INTRODUCTION Inter-bank call money transaction is a very common practice in the modern banking business.

Like an individual in the society or a nation in the world body no bank alone can survive or even run effectively in the complex financial system of the modern age. For this interdependency, the banks very often involve in short term transactions among themselves or with the other financial institutions. These transactions usually take the form of inter-bank call money, inter-bank advances and inter-bank deposits and borrowings. Among all the inter bank transactions, the inter-bank call money, popularly known as "money at call and short notice" is particularly important to the policy makers due to its significant impact on the monetary and credit situation of the country. This market is technically termed as call money market. "The call market is the institutional arrangement; its fund is immediately available and it constitutes the normal non-central bank place for making marginal adjustment in the composition of commercial banks' asset and liabilities" (Patrick 1962). However, although the existence of a call market is a real world phenomenon having some distinct characteristics, we cannot distinguish it completely from money market. So it can be termed as a market within the money market where transaction takes place by gentlemen agreements between the banks themselves. In the words of R.C. Porter (1963) "It is a 'market' only in figurative sense. Brokers no longer try to operate, and prices are nowhere posted; buyers and sellers meet over the telephone and price changes are rippled out by rumors." Transactions in this market involve the rate of interest which is called inter-bank call money rate. The rate varies among banks on the same date of transaction. Moreover it has a tendency to fluctuate very frequently. The rate of interest recorded in this market reflect the financial activity in the money market without regard to the involvement of the central bank. Therefore, the volume of transactions and the rate of interest in this market and their movement are particularly important for monetary policy.

FACTORS AFFECTING CALL MONEY MARKET It is generally observed that Bank Rate has a significant impact on the movement of transaction in call money market and the interest rate associated with it. In general, call money rate varies directly with the movement of Bank Rate but transaction varies in different direction. It is also noticed that though the Bank Rate remained fixed for a considerable period of time, the rates of interest in call money market fluctuated significantly. Therefore, it may be assumed that many factors other than Bank Rate contribute to the fluctuations of transaction and rate of interest in this market. The major factors that can be held responsible
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for the movement of the transactions in call money market and the rates of interest associated with it are as follows: 1. Economic activity: During the expansionary period the economy needs more money to finance its increased economic activity and as a result the demand for money and credit increases rapidly. In such a period, banks with marginal reserve position face severe strain and sometimes they are compelled to borrow from call market at a higher rate of interest to meet the increased credit need of the customer. 2. Delay in getting loan from the central bank: In usual practice, banks seek help from the central bank at the time of their unforeseen short-term financial crisis/liquidity problem arising out of seasonal credit demand or sudden withdrawal of deposit to a large extent. In such a situation the central bank cannot respond readily to the borrowing need of the banks facing crisis, rather, it takes time to assess the borrowing needs of the concerned bank which causes delay in getting loan in due time. As a result, banks also cannot spontaneously respond to the clients. This may cause bad reputation for the banks and the clients may lose confidence on it. To avoid such circumstances, banks take resort to the borrowing from the call market at a higher rate of interest. 3. Attitude of the central bank: Sometimes it happens that the central bank, in consideration of proper monetary management, intends to restrict the volume of money supply in the economy. In doing so, the central bank might in general raise the cash reserve/liquid asset requirements of the banks or denies access to the central bank's financial accommodation. This indiscriminate use of monetary policy instrument affects many banks adversely and to overcome this they are compelled to borrow from the call market and sometimes at very high rate. 4. Availability of loanable fund: Supply of loanable fund in the call market directly affects the rate of interest in this market. It is found that some deposit money banks find it an easy means to earn profit by deploying their collected deposit in this market without any risk. But this situation always does not exist availability of investment opportunity with higher rate of return might reduce the excess reserves of the lending banks. In such a situation, if banks with dire necessity of short term fund are forced to compete more aggressively for the existing supply at call market, interest rates will go up immediately. Besides, the central bank might raise the cash or liquid asset requirement for the banks which might reduce the availability of fund and drive the rate of interest up in this market (Bhoi, 1993). 5. Maintenance of banker-customer relationship: In course of banking business, some banks establish a very good/special relationship with some particular borrowers. Moreover, some long-term client with substantial outstanding loan sometimes might need special treatment without which those cannot survive. Under such
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circumstances, despite shortage of loanable funds, banks, in order to maintain friendly banker-customer relationship or keep the sick customer alive, have to take resort to the call market at a higher rate of interest. 6. Avoidance of penalty from central bank: In the regulatory environment, banks have to maintain Statutory Liquid Asset as a certain percentage of their total deposit liabilities, shortfall of which is subject to penal interest imposed by the central bank. Moreover, due to lack of proper risk analysis, banks, sometimes extend loans to some sectors that cannot repay and as such there occurs a substantial loss of loan with erosion of capital base. Therefore, the concerned banks borrow from call market at a higher rate to maintain the capital adequacy ratio at a desired level.

