Collateralised Repo Captures 97% of India Overnight Money Market as Banks Shun Call Segment

India's overnight money market operations have become almost entirely collateralised, with secured repo transactions capturing 97% of overall trading volumes during the first half of the financial year 2026-27 (H1FY27). In contrast, the uncollateralised interbank call money segment has seen its role diminish to an emergency liquidity window, accounting for the remaining 3% of volumes, according to findings in the Reserve Bank of India's (RBI) October Monetary Policy Report.

The shift reflects structural changes in how scheduled commercial banks and non-bank financial participants manage their day-to-day liquidity. Broader market participation, anonymous central counterparty clearing through the Clearing Corporation of India Limited (CCIL), and consistently lower funding costs compared to unsecured borrowing have driven volumes decisively toward tri-party repo (TREPS) and market repo segments.

Shifting Dynamics Among Borrowers and Lenders

The RBI data revealed significant shifts among institutional participants in both borrowing and lending profiles across the collateralised segments during April–September 2026:

• Public Sector Banks Step Up: State-run lenders expanded their footprint in secured borrowing, with their share in the tri-party repo market rising to 35% in H1FY27 from 32% in the previous half-year. In the market repo segment, PSU banks increased their borrowing share by 5 percentage points to reach 13%.
• Private Banks Scale Back: Private sector banks reduced their reliance on tri-party repo borrowing sharply, falling to 14% of the market from 24% in the preceding six-month period.
• Mutual Funds Dominate Lending: Asset management companies remained the dominant suppliers of cash in the tri-party repo space, contributing 65% of total lending, unchanged from the previous half-year. However, their share of lending in the market repo segment moderated to 41% from 48% in H2FY26.
• Foreign Banks Expand Funding: Foreign banks filled part of the gap in market repo lending, raising their share to 31% from 29% in the preceding six-month period.

Surplus Liquidity Pulls Overnight Rates Below Benchmarks

The rising dominance of collateralised financing has coincided with elevated liquidity buffers in the domestic banking system. Average daily net liquidity absorption under the RBI's Liquidity Adjustment Facility (LAF) jumped to ₹3.21 lakh crore in H1FY27, up significantly from ₹1.43 lakh crore in H2FY26.

This influx of surplus cash pushed short-term borrowing costs down. While the spread of the weighted average call rate (WACR) over the policy repo rate stayed positive between May and July, it flipped into negative territory in August and softened further through September. Secured overnight rates tracked this softness closely, intermittently dipping below the RBI's Standing Deposit Facility (SDF) rate during the period.

What It Means for Indian Investors

For fixed-income investors and mutual fund unitholders, the deep entrenchment of collateralised repo markets provides operational stability and mitigates counterparty credit risk across liquid, overnight, and ultra-short duration mutual fund portfolios.

Because mutual funds deploy massive cash balances into TREPS, prevailing yields in the overnight repo market serve as an immediate transmission channel into daily liquid fund returns. As collateralised transactions now set the pricing tone for broader money market instruments—including certificates of deposit (CDs) and commercial papers (CPs)—corporate treasury desks and institutional investors are increasingly pegging their cash deployment strategies to secured repo trends rather than traditional call money indicators.

Tags: Reserve Bank of India Money Market TREPