The Reserve Bank of India has opened the term money market to All India Financial Institutions (AIFIs) and housing finance companies (HFCs), allowing them to borrow and lend, as reported by The Economic Times. Currently, only banks and standalone primary dealers are permitted to participate in the term money market, subject to prudential limits. Under the draft framework, AIFIs and NBFCs, including HFCs but excluding base-layer NBFCs, will be allowed to both borrow and lend in the term money market, while companies will be permitted to participate as lenders. The central bank has invited comments from stakeholders and market participants on the draft by July 17, 2026, according to The Economic Times. The latest draft norms released on Thursday mark a shift away from the tightly controlled framework of 2021, under which call, notice and term money markets were largely the preserve of banks and primary dealers.
According to the latest draft master directions, prudential limits in respect of outstanding lending transactions in the call, notice and term money markets should be decided by the participants with the approval of their Board, as reported by The Economic Times. For regulated entities, the prudential limits shall be within the regulatory framework of the exposure norms prescribed by the Department of Regulation of the Reserve Bank for the entity concerned. The borrowing limit for AIFIs would be dependent on internal board approved limits within limits prescribed by the Department of Regulation at the RBI. For NBFCs and HFCs, the proposed borrowing cap in the term money market has been fixed at 200% of net owned funds. AIFIs will be governed by board-approved limits within existing regulatory exposure norms. The RBI has also enhanced borrowing limits for standalone primary dealers for term money borrowings of two days to 14 days and inter corporate deposits, increasing the limit to 400% of Net Owned Fund (NOF) as at the end of the previous financial year, up from 225% earlier. Banks, AIFIs and NBFCs can now lend to non-banks under standard loan norms, marking a significant expansion of lending capabilities.
AIFIs such as Export Import Bank of India (Exim), National Bank for Agriculture and Rural Development (Nabar), National Housing Bank (NHB), Small Industries Development Bank of India (Sidbi) and National Bank for Financing Infrastructure and Development (NaBFID) shall be eligible to participate in the term money market both as borrowers and lenders, as specified by the RBI. Housing finance companies (HFC) would also be eligible- except base level NBFCs. The central bank has called for comments from stakeholders on the draft by July 17, 2026, with the policy changes being implemented with a view to further enhance the depth of participation and liquidity in the term money market segment, as stated by the RBI. The enhanced framework represents a significant expansion of institutional participation beyond the traditional banking sector.
The RBI has also enhanced borrowing limits for standalone primary dealers for term money borrowings of two days to 14 days and inter corporate deposits, increasing the limit to 400% of Net Owned Fund (NOF) as at the end of the previous financial year, up from 225% earlier, according to The Economic Times. Their borrowing limit in call and notice money markets will remain at 225% of net owned funds on a fortnightly average basis. Both these changes were announced as part of the statement on developmental and regulatory policies by the central bank after the monetary policy review in April. The latest draft directions further clarify these enhancements for primary dealers. The new approach fragments the structure, selectively widening access to the term segment-defined as unsecured borrowing beyond 14 days and up to one year-while retaining tighter controls over overnight markets.
Market hours have been proposed from 9 am to 7 pm on business days or as specified by RBI from time to time, extending beyond the current call and money market timings of 9 am to 5 pm, as reported by The Economic Times. The RBI has also stretched trading hours to match global clocks and extended call, notice and term market windows to 7pm from 5pm. Participants would remain free to negotiate interest rates, while transactions could be executed either over-the-counter or on authorised electronic trading platforms. The draft guidelines also seek to strengthen market transparency and reporting standards, with all call, notice, and term money transactions executed outside the RBI-operated NDS-CALL platform required to be reported to the platform within 15 minutes of execution. Eligible participants who are not currently members of NDS-CALL will be required to obtain membership within six months of the directions coming into force.
The policy changes are being implemented with a view to deepen market participation and improve liquidity, ultimately strengthening monetary policy transmission by linking short-term and long-term interest rates, as stated by the RBI, as reported by The Economic Times. The central bank emphasized that an active-term money market, apart from providing an alternative funding avenue to market participants, also helps in enhancing monetary policy transmission by creating a link between the overnight money market and longer-term interest rates. Market participants believe the move could significantly broaden the pool of lenders and borrowers in the unsecured money market, helping improve price discovery and liquidity in maturities beyond overnight borrowing. The proposal follows the RBI's announcement in its last monetary policy on April 8, when governor Sanjay Malhotra had highlighted the need to develop a more active term money market. Additionally, the RBI has issued draft directions to consolidate existing rules for government securities trading in the secondary market, aiming to enhance clarity and streamline operations for all stakeholders.
