India central bank opens up term money market for non-banks, companies to boost liquidity - Reuters

The Reserve Bank of India’s (RBI) latest move is a structural tweak rather than a simple liquidity injection. By allowing non-bank financial companies (NBFCs) and large corporates to participate directly in the term money market, the central bank is broadening the pool of counterparties beyond commercial banks. This change aims to deepen the market for longer-dated funds, giving lenders and borrowers an alternative to the overnight call money window.

For the financial system, the relevance lies in smoother cash-flow management. NBFCs, which often face a maturity mismatch between their assets and liabilities, gain a new avenue to lock in funds for a defined period. Corporates, meanwhile, can now park surplus cash directly with other institutions, potentially earning better rates than traditional deposits. However, this increased participation also means that credit risk assessment becomes more critical, as these players do not carry the same regulatory safety nets as banks.

What to watch is the impact on short-term yields. As more participants enter the term segment, the spread between overnight and term rates may compress, reflecting improved efficiency. Investors should monitor whether this reduces the RBI’s need for frequent, large-scale open market operations, as a more self-sufficient interbank market often signals a healthier transmission of policy rates.