RBI draft directions 2026: Wider term money market

What the RBI proposed and why it matters

The Reserve Bank of India (RBI) on June 25, 2026, released draft directions aimed at deepening participation and improving liquidity in India’s term money market. Alongside this, the RBI said it is also seeking to streamline rules governing secondary market transactions in government securities. The draft framework focuses on widening the set of eligible participants and clarifying prudential norms for lending and borrowing in the call, notice, and term money market segments. The central bank has invited comments from banks, market participants, investors, and other stakeholders until July 17, 2026. The proposal comes as the RBI continues efforts to strengthen market efficiency and support smoother liquidity management.

Draft Master Direction for call, notice, and term money markets

The draft is titled Draft Master Direction - Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2026. A key proposal is to give market participants greater flexibility in setting prudential limits for outstanding lending transactions in the call, notice, and term money markets. The RBI’s draft states that these prudential limits should be decided by participants with approval of their Board. This approach places responsibility on governance and internal risk frameworks, while still keeping regulated entities within existing regulatory boundaries. The RBI clarified that for regulated entities, prudential limits must remain within the exposure norms prescribed by the Department of Regulation for the entity concerned.

Term money market: scope and current structure

The RBI described the term money market as a segment where borrowing and lending take place for periods exceeding 14 days and up to one year. The draft directions note that this segment has been relatively underdeveloped compared to overnight and short-tenor markets. Traditionally, the term money market has been dominated by banks and primary dealers, with activity concentrated in the overnight call money and shorter maturities. By proposing changes to participation and limits, the RBI is signalling that it wants to make term funding more accessible and active. The central bank also linked a more active term money market to improved monetary policy transmission across different interest rate tenures.

Broadening participation: non-banks and companies

A central feature of the draft is the proposal to broaden participation in the term money market to include non-bank entities. The RBI proposed allowing All India Financial Institutions (AIFIs) and non-banking financial companies (NBFCs), including housing finance companies (HFCs), to participate. The draft specifies that AIFIs and NBFCs, including HFCs but excluding Base Layer NBFCs, will be allowed to participate in the term money market as both borrowers and lenders. Separately, the RBI proposed that companies will be permitted to participate as lenders. The stated objective is to create a deeper and more liquid market for short-term funding by widening the participant base.

Higher borrowing flexibility for standalone primary dealers

The RBI also proposed enhanced borrowing flexibility for standalone primary dealers (SPDs), which underwrite government securities issuances and provide liquidity in the bond market. Under the draft directions, borrowing by SPDs through term money and inter-corporate deposits together can go up to 400 percent of their net owned funds. The RBI also retained the existing cap for other segments: for call and notice money markets, the borrowing limit for SPDs remains capped at 225 percent of net owned funds on a daily average basis during a reporting fortnight. These caps are presented as part of a prudential framework while enabling SPDs to manage liquidity more efficiently.

Borrowing limit proposed for NBFCs in term money

The draft includes a specific limit for NBFCs (including HFCs) in the term money segment. It proposes that the borrowing limit for NBFCs, including HFCs, in the term money market be set at 200 percent of net owned funds as at the end of the previous financial year. This creates a defined boundary for leverage in term money borrowing, anchored to a balance sheet measure. It also aligns with the RBI’s broader aim of expanding participation while maintaining prudential guardrails. The draft explicitly distinguishes eligibility by excluding Base Layer NBFCs from participation.

Consolidated framework and operational requirements

The RBI said the draft directions consolidate various existing circulars governing call, notice and term money markets into a single framework. It also mandated a key operational step for eligible entities: membership of the Negotiated Dealing System-Call (NDS-CALL) platform within six months of the directions coming into effect. In addition, the draft reiterates transaction reporting discipline: over-the-counter transactions executed outside the NDS-CALL platform must continue to be reported within 15 minutes of execution. These requirements are aimed at improving standardisation, market transparency, and oversight.

Link to the April monetary policy announcement

RBI Governor Sanjay Malhotra had announced the intent behind these measures during the April monetary policy statement, and a separate reference in the provided material notes the announcement was made on Wednesday, April 8. The stated purpose was to deepen participation and improve liquidity in the term money market. The April communication also indicated the RBI’s plan to allow additional non-bank entities to participate and to raise borrowing limits for standalone primary dealers. The June 25 draft directions translate those announcements into a formal consultation document.

What changes could mean for market functioning

The RBI said a more active term money market could provide an additional funding avenue for market participants. A broader set of borrowers and lenders can potentially improve price discovery in term funding rates, especially beyond overnight tenors. Higher borrowing flexibility for SPDs may also support smoother functioning around government securities underwriting and liquidity provision, given their role in the bond market. Operational measures such as mandatory NDS-CALL membership timelines and quick OTC reporting are designed to strengthen market infrastructure and data quality. The RBI has not finalised the rules yet, and the final shape will depend on stakeholder feedback.

Key proposals at a glance

Market impact and what to watch next

The consultation signals the RBI’s intent to broaden access to short-term funding and build depth in a segment that has remained smaller than overnight markets. For investors and market participants, the clearest watchpoints are the final eligibility conditions for non-banks and companies, and how institutions implement Board-approved prudential frameworks in practice. Market infrastructure changes such as NDS-CALL onboarding timelines and rapid OTC reporting will also shape compliance readiness across participant categories. The immediate next step is the stakeholder consultation, with comments invited until July 17, 2026. Any subsequent final directions and effective dates will determine when the six-month NDS-CALL membership window begins.