MUMBAI: The central bank has permitted All India Financial Institutions (AIFIs) and housing finance companies to borrow funds from the term money market, while also increasing the borrowing limits for standalone primary dealers, as per draft master directions released Thursday.
AIFIs—including the Export-Import Bank (Exim), National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB), Small Industries Development Bank of India (SIDBI), and National Bank for Financing Infrastructure and Development (NaBFID)—can now participate as both borrowers and lenders in the term money market, according to the RBI.
Housing Finance Companies (HFCs), excluding basic-level Non-Banking Financial Companies (NBFCs), will also be eligible. HFCs can borrow up to 200% of their net owned funds as of the end of the previous financial year. For AIFIs, borrowing limits will be subject to internal board-approved limits within parameters set by the RBI’s Department of Regulation. Stakeholders are invited to submit comments on the draft by July 17.
Additionally, the borrowing limits for standalone primary dealers for term money borrowings (ranging from two to 14 days) and inter-corporate deposits have been increased to 400% of Net Owned Funds (NOF), up from the previous limit of 225%. These changes were part of the developmental and regulatory policy statement issued by the central bank following the monetary policy review in April. The RBI notes that these adjustments aim to enhance both participation and liquidity in the term money market segment.
The RBI stated, “An active term money market provides an alternative funding source for market participants and aids in better monetary policy transmission by connecting the overnight money market with longer-term interest rates.”
