Longer call money trading hours may address liquidity mismatch

The Reserve Bank of India's (RBI's) proposal to extend the trading hours of the call-money market to 7 pm from 5 pm is aimed at having enough liquidity to serve the operational needs of real-time payment systems of banks, according to market participants.

- ANJALI KUMARI & ANUPREKSHA JAIN

The call-money market is a short-term market where financial institutions borrow from one another.

There have been instances when banks borrowed heavily from the RBI's liquidity adjustment facility (LAF) and had to park excess funds with the standing deposit facility (SDF) at a lower rate due to a liquidity mismatch.

"We have been asking for extended hours. What we have seen is that when, at the end of the day, excess liquidity is available, the money is going to the SDF. It is paradoxical that you have system liquidity in deficit and the SDF balances are significant. Extending trading hours will correct this anomaly," said C S Setty, chairman, State Bank of India, while responding to a query on the issue during the bank's earnings press conference last week.