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Informist, Friday, Apr. 10, 2026

 

By Cassandra Carvalho

 

MUMBAI – The Reserve Bank of India's decision to allow non-banking financial companies and all-India financial institutions into the term money market is likely to intensify competition for longer-term unsecured funding. Primary dealers, among the most active borrowers, were already aggrieved due to the lack of lenders in the market, and the entry of new players will only add to their woes, market participants said.

 

Term money refers to unsecured borrowing or lending of funds for tenures exceeding 14 days and up to one year. The central bank plans to "enhance the depth" and "liquidity" of this market by allowing more participants, RBI's statement on developmental and regulatory policies released Wednesday said.   

 

RBI Governor Sanjay Malhotra announced measures to develop this market by raising the borrowing limits of standalone primary dealers and allowing more non-banking companies to participate. Dealers expect a notification in this regard within a fortnight, with some expecting it as early as Friday.

 

"You are only adding more borrowers here, from what I can see," the head of trading at a standalone primary dealership said. "The problem in the term money market has also been on the lending side, which is not being addressed. At this rate, things will only get worse for us."

 

Traders await the final notification for clarity, especially on the mention of "companies" in the statement. RBI said it will increase the participants in the market segment to include non-bank participants, "including housing finance companies, companies, etc". Traders speculate that corporates may be allowed to lend in term money, given a recent rise in their participation in the corporate bond repo market, dealers said.

 

Allowing all-India financial institutions, such as the National Bank for Agriculture and Rural Development and the Small Industries Development Bank of India, to participate in term money would provide them with alternative funding avenues. It would also bring down their issuance of certificates of deposit and commercial paper, dealers said. Term money rates and those on certificates of deposit may be comparable, but borrowers would prefer the former, since it is an unsecured instrument and would likely be accounted for as cash, they said. 

 

"... a regulated TMM (term money market) could materially diversify funding sources, smooth maturity profiles, and expand lender optionality, thereby strengthening moneymarket efficiency over time," India Ratings and Research, part of the Fitch Group, said in a note. From a systemic perspective, robust reporting standards and concentration limits may be necessary to prevent contagion risks from spreading across counterparties in the event of a default, the rating agency said.

 

"We made a request for it (participation in the term money market) and have been waiting for it so far. Yields are elevated and we also don't have CASA (current account-savings account) deposits," a senior treasury official at an all-India financial institution said. "If something happens and we need money, then we would want dependency on money markets. Right now, we have limited avenues available. Now this will be an additional option in liquidity management and demand for funds can be met at any hour."

 

A standalone primary dealership is currently allowed to have outstanding borrowing transactions totalling 225% of its net owned fund as at the end of the previous financial year. Primary dealerships are active borrowers in the uncollateralised term money segment. Even if their borrowing limits are increased, they often do not find enough lenders, dealers said. Banks avoid unsecured lending for long periods, especially for tenures that cross a financial quarter-end, due to risk management and compliance concerns, which traders at standalone primary dealerships have passed on to the central bank.

 

"Always there were difficulties (for PDs to borrow in this market)... because there is also an issue that there is a risk limit on every entity," a dealer at another primary dealership said. "If SIDBI, NABARD and all are also borrowers, then it will be difficult for us (PDs) if borrowers increase. Demand will be more, and the rate will be higher. The spread (between tri-party rates and term money) will increase."

 

Most non-banking financial companies are also likely to be borrowers in the term-money market. Development finance institutions and non-banks have been urging the central bank to allow them access to the liquidity adjustment facility, but the central bank so far hasn't obliged, dealers said.

 

The inclusion of non-banks is a welcome measure, but it may not increase volumes in the short term, they said. Occasionally, non-banks may turn lenders if they are sitting on a surplus, and if rates are attractive, similar to how they operate in the tri-party repo market, dealers said. These shadow lenders often face a funding crunch after money markets close, leading them to seek participation in the LAF, which extends till 2359 IST.

 

"So, of course, RBI is not comfortable to give us LAF right now. They're still not giving SDF (standing deposit facility), MSF (marginal standing facility)," a treasury official at an NBFC said. "But let's see, this is a start. We have been asking for something from the very beginning."  End

 

With inputs from J. Navya Sruthi and Aaryan Khanna

Edited by Saji George Titus

 

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