RBI call money extension: Market Efficiency Gains

RBI Call Money Extension: Key Financial Reform Set for July 1

In a major update aimed at strengthening India’s financial system, the Reserve Bank of India (RBI) has officially announced the RBI call money extension, increasing market operating hours by two hours starting July 1, 2025. The call money market—an essential pillar of overnight interbank lending—will now operate until 7 PM, instead of the current 5 PM, as per RBI’s notification. This reform aims to improve liquidity, promote efficient price discovery, and align Indian markets with global financial practices.

What is the Call Money Market?

The RBI call money extension directly affects the interbank call money market, which:

• Facilitates overnight unsecured lending between banks and primary dealers.
• Helps institutions manage short-term liquidity needs.
• Provides cost-effective funding alternatives to RBI’s Marginal Standing Facility (MSF).

With the RBI call money extension, participating banks gain more flexibility and time to settle liquidity mismatches before resorting to expensive overnight borrowing tools.

Why the RBI Call Money Extension Matters

1. Improved Liquidity Management

The RBI call money extension provides banks with two additional hours for interbank transactions, significantly reducing their dependence on emergency facilities like MSF or SDF.

2. Better Price Discovery

With longer trading hours, the market can better respond to late-breaking domestic and international news, leading to more transparent and real-time pricing across the financial system.

3. Cost Savings for Banks

Banks can delay accessing costly RBI windows by leveraging the extra time provided through the RBI call money extension, saving up to 40 basis points per transaction.

4. More Yield for Money Market Participants

Asset managers, mutual funds, and corporate treasuries can now optimize idle funds by participating in extended trading hours, a major benefit from the RBI call money extension.

Segment-Wise Market Timing Changes

This update follows recommendations by an RBI internal working group led by Mr. Radha Shyam Ratho, aiming to modernize India’s financial infrastructure.

Market Response to RBI Call Money Extension

According to market analysts at LiveMint and Economic Times, the RBI call money extension has been welcomed across sectors. Experts believe it brings India’s market ecosystem closer to global counterparts and enhances resilience during high-volatility periods.

Key financial institutions praised the move, noting that:

• It supports seamless fund access during global market overlaps.
• It could lead to better participation from foreign investors.
• It reflects RBI’s proactive policy approach amid evolving financial needs.

Implications of RBI Call Money Extension

For Banks:

• More flexibility to manage end-of-day liquidity.
• Reduced need for costly overnight RBI facilities.

For Money Market Funds:

• Extended yield opportunities.
• Enhanced portfolio efficiency via late-hour participation.

For Traders and Analysts:

• Improved alignment with international markets.
• Better reaction time to geopolitical or fiscal developments.

Future Outlook on RBI Market Modernization

While the RBI call money extension is a milestone in itself, it may serve as a catalyst for broader reforms. As per RBI officials, the regulator may soon revisit other market structures such as:

• Liquidity Adjustment Facility (LAF) auction timings
• Real-time settlement frameworks
• Integrated interbank trading dashboards

If executed well, these changes could make Indian money markets more robust, globally competitive, and digitally agile.

The RBI call money extension is more than just a time adjustment—it marks a strategic shift towards a modern, efficient, and globally integrated financial market in India. Starting July 1, 2025, this proactive reform is expected to yield significant benefits for banks, asset managers, traders, and the economy at large.

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