI replaced CBLO with TREPS — Tri-Party Repo Dealing and Settlement — in November 2018. The transition was announced through the Draft Framework on Tri-Party Repo (RBI announces Draft Framework on introduction of T), which explained the rationale:
"Tri-party repo will enable market participants to use underlying collateral more efficiently and facilitate development of the term repo market in India."
Why did the RBI make this change? Three reasons. First, CBLO was a proprietary product of CCIL — its legal and operational structure was specific to CCIL's platform. TREPS, by contrast, operates on a globally recognised tri-party repo framework where a third-party agent manages collateral selection, substitution, and settlement. Second, TREPS offered better price discovery because the tri-party structure allowed for more flexible collateral management — borrowers did not need to identify specific securities in advance. Third, TREPS expanded the eligible collateral base. Under the 2025 Repo Directions (RBI_MD_12920), a tri-party repo is defined as:
"A repo contract where a third entity (apart from the borrower and lender), called a Tri-Party Agent, acts as an intermediary between the two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction."
The transition from CBLO to TREPS was not merely a rebranding. It restructured the overnight secured market from a single-entity proprietary platform into an infrastructure-neutral framework that could accommodate multiple tri-party agents if needed.
How do repos work under the 2025 Master Direction?
The Repo Directions 2025 (RBI_MD_12920), issued on November 11, 2025, represent the most comprehensive overhaul of India's repo framework in over a decade. The directions replaced the earlier 2018 repo directions and, critically, added Municipal Debt Securities to the list of eligible collateral — a change enabled by a Central Government notification in the Official Gazette dated October 22, 2025.
A repo, at its core, is a collateralised loan. One party sells securities to another with an agreement to repurchase them at a specified price on a specified date. The difference between the sale price and the repurchase price is the interest cost. The 2025 directions define it through the statutory language of the RBI Act:
"'Repo' shall have the same meaning as defined in Section 45U(c) of RBI Act, 1934. A 'repo' transaction by an entity is 'reverse repo' transaction for the counterpart entity."
The eligible securities for repo under the 2025 framework are: government securities (Central and State), listed corporate bonds and debentures, commercial papers, certificates of deposit, units of Debt ETFs, and Municipal Debt Securities. The inclusion of Debt ETFs and Municipal Debt Securities is new — reflecting the gradual deepening of India's debt market infrastructure.
The directions impose minimum haircuts that vary by collateral type. Listed corporate bonds carry a minimum haircut of 2 percent of market value. Commercial papers and certificates of deposit carry a minimum haircut of 1.5 percent. Securities issued by a local authority carry a minimum haircut of 2 percent. Why do haircuts matter? Because a haircut protects the lender: if the borrower defaults, the lender can sell the collateral, and the haircut provides a buffer against price decline between the time of default and the time of sale.
Why does the RBI regulate repos at all? Because the repo rate is the primary transmission mechanism for monetary policy. When the RBI sets the policy repo rate, it is setting the rate at which it lends to banks against government securities through the Liquidity Adjustment Facility. That rate becomes the floor for the overnight market. Market repos between banks and other participants then trade at rates that reflect the policy rate plus or minus a spread determined by liquidity conditions. The entire chain — from the RBI's policy rate to the overnight market rate to the bank's cost of funds to the lending rate charged to borrowers — runs through repo mechanics.
Why is term money so thin?
Notice money covers tenors from 2 to 14 days. Term money covers tenors beyond 14 days and up to one year. Both are unsecured, and both are governed by the same Call, Notice and Term Money Directions (RBI_MD_12061). The directions define these terms precisely:
"'Notice Money' means borrowing or lending in unsecured funds for tenors up to and inclusive of 14 days excluding overnight borrowing or lending."
"'Term Money' means borrowing or lending in unsecured funds for periods exceeding 14 days and up to one year."
Despite these clear definitions, the term money segment is remarkably thin. Daily volumes in the term money market are a fraction of overnight call money volumes. Why?
The answer lies in CRR mechanics. Because CRR is computed on a fortnightly average basis, a bank's cash position fluctuates within each fortnight. A bank that is surplus today may be deficit next Tuesday. This uncertainty makes banks reluctant to lock up funds for periods longer than overnight or a few days. Why commit to a 30-day unsecured loan when you might need those funds back in four days to meet your own CRR requirement?
