The Reserve Bank of India (RBI) on Thursday, 25 June released draft directions proposing to open the term money market to a broader set of participants — including non-banking financial companies (NBFCs), housing finance companies (HFCs), All India Financial Institutions (AIFIs), and corporates — in a move aimed at deepening liquidity and strengthening monetary policy transmission across maturities. The central bank has invited public comments on the draft until 25 July.

What Is Being Proposed

Currently, participation in the term money market is largely confined to banks and standalone primary dealers, subject to prudential limits. Under the proposed framework, AIFIs and NBFCs — including HFCs but excluding base-layer NBFCs — would be permitted to both borrow and lend in the market. Companies would be allowed to participate exclusively as lenders, not borrowers.

This marks a significant structural shift in how India's unsecured short-term debt market is organised, potentially expanding the pool of active participants and improving price discovery across tenors beyond overnight borrowing.

Revised Borrowing Limits

The draft norms also propose easing borrowing limits for standalone primary dealers, who would be permitted to borrow up to 400 per cent of their net owned funds through term money and inter-corporate deposits combined. Their existing borrowing cap in the call and notice money markets would remain unchanged at 225 per cent of net owned funds on a fortnightly average basis.

For NBFCs and HFCs, the proposed borrowing ceiling in the term money market has been set at 200 per cent of net owned funds. AIFIs would operate within board-approved limits under the existing regulatory exposure framework.

Market Hours and Transaction Rules

The RBI has proposed extending term money market hours from the current 9 am–5 pm window to 9 am–7 pm on business days, or as the central bank may specify. Participants would be free to negotiate interest rates bilaterally, with transactions executable either over-the-counter or through authorised electronic trading platforms.

Why It Matters

Market participants believe the proposed changes could meaningfully expand liquidity in the unsecured money market, particularly for maturities beyond the overnight segment. This comes amid the RBI's broader push to improve the transmission of policy rate signals across the yield curve — a persistent challenge in India's financial system, where rate cuts have historically taken longer to filter through to lending rates.

Notably, the exclusion of base-layer NBFCs reflects a calibrated approach, limiting access to entities with stronger regulatory oversight while still broadening market depth. The consultation period closes on 25 July, after which the RBI is expected to finalise the framework.