The Reserve Bank of India (RBI) has made an important change in the money market that could improve how companies and financial institutions borrow funds.
In a recent move, RBI has allowed more players—like non-banking financial companies (NBFCs) and corporates—to participate in the term money market.
This step is expected to boost liquidity and make borrowing easier across the system.
What Has RBI Changed?
Earlier, only banks and primary dealers were allowed to take part in the term money market.
Now, RBI has expanded this list to include:
NBFCs
Corporates
At the same time, borrowing limits for standalone primary dealers have also been increased.
This gives them more flexibility to raise funds when needed.
The term money market allows borrowing for more than 14 days and up to one year, making it useful for medium-term funding needs.
Why This Move Matters
The term money market has always seen lower activity compared to the overnight market.
By allowing more participants, RBI aims to:
Increase trading volumes
Improve liquidity in the system
Create better links between short-term and long-term interest rates
In simple terms, this helps RBI’s monetary policy decisions reach the broader economy more effectively.
A Step Toward Better Liquidity
Experts believe this change will make a big difference.
With more participants entering the market, overall funding options will expand.
This means companies and financial institutions will have more ways to borrow money, especially during times of tight liquidity.
It also helps bridge the gap between the highly active overnight market and the less-used term market.
Benefits for Companies and NBFCs
For companies and NBFCs, this move opens new opportunities.
They can now:
Access additional funding sources
Reduce dependence on limited borrowing channels
Manage liquidity more efficiently
This is especially useful during market stress, when traditional funding sources may become unreliable.
Better Returns and Flexibility
The move may also help improve returns for some participants.
Earlier, excess funds were often parked in low-return options like mutual funds.
With access to the term money market, companies can now deploy funds more efficiently and potentially earn better yields.
The Bigger Picture
Overall, this RBI decision is aimed at making the financial system stronger and more flexible.
By increasing participation and improving liquidity, the central bank is ensuring that money flows more smoothly across the economy—benefiting both institutions and the broader market.
