Banking Central | How critical is RBI group's proposal to extend trade timings?

markets

The Reserve Bank of India (RBI) in a report on May 2 recommended changes to trading and settlement timings of financial markets, including extended hours for call money market.

Led by RBI executive director Radha Shyam Ratho, a working group reviewed the money market, government securities, interest rate derivatives and foreign exchange, aiming to make them more efficient and aligned with global trends.

How important is this for markets? These changes are about giving banks, investors and other market participants more time to trade and settle deals, make the market smoother, more accessible and better equipped to handle growing demands.

Let us look at how the recommendations can reshape the market.

Money market overhaul on cards

The money market, where banks lend and borrow short-term funds, is set for a big shift. The report suggests extending the call money market’s hours from 5pm to 7 pm, giving banks more time to manage their daily cash needs, especially with 24x7 payment systems now in place.

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It can help banks handle real-time transactions more effectively, reducing last-minute panic. Similarly, trading hours for market repo and tri-party repo (TREP) deals, through which banks borrow using securities as collateral, will be unified and extended to 4 pm. Settlement for these deals will move to 5.30 pm-6.30 pm.

The repo transactions are normally settled on a T+0 basis between 4.30 pm and 5.30 pm.

The report also proposes starting RBI’s liquidity adjustment facility (LAF) auctions earlier, at 9.30 am to give banks a head start in managing funds.

For government securities, market hours stay at 9 am to 5 pm but there’s a twist: non-residents such as foreign investors can trade G-secs after hours until 11.30 pm.

These trades will be reported the next morning and settled two days later, making it easier for global players to invest in Indian bonds across time zones.

This could attract more foreign capital and boost liquidity, though banks will need systems to handle late-night reporting. The settlement window for G-secs will also shift to 5.30 pm–6.30 pm, aligning with repo markets for better coordination.

The foreign exchange and interest rate derivatives markets, however, won’t see changes. Their current hours and settlement processes are deemed sufficient, reflecting their already robust setups, with forex markets operating 24/5 and derivatives tied to exchange or over-the-counter systems.

The report emphasises stability, avoiding disruptions to well-functioning markets.

Longer hours win-win for all

Why does this matter? Extended hours and synchronised settlements mean banks and investors can trade more flexibly, respond faster to market needs and manage funds more efficiently. This is especially crucial as digital trading grows, foreign investors increase and payment systems run round-the-clock.

Banks such as State Bank of India, with vast operations, could benefit from longer call money hours to balance their books amid real-time payment demands.

Mutual funds, active in TREP markets, gain more trading time, potentially improving returns. Foreign investors get a bigger window to buy Indian G-secs, which could strengthen the bond market.

But it’s not without challenges. Banks and market operators will need to upgrade systems and staffing to handle extended hours, which could raise costs. Smaller players could to keep up.

The RBI has called for feedback until May 30, showing it is open to fine-tuning the plan.

Overall, these changes aim to make India’s markets more efficient and globally competitive but, as always, the success will depend on smooth implementation and market readiness.

(Banking Central is a weekly column that keeps a close watch on and connects the dots regarding the sector's most important events for readers.)