The RBI has attempted to encourage term money activity. Primary Dealers face a separate term money borrowing limit of 225 percent of Net Owned Fund, designed to give them room to fund their government securities portfolios for longer tenors. But the structural incentive problem remains: as long as CRR is computed on a daily-average-within-a-fortnight basis, overnight will dominate because it gives banks maximum flexibility to adjust their reserve positions.
How does the overnight rate connect to your loan rate?
The chain from the overnight money market to a borrower's EMI involves five links, each governed by a distinct regulatory framework.
Link 1 — The overnight rate. Banks and primary dealers trade in the call money market, producing a weighted average overnight rate. This rate is published daily as the Mumbai Interbank Offer Rate (MIBOR).
Link 2 — The benchmark. MIBOR is administered by the Financial Benchmarks India Private Limited (FBIL), which was established as an independent benchmark administrator. The overnight MIBOR rate, along with the term MIBOR rates, becomes the reference point for pricing floating-rate instruments.
Link 3 — The policy rate. The RBI's Monetary Policy Committee sets the repo rate. The repo rate anchors the overnight market: banks can always borrow from the RBI at the repo rate (subject to limits), so the market rate cannot persistently rise far above it. Similarly, the standing deposit facility rate sets a floor — banks can always park surplus funds with the RBI at that rate.
Link 4 — The external benchmark. Since October 2019, the RBI has required banks to link all new floating-rate loans in specified categories (housing, auto, MSME, personal) to an external benchmark. The most common benchmark is the RBI's repo rate itself. This means the overnight money market rate directly influences the benchmark against which retail loans are priced.
Link 5 — Your EMI. When the RBI cuts the repo rate by 25 basis points, banks must pass through that cut to all external-benchmark-linked loans within the reset period. The money market rate transmits to the policy rate, the policy rate transmits to the lending benchmark, and the lending benchmark transmits to the borrower's interest burden.
This chain is why the money market matters to every borrower in the country. A treasury manager's daily CRR management exercise is, through five links of regulatory plumbing, connected to the monthly EMI that a homebuyer pays in Pune.
How the plumbing fits together
The Indian money market is not a single market but a layered structure, each layer serving a distinct function.
The unsecured layer — call money, notice money, and term money — serves CRR management. It is restricted to banks and primary dealers because unsecured lending creates credit exposure, and the RBI limits that exposure to entities it directly supervises.
The secured layer — TREPS and bilateral repos — serves broader liquidity management. Because collateral eliminates credit risk, participation extends to mutual funds, insurance companies, and corporates. The Repo Directions 2025 (RBI_MD_12920) open participation to any regulated entity and any listed corporate.
The policy layer — the RBI's LAF repo and reverse repo — sets the boundaries. The repo rate is the ceiling for normal conditions (banks will not borrow in the market at rates higher than the RBI's window), and the standing deposit facility rate is the floor (banks will not lend in the market at rates lower than what the RBI pays).
All three layers interact continuously. When the RBI drains liquidity, the call money rate rises toward the repo rate ceiling. Surplus banks switch from lending in the call market to lending through repos (where they get collateral). Deficit banks, finding call money expensive, borrow through TREPS instead. The flows between layers adjust until rates across the money market settle within the RBI's policy corridor.
The November 2025 entity-specific directions completed the regulatory architecture by ensuring that every regulated entity — from commercial banks to payment banks to co-operatives — follows a consistent framework for valuing the securities that serve as collateral in this market. Without accurate collateral valuation, the secured layer of the money market cannot function. The plumbing depends on the accounting.
The regulatory chain
The money market regulatory chain runs through a clear sequence: the 2002 call money prudential norms (Reliance on Call/Notice Money Market: Prudential N) established borrowing limits, the 2016 master direction on money market instruments (Master Direction on Money Market Instruments: Call) consolidated call money, CP, CD, and NCD rules into a single framework, the 2021 Call/Notice/Term Money Directions (RBI_MD_12061) superseded the 2016 direction for unsecured instruments, and the 2025 Repo Directions (RBI_MD_12920) modernised the secured segment. Each link in the chain expanded participation, improved transparency, and tightened the connection between the overnight rate and the real economy.
The money market exists because banks need to meet CRR every day. Everything else — the instruments, the platforms, the participants, the benchmarks — is infrastructure built around that single regulatory obligation. Understanding the money market means understanding that the most fundamental price in the Indian financial system — the overnight rate — is determined not by abstract theory but by the daily arithmetic of reserve management.