What Does Extended Money Market Hours Mean For Lenders, Borrowers

The money market is the place where financial institutions and banks lend and borrow for short-term funds, usually for a week or a day. The money market maintains the day-to-day liquidity, determines short-run interest rates, and ensures operation of a smooth financial system between lenders (banks and other financial institutions). Instruments traded are—call money, notice and term money, commercial papers, certificates of deposit, and repos in government securities.

With time, transactions in the money market have increased manifold. For the overnight segment, the turnover on a yearly basis has increased from around Rs 281 lakh crore in 2014-15 to more than Rs 1,300 lakh crore in 2024-25. The daily turnover has also increased almost five times over the same period. This is an indication of increasing prominence of effective and timely management of liquidity within the financial system.

What is RBI Suggesting

A working group by the Reserve Bank of India (RBI) had recently suggested expanding the call and notice money market trading hours from 9 am-5 pm to 9 am–7 pm. The rationale was that banks and financial institutions are now operating in an environment where real-time payments and end-of-day liquidity needs are spilling over past conventional trading hours. Extending the hours of the money market would offer participants additional hours to lend or borrow money according to late-day movement of funds or sudden deficiencies.

Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat, says, “Reducing friction in operations of money markets by extension of market hours will help banks manage their liquidity positions in a more efficient manner, as longer market hours would mean a greater ability to lend or borrow on daily liquidity requirements. Overnight funding pressure will be managed better on account of longer market hours facilitating the ability of banks to deal in the money market.”

The RBI has invited suggestions from the public on the move, with a final decision pending after reviewing comments.

Benefits to Banks

If the proposal is implemented, banks are likely to benefit from improved flexibility in managing their liquidity positions. Under the current system, any fund mismatches occurring after 5 pm may force banks to rely on the RBI’s marginal standing facility or borrow at less favourable terms the next day. With trading open till 7 pm, they can address shortfalls or surpluses more efficiently, thus reducing reliance on costly emergency options.

Late trading would also enable treasury desks to realign positions in accordance with last-day activities in the home or foreign markets. Policy disclosures, such as money transfers, or large customer orders placed late in the day can be factored into lending or borrowing on the same day of trading.

Implications for Borrowers and the Financial System

A more stable and responsive money market will induce a positive effect on corporate and retail borrowers. If banks have improved hedging tools at their disposal for their short-run funding, then the volatility in their cost of funds will decrease. This could subsequently lead to lower volatility in their loan and deposit interest rates, particularly overnight-related ones.

In addition, more effective operation of the short-term money markets lowers the risk of money market liquidity shocks spilling over into the system as a whole. This will help in safeguarding financial stability, particularly in the event of times of stress or volatility.

Operational Challenges

While the advantages are obvious, the proposal also raises operational and manpower issues for financial institutions and banks. Treasury departments, back offices, and settlement infrastructure would be required to accommodate longer working hours, possibly demanding changes in shift or staffing practices.

This, in turn, raises system exposure. Institutions would need to incur costs on delivering round-the-clock technology support, risk management, and compliance and smaller institutions may not be able to scale up for extended hour demands.

The RBI has made a public call for comments on the proposal. It will make a decision, based on the response it gets, on whether to make the change and how to spread the transition. If it is done, the action would reframe the way Indian financial institutions hold their liquidity and react to market trends. An extended money market hour could enable improved fund management, more responsive markets, and greater compatibility with real-time financial systems.