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The Reserve Bank of India has expanded participation in the term money market by allowing housing finance companies (HFCs) and all-India financial institutions (AIFIs) to act as both borrowers and lenders. The move is aimed at improving liquidity management, strengthening short-term funding avenues, and enhancing the efficiency of the money market while supporting better transmission of monetary policy across the financial system.
The Reserve Bank of India (RBI) has widened access to the term money market by permitting housing finance companies (HFCs) and all-India financial institutions (AIFIs) to participate as both borrowers and lenders. The decision is intended to improve liquidity management and broaden participation in India's short-term money market.
The revised framework allows eligible HFCs and AIFIs to access unsecured funds in the term money market for maturities ranging from more than one day up to one year. Previously, participation by these institutions in the unsecured money market was more limited, restricting their funding options.
According to the RBI, the move is expected to deepen the term money market by expanding the pool of participants and improving liquidity distribution across the financial system. A more active market is also expected to support efficient price discovery and strengthen the transmission of monetary policy.
Housing finance companies rely on a mix of bank borrowings, bonds and market instruments to fund home loans. Access to the term money market provides an additional source of short-term funding, enabling these institutions to better manage liquidity requirements and diversify their funding profile.
Similarly, all-India financial institutions—including entities engaged in infrastructure, agriculture and export financing—will gain greater flexibility in managing short-term funding needs. The revised framework allows these institutions to both borrow and lend, depending on their liquidity position.
Market participants believe the measure could improve funding efficiency for financial institutions by reducing dependence on a limited set of funding sources. It is also expected to encourage greater activity in the unsecured money market, which plays an important role in the overall financial system.
The RBI said the changes form part of its broader efforts to deepen domestic financial markets and improve liquidity management mechanisms. By expanding participation, the central bank aims to create a more diversified and resilient money market capable of supporting evolving financing requirements.
The revised guidelines are expected to benefit housing finance companies and financial institutions by providing greater flexibility in managing short-term funds while contributing to a more efficient and liquid money market ecosystem.
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