BASIC FEATURES OF CALL MONEY MARKET IN BANGLADESH Call money market prevailed as a very insignificant part of the financial market in Bangladesh until the beginning of the eighties because of a narrow base and less diversified financial system. The administered interest rate regime, dominance of the nationalized banks, prevalence of Bangladesh Bank's refinance facilities that virtually provided inexpensive and unlimited loans to the banks in need of fund inhibited the growth of the call money market in Bangladesh up to 1990. However, the denationalization of some banks and establishment of a good number of banks in the private sector in the country have opened up the opportunities for the development of this segment of money market in Bangladesh. Moreover, abolition of administered interest rate regime, substantial deregulation of the banking activities and withdrawal of refinance arrangement from Bangladesh Bank have added a new dimension towards the development of this market. Bangladesh Bank is considering to prepare Prudential Guidelines to regulate this market. In April 1998, directives were issued to the effect that all the non-bank financial institutions having license from Bangladesh Bank may participate in call many market (Bangladesh Bank, 1998). However, in respect of lending by the non-bank financial institutions financial transparency, liquidity and sources and repayment capability of the concerned institutions must be examined to ensure getting back the amount of extended loan on demand. Bangladesh Bank has introduced the system of returns based monitoring of the transactions in call money market. It may be mentioned that now-a-days call money rate is the only rate which is most widely known and published in the newspaper. The call money market in Bangladesh is not strongly organized and in terms of transaction is not very large. From the very beginning all the scheduled commercial banks and the two specialized banks were involved in this market. In 1985 two investment companies (Bangladesh Bank, 1985-86) and in 1989-90 one leasing company were allowed to participate in this market to widen its scope of operation (Bangladesh Bank, 1988-89). At
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present all the banks and financial institutions are participating in this market. Despite this, the volume of transaction, the market did not expand significantly. Foreign banks operating in Bangladesh are the major supplier of funds in the call market. It may be observed that the foreign banks are very much conservative in lending and their lending activities traditionally have been limited to the selective private borrowers and as such they are able to maintain sufficient excess cash liquidity. These banks enjoy a comparative advantage of collecting large deposits from the private individuals, foreigners working in Bangladesh, NGOs etc. at low rates of interest. As a result, their cost of fund is minimum and therefore they become the important source of call money while some of the NCBs and some private banks are the permanent borrowers. It may be mentioned that the activities of the call market are limited within the Head Offices of the banks and therefore, this market is basically Dhaka based. Surpluses or deficits of the branch offices are channeled through Dhaka to other places at the direction of Head Offices. This, sometimes creates a lot of problems for the branch offices, particularly, for fund management surplus or deficit branches in the remote area have scope to operate in this market. This might be one of the causes of narrow lending activities in the rest of the country other than the big cities. As in the case of deposit liabilities Cash Reserve or Statutory Liquid Asset Requirement is not applicable for call money. So, any amount mobilized from this market can be invested without keeping any margin. In such a situation, deposit mobilization sometimes becomes unattractive for continuing lending activities, rather call market seems to be an easy source to raise fund for lending. It is also observed that some banks are simultaneously borrower and lender in the call market. Besides traditional banking, there are four banks in Bangladesh which are operating under Islamic principles. Some of these banks also participate in call money market but in a different way. They arrange such fund by offering short-term investment opportunity to the banks on mutually agreed interest rate, consistent with the prevailing call market. Although investment is settled for a certain period of time, verbally it is agreed upon that such funds be refundable at any time as required by the investing bank.

