In a significant move to strengthen India’s financial markets, the Reserve Bank of India (RBI) has proposed a series of reforms aimed at expanding participation in the debt and money markets while improving liquidity and market efficiency.
The draft framework allows corporate bodies to lend in the term money market, a segment that has traditionally been dominated by banks and primary dealers. The RBI has also proposed broader access to the government securities market and introduced total return swaps under credit derivatives. Unlike credit default swaps, total return swaps transfer the complete return of a bond to the buyer.
The proposed norms replace the more restrictive 2021 framework, under which call, notice, and term money markets largely remained limited to banks and primary dealers. While tighter controls will continue for overnight markets, the RBI plans to widen participation in the term money market, which covers unsecured borrowing for periods exceeding 14 days and up to 1 year.
In another key proposal, primary dealers’ borrowing limit will increase to 400% of net owned funds from the current 225%. The revised limit will combine term money borrowings and inter-corporate deposits.
The central bank has also proposed extending trading hours across call, notice, and term money markets to 7 pm from the existing 5 pm, aligning Indian market operations more closely with global trading hours.
For the first time, All India Financial Institutions and Non-Banking Financial Companies (NBFCs) will be permitted to both borrow and lend in the term money market. Additionally, banks, All India Financial Institutions, and NBFCs will be allowed to lend to non-bank entities under standard loan norms.
The proposed changes are aimed at creating a more flexible, diversified, and efficient money market while encouraging wider participation from financial institutions beyond the traditional banking ecosystem.
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