RBI drafts rules for NBFC, AIFI participation in term money market

Non-banking financial companies (NBFCs), housing finance companies (HFCs), all-India financial institutions (AIFIs) and companies will be allowed to participate in the term money market, according to draft master directions issued by the Reserve Bank of India (RBI) on Thursday. The draft directions consolidate regulations governing call, notice and term money markets.

 

Under the framework, the RBI has proposed that NBFCs and HFCs, excluding base layer NBFCs, will be permitted to participate in the term money market as both borrowers and lenders. AIFIs will also be allowed to borrow and lend in the segment, while companies will be eligible to participate as lenders.

   

Term money refers to unsecured borrowing and lending of funds for periods exceeding 14 days and up to one year.

 

The central bank has also proposed that all call, notice and term money transactions executed outside the Negotiated Dealing System-Call (NDS-CALL) platform be reported to NDS-CALL within 15 minutes of execution. Entities that are not members of the platform will be required to obtain membership within six months from the date of the directions.

 

The draft framework permits transactions to be executed in over-the-counter markets, including NDS-CALL and electronic trading platforms authorised by the RBI.

 

The proposed directions set out prudential borrowing limits for various categories of participants. NBFCs and HFCs, excluding base layer entities, may borrow up to 200 per cent of net owned funds in the term money market. Standalone primary dealers may borrow up to 225 per cent of net owned funds in call and notice money markets and up to 400 per cent of net owned funds through term money and inter-corporate deposits taken together.

 

Payments banks will be permitted to participate in call and notice money markets as both borrowers and lenders, while remaining eligible to borrow in the term money market.