RBI draft rules widen access to money markets

The Reserve Bank of India (RBI) has proposed widening access to the country’s short-term money markets, allowing a broader set of nonbank lenders and companies to participate in a segment long dominated by banks and primary dealers.

The draft rules would allow select financial institutions and nonbanking financial companies (NBFCs), including housing finance companies, to borrow and lend in the term money market. Companies would be allowed to participate as lenders.

NBFCs in the base layer have been excluded from the proposed framework.

The term money market covers borrowing and lending for more than 14 days and up to one year. It sits between the overnight call money market and longer-dated debt markets, giving financial firms another route to manage short-term liquidity.

At present, banks and standalone primary dealers are the main participants in India’s call, notice and term money markets. The RBI’s proposal seeks to deepen activity beyond the overnight market and create a stronger link between very short-term rates and longer-maturity funding costs.

The central bank said a more active term money market would give participants an additional funding avenue and help improve monetary policy transmission.

The draft Master Direction, titled Reserve Bank of India (Call, Notice and Term Money Markets) Directions 2026, was released for public comments after the proposal was first announced in the RBI’s 8 April policy statement.

Banks, market participants and other stakeholders can submit feedback by 17 July.

Under the draft framework, prudential limits for outstanding lending transactions in call, notice and term money markets would be decided by market participants with board approval.

For RBI-regulated entities, those limits would have to remain within the exposure norms prescribed by the central bank’s Department of Regulation.

For NBFCs, including housing finance companies, the RBI has proposed a borrowing limit of 200% of net-owned funds as at the end of the previous financial year.

The draft also gives standalone primary dealers more room to borrow. Their combined borrowing through term money and inter-corporate deposits may be allowed up to 400% of net-owned funds.

Borrowing in the call and notice money markets would remain capped at 225% of net-owned funds on a daily average basis during a reporting fortnight.

Primary dealers play a key role in government bond markets, including underwriting government securities and supporting secondary market liquidity. Greater borrowing flexibility could help them manage liquidity needs more efficiently, especially around bond auctions and market-making activity.

The RBI has also proposed operational requirements for eligible participants. Entities allowed to access the market would need to become members of the Negotiated Dealing System-Call platform within six months of the directions coming into effect.

Over-the-counter transactions executed outside the platform would have to be reported within 15 minutes of execution.

The proposal comes as the RBI continues to tighten and simplify market regulations through consolidated master directions. Separately, the central bank also issued draft directions for secondary-market transactions in government securities, aimed at bringing existing instructions into a single framework.