The Reserve Bank of India (RBI) has extended the trading hours for the interbank call money market from July 1, and that of repo and tri-party repo markets from August 1.
Market participants said the decision is intended to help reduce the large Standing Deposit Facility (SDF) balances held by banks with the RBI, thereby addressing liquidity mismatches.
The average balances under the standing deposit facility (SDF) remain elevated- Rs 2.62 trillion between May 16 and June 20, as compared to Rs 1.77 trillion between April 16 and May 15.
The central bank had formed a working group to review trading and settlement timings for various markets regulated by RBI.
Market timings for the interbank call money market will be extended to 7 pm from 5 pm from July 1.
Accordingly, the revised market hours will be from 9 am to 7 pm.
The trading hours of repo and tri-party repo (TREP) markets will be extended from 9 am to 4 pm from August 1.
Trading hours for government securities, foreign exchange and interest rate derivatives markets remain unchanged at 5:00 pm.
“Banks and institutions tend to maintain higher balances anticipating outflows in late evenings due to 24x7 format of RTGS/NEFT.
"As a result, banks keep large SDF balances, leading to mismatches in liquidity.
"Plus, the RBI has to pay 5.25 per cent (25 per cent below the policy rate) for keeping money under SDF, costing the central bank.
"Therefore, harmonisation and extension of timings will help in addressing these inefficiencies,” said a treasury head at a state-owned bank.
“The working group provided recommendations aimed at facilitating further market development, price discovery, and optimisation of liquidity requirements,” RBI said.
“Other recommendations of the working group are under consideration and the decisions thereon will be taken in due course.”
Market participants have expressed concerns about the liquidity mismatch, noting that the 24x7 availability of payment systems enables transactions beyond traditional banking hours, resulting in banks receiving funds late in the evening.
While some banks are experiencing a liquidity deficit, others are holding surplus funds, leading to increased reliance on the SDF and Marginal Standing Facility (MSF).
Banks parked Rs 2.67 trillion with the RBI SDF window on Tuesday, latest data by the RBI showed.
Since its inception in April 2022, the SDF has been an important feature of the central bank’s liquidity management framework, replacing the fixed rate reverse repo as the floor of the liquidity adjustment facility (LAF) corridor.
Implementation of SDF is in line with global best practices wherein deposit facilities are in the form of uncollateralised deposits.
“The extension of market timings for the interbank overnight market and TREPS segment has been a long-standing request from banks, particularly following the introduction of 24x7 RTGS in December 2020.
"This timely move is expected to significantly enhance liquidity management and operational flexibility.
"The extended hours will enable banks to manage high-value fund flows up to 7 pm more efficiently through the call money window, thereby reducing the need to access the RBI’s SDF for late evening parking or the MSF for overnight borrowing, said VRC Reddy, deputy general manager- Treasury, Karur Vysya Bank.
The RBI in February formed a nine-member working group, chaired by Radha Shyam Ratho, to review trading and settlement timings for financial markets.
The group was to examine developments in the financial sector over recent years, including the increased digitisation of trading, the availability of forex and certain interest rate derivative markets operating on a 24×5 basis, the growing participation of non-residents in domestic financial markets, and the round-the-clock availability of payment systems.
The group’s primary objective was to review the current trading and settlement timings for various financial markets regulated by the RBI.
This includes the functioning hours of market infrastructures for trading, clearing, settlement, and transaction reporting. Additionally, the group would also analyse any challenges or frictions arising from the current timings, such as their impact on price/rate transmission across markets, market volatility, trade distribution, liquidity requirements, and netting efficiency.
Additionally, it would examine international practices regarding market timings and assess their impact on market development, including participation, liquidity, and trading volumes.
Matter of time
- Decision intended to help reduce large SDF balances
- Mkt close time for interbank call money extended to 7 pm from 5 pm
- Revised market hours will be from 9 am to 7 pm
- Trading hour close time for government securities, foreign exchange, and interest rate derivatives markets remain unchanged at 5 pm
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