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

India’s central bank has taken a significant step to deepen the country’s financial markets by allowing non-banking financial companies (NBFCs) and corporations to participate directly in the term money market. Historically, this interbank lending segment was reserved primarily for commercial banks, which used it to manage short-term liquidity mismatches. By opening the door to a broader set of participants, the Reserve Bank of India (RBI) aims to create a more robust and diversified liquidity transmission mechanism. For NBFCs—which often face higher funding costs than banks—this access can provide an alternative channel for managing cash flow, potentially easing credit availability in the broader economy.

The move is part of a broader regulatory effort to enhance market efficiency and reduce the systemic reliance on bank balance sheets. For market watchers, the key signal is liquidity: a wider participant base typically leads to more active trading and better price discovery in short-term rates. Investors should monitor how this policy influences the spread between bank and non-bank funding costs, as well as the overall stability of the repo market. While the initiative is structural and gradual in its impact, it underscores a persistent central bank focus on smoothing volatility in the overnight and term money markets.