RBI draft opens term money market to NBFCs in 2026

What the RBI proposed, and why it matters

The Reserve Bank of India (RBI) has released draft directions for the call, notice and term money markets, proposing wider participation in the term money market to deepen short-term funding liquidity. The move seeks to broaden the set of eligible borrowers and lenders beyond the current structure, where banks and standalone primary dealers are the only participants in the term money segment, subject to prudential limits. In the draft issued on Thursday, the RBI proposed allowing non-bank entities such as All India Financial Institutions (AIFIs), non-banking financial companies (NBFCs) including housing finance companies (HFCs), and companies to participate in the term money market. The RBI said it first outlined the intent in its April policy statement. Stakeholders have been invited to submit comments on the draft until July 17, 2026. The RBI also linked a more active term money market to better transmission of monetary policy across different interest rate tenures.

Scope of the draft directions

The draft is framed as a Master Direction covering call, notice and term money markets, consolidating the regulations governing these segments. It also proposes operational and reporting requirements for transactions executed on and outside the Negotiated Dealing System-Call (NDS-CALL) platform. The draft permits transactions to be executed in over-the-counter markets, including NDS-CALL and electronic trading platforms authorised by the RBI. Alongside participation rules, the draft sets out prudential borrowing limits for different categories of participants. It also proposes a framework where participants set prudential limits for outstanding lending transactions, subject to approval by their boards. For regulated entities, the RBI clarified that these limits must remain within existing exposure norms prescribed by the Department of Regulation for the relevant entity.

Who can participate in the term money market

A central feature of the draft is the proposal to broaden participation in the term money market to include non-bank entities. As per the draft directions, AIFIs and NBFCs including HFCs will be allowed to participate in the term money market both as borrowers and lenders. The draft explicitly excludes Base Layer NBFCs from this eligibility, effectively keeping smaller non-bank finance firms out of the expanded access. Companies, meanwhile, will be permitted to participate in the term money market as lenders. The RBI’s proposal is a shift from the existing framework where banks and standalone primary dealers dominate the term segment.

How the RBI defines the “term” segment

The draft directions distinguish the term money market from the call money market, which is used for overnight transactions. The term money segment is described as unsecured borrowing beyond 14 days and up to one year. Separately, the proposal also notes that, if finalised, AIFIs and certain housing finance companies would be able to borrow funds for tenures ranging from 15 days to one year. This definition matters because it sets the boundary for who can access which segment and under what operating and risk controls.

Prudential limits proposed for NBFCs and other entities

The RBI proposed specific prudential borrowing limits for term money market participation by non-banks. For NBFCs, including HFCs (but excluding Base Layer NBFCs), the borrowing limit in the term money market has been set at 200 percent of net owned funds as at the end of the previous financial year. The RBI also stated that for shadow lenders, prudential limits for participation in these markets are proposed at 200 percent of net-owned funds as at the end of the previous fiscal year. For financial institutions, the RBI proposed that limits should be in line with those prescribed by the central bank’s Department of Regulation, with internal board-approved guidelines aligned with central bank parameters.

Borrowing flexibility for standalone primary dealers

The draft also proposes revised borrowing flexibility for standalone primary dealers. It states that standalone primary dealers may borrow up to 225 percent of net owned funds in the call and notice money markets. It further proposes that standalone primary dealers may borrow up to 400 percent of net owned funds through term money and inter-corporate deposits taken together. These limits are part of the broader attempt to clarify participation and prudential ceilings across segments and participant types.

Trading, reporting, and NDS-CALL membership requirements

Operationally, the RBI proposed tighter reporting and platform participation norms. It said all call, notice and term money transactions executed outside the NDS-CALL platform must be reported to NDS-CALL within 15 minutes of execution. It also mandated that eligible participants obtain membership of the NDS-CALL platform within six months of the directions coming into effect. For entities that are not members, the same six-month deadline is specified from the date of the directions. The intent is to strengthen market transparency and standardise reporting across execution venues.

What changes for payments banks and corporates

The draft directions also address payments banks and companies in different ways. Payments banks will be permitted to participate in call and notice money markets as both borrowers and lenders, while remaining eligible to borrow in the term money market. For companies, the RBI’s proposal is narrower: companies will be permitted to participate in the term money market as lenders. This design expands the lender base in the term segment while keeping borrower eligibility more constrained than for regulated financial entities.

Key proposals at a glance

Market impact and why the RBI is doing this

The RBI said a more active term money market would provide an additional funding avenue for market participants. It also linked the proposal to supporting better transmission of monetary policy across different interest rate tenures, which is relevant when short-term rates shift but liquidity distribution across maturities remains uneven. Broadening participation to include AIFIs and larger NBFCs could change how non-bank lenders manage short-term funding, while the inclusion of companies as lenders may diversify sources of unsecured term liquidity. At the same time, the draft maintains a risk-control bias by excluding Base Layer NBFCs and anchoring borrowing limits to net owned funds. The reporting and membership requirements for NDS-CALL suggest the RBI is pairing broader participation with tighter post-trade visibility.

What happens next

The RBI has invited comments from banks, market participants, investors and other stakeholders until July 17, 2026. After feedback, the central bank is expected to finalise the directions and set an effective date, which will also start the six-month clock for NDS-CALL membership for eligible entities. Until then, the proposals remain draft and could see refinements based on stakeholder responses.