RBI just proposed letting NBFCs borrow directly in the term money market for the first time. Treasury desks expect volumes to jump 40-60% in year one. Almost none of that money will reach a mid-rated NBFC.
The draft directions on call, notice, and term money markets landed last week. Comments close July 17, 2026.
Term money means borrowing or lending for more than 14 days. Until now, that market belonged almost entirely to banks and standalone primary dealers.
The new draft lets NBFCs, housing finance companies, and All India Financial Institutions in — as both borrowers and lenders. Companies get in too, but as lenders only. Base layer NBFCs are excluded entirely.
Eligible NBFCs and HFCs can borrow up to 200% of net owned funds. AIFIs work within board-approved exposure limits.
Treasury executives told Business Standard they expect market turnover to rise 40-60% in the first year, and potentially double over two to three years.
That sounds like broad-based relief for a sector that leans hard on bank borrowings, capital market paper, and securitisation. It isn't.
The actual pricing benefit is narrow. AAA-rated NBFCs could borrow 5-10 basis points below comparable three-month commercial paper, which currently trades at 7.75-8% per annum. Banks get to deploy surplus liquidity through bilateral unsecured lending, and they'll do it with borrowers they already trust.
Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, put it plainly: he expects only top-rated NBFCs to benefit meaningfully, because lenders will stay choosy when the number of participants on the lending side is limited.
Here's the part that gets missed in the "NBFCs get market access" framing. Credit risk hasn't changed. Only the entry point has.
A sub-AAA NBFC now has one more market it's technically allowed into — and one more market where it will get quoted worse terms, or no terms at all. Banks aren't going to extend bilateral unsecured lending to a BBB-rated NBFC just because the rulebook now permits it.
So the practical effect is a two-speed system. Top-rated NBFCs pick up a cheaper, more flexible funding line on top of CP and bank lines they already have. Everyone else gets a market they can technically access and can't actually use.
That's not a flaw in the design. It's what happens whenever access is opened without changing who counts as creditworthy.
Funding cost compression at the top rewrites the competitive math for the NBFCs you're evaluating. A treasury-savvy AAA NBFC gets marginally cheaper money and more flexibility to manage duration mismatches — that shows up in tighter net interest margins and lower funding-cost volatility over the next 12-18 months.
A BB or A-rated NBFC gets none of that. If your credit models compare peers without separating "has access to the new term money channel" from "doesn't," you'll misread who's actually gaining ground.
Rating just became a more load-bearing variable in NBFC funding cost, not less.
The RBI didn't widen the door for NBFC funding. It built a second door, and handed the key to the NBFCs who already had the easiest time borrowing.
Which NBFCs can access India's term money market under RBI's new draft rules? All NBFCs and housing finance companies except those classified in the RBI's Base Layer. Eligible entities can borrow or lend, subject to a cap of 200% of net owned funds.
Will RBI's term money market proposal lower funding costs for all NBFCs? No. Treasury desks expect meaningful pricing benefit — roughly 5-10 basis points below three-month commercial paper — only for AAA-rated NBFCs. Lower-rated NBFCs are unlikely to see a material reduction in funding costs, since bank exposure limits and credit assessments still govern pricing.
When does RBI's term money market rule for NBFCs take effect? The directions are still in draft form. RBI has invited public comments through July 17, 2026, so the final framework and effective date are not yet set.
Abhishek Gupta is Co-Founder at Dekrypt Labs, building BIOS — a Business Intelligence Operating System for Indian businesses. dekryptlabs.com