The Reserve Bank of India has opened the term money market to All India Financial Institutions (AIFIs), housing finance companies, and companies, allowing them to borrow and lend. According to the latest draft master directions released on Thursday, this move is aimed at deepening market participation and improving liquidity, ultimately strengthening monetary policy transmission by linking short-term and long-term interest rates. The central bank had first outlined this proposal in its April policy statement, with comments invited from stakeholders by July 17, 2026. As per Business Standard, the proposed framework is intended to strengthen the transmission of policy rates across various tenors and promote the development of a more active term money market.
All India Financial Institutions (AIFIs) such as Export Import Bank (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. Housing finance companies (HFCs) would also be eligible, except base level NBFCs. Companies will also be allowed to participate in the term money market as lenders, though smaller non-bank finance firms will be excluded from certain provisions. The RBI has been calling for greater participation in the unsecured overnight call money market over the past year, with the proposed changes expected to significantly expand the pool of borrowers and lenders in the unsecured money market, improving liquidity and price discovery in maturities beyond overnight borrowing.
For AIFIs, borrowing limits for term money borrowings of two days to 14 days and inter corporate deposits have been enhanced to 400% of Net Owned Fund (NOF) as at the end of previous financial year, up from 225% earlier. According to the draft proposals, housing finance companies can borrow term money up to 200% of net owned funds as at the end of previous financial year. For shadow lenders, prudential limits for participation in these markets are proposed at 200 per cent of net-owned funds as at the end of the previous fiscal year. The limits for financial institutions are proposed to be in line with those prescribed by the central bank's department of regulation. Standalone primary dealers would be allowed to borrow up to 400% of their net owned funds through term money and inter-corporate deposits taken together, while their borrowing limit in the call and notice money markets would continue to remain at 225% of net owned funds on a fortnightly average basis.
The RBI has proposed extending market hours from the current 9 am to 5 pm to 9 am to 7 pm on business days, or as specified by the central bank from time to time. According to the draft guidelines, participants will be free to negotiate interest rates, while transactions may be executed either over-the-counter or through authorised electronic trading platforms. The central bank has also proposed easing borrowing limits for standalone primary dealers, with AIFIs being governed by board-approved limits within the existing regulatory exposure framework. At present, India's money markets are dominated by secured participants like banks and primary dealers, who account for the bulk of trading with daily turnover topping around $70 billion.