IMPLICATIONS One of the important aspects of monetary policy is to ensure optimum utilization of resources mobilized by the banking sector. Since call money market has become an essential part of the banking sector, the development of it is crucially important for effective operation of monetary policy. From the foregoing analysis it is revealed that this market is not adequately developed in Bangladesh and monetary policy actions can exert significant impact
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on it development. The wide range of fluctuations in transactions reflects the inefficiency in the portfolio management of the banking system in Bangladesh. It also indicates that Management Information System (MIS) is not adequately developed in the banking sector and such market information remains cloudy both for the lender and the borrower. In this situation, some dealers, mostly private banks involved themselves in simultaneously buying and selling operations to take advantage of known price discrepancies. From the trend of the transactions, it may be assumed that this market is developing gradually and the fund is always available here. This implies that borrowers are not worried about fund that can be borrowed from this market. Therefore, there are sufficient reasons to believe that the market players consider this market as an important source of fund that can help them in bridging the gap between receipts and payments. It is very much true that the banks and the financial institutions face recurring liquidity problem but the existence of such flexibility in call market has brought safety for the banking business in the country which is crucially important for the development of money market. For the current monetary policy of Bangladesh that emphasizes indirect control, this situation also presents an excellent opportunity to exercise control over the availability of credit in the economy through open market operation. The abrupt fluctuation in the rate of interest has meaningful implications for the monetary authority. The bank that borrows from the market at substantially high rate of interest may be treated as a problem bank because the high rate of interest might abnormally raise the cost of the fund for the borrowing bank and the viability of the bank will be threatened (Ercum, 1993). Bank Rate, however, seems to have some impact on the rate of interest in this market because call money rates always remain between the Bank Rate and the penal interest rate that may be imposed due to short fall of liquidity. It may also be assumed that during the restrictive period, the banks can mobilize fund from this market to continue their lending activities without regard to the central bank's action. In such a situation, Bank Rate can be used to affect the call money rates. From the excess liquidity position of the banks, it may be conceived that the foreign banks have taken up this market as an easy means to earn profit which might defeat the objectives of ensuring competition among the banks in Bangladesh.

SUGGESTIONS AND CONCLUSION To develop a well-organized and sound call market in Bangladesh its scope should be expanded. Now-a-days there are a good number of investment as well as leasing companies operating in the country with experience of utilizing money in variety of uses. Moreover, insurance companies also mobilize plenty of fund that can be utilized effectively if they are allowed to operate in the call market. Therefore, to broaden area of call market such institutions may be allowed to participate in the country's call money market. Bangladesh
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Bank, as a guardian of money market, may help in developing this market by formulating detailed rules and regulations covering the operations and obligations of participants in such market. These types of actions for the central bank of the developing countries has also been considered necessary for facilitating transition towards market based financial system (Wong, 1991). The banks whose transactions fluctuate abnormally as well as those who borrow at a very high rate of interest however, should be looked into separately to identify their problems. The rate of interest in this market reflect the market interest rate, and therefore, it may be taken as a useful indicator while changing Bank Rate to affect the cost of credit in the banking sector. Maxwell J. Fry (1988) also expressed this view while describing the policies for financial development in the developing countries. Call money rate, maximum and minimum along with Bank Rate should be regularly published in the daily newspapers and also at the time of news casting over Radio and Television. Seasonal credit demand might also be assessed on the basis of transaction in this market and further credit program for the banking sector may be formulated accordingly. Monetary authority in Bangladesh can effectively use this market as an efficient means of mobilization and allocation of domestic resources. Towards this end, the current practice of maintaining liquidity ratio for the banks at 20 per cent may be gradually reduced to a minimum, so that more fund can be made available in this market.

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