The Reserve Bank of India (RBI) recently announced two important regulatory measures, both of which have a significant impact on the financial markets in India – the first one is the expansion of access to term money market and the second one is the reclassification and re-registration of Non-Banking Financial Companies (NBFCs). All the reforms together indicate the RBI’s resolve to improve liquidity conditions in the market, improve the transmission of monetary policy and a more nuanced and risk-sensitive approach to NBFC regulation.
Expansion of the Term Money Market
The RBI in a draft framework issued on 25.06.2026 suggested that NBFCs (excluding base-layer NBFCs), Housing Finance Companies (HFCs), All India Financial Institutions (AIFIs) and companies be given access to the term money market, which is currently available only to banks and standalone primary dealers. The proposed directions would allow NBFCs and HFCs to borrow and lend in the term money market with a limit of 200% of their net owned funds. Companies would only be able to be involved as lenders. The current regulatory exposure framework would allow AIFIs to operate within the boundaries set by the board. The RBI has also recommended the market hours to be extended from 9.00 a.m.-5.00 p.m. on business days to 9.00 a.m.-7.00 p.m., with the interest rate to be negotiated freely between the counterparties. Trades can be made through an authorised electronic trading platform or over-the-counter. The framework is envisioned to enhance the policy rate transmission across maturities and encourage the growth of a more vibrant term money market. The public was invited to comment until July 25, 2026.
Redefined NBFC Registration and Classification Framework
The RBI revamped its NBFC regulatory architecture with the Non-Banking Financial Companies (Registration, Exemptions, and Framework for Scale Based Regulation) Directions, 2025, effective from November 28, 2025. One major improvement is the introduction of a new exempt category for NBFCs that do not access public funds or have any client contact, therefore exempting such organisations from necessary registration under Section 45-IA of the RBI Act, 1934. From a classification perspective, the revised instructions have eased the process of categorisation of Upper Layer NBFCs. Upper Layer NBFCs are now defined as those with an asset size of Rs. 1,00,000 crore and above as per the latest audited balance sheet – doing away with the earlier cumbersome parametric approach. Importantly, the required listing requirement applicable to upper-layer companies has been exempted for government-owned NBFC-ULs and the ceiling for high exposure framework for NBFC-Infrastructure Finance Companies in upper layer has been increased from 35% to 45%.
Compliance Advisory
The draft term money market framework should be carefully considered by NBFCs and HFCs before the deadline for comments, which is July 25, 2026, and its impact on their funding strategies and treasury operations. Those entities that may be included in the new exempt category in the revised NBFC Directions should assess their eligibility and ensure that their operational structures comply with the conditions laid down in the revised Directions. Legal and compliance teams are encouraged to review new board policies, SOPs and exposure frameworks based on the new scale-based regulatory guidance.
Source: https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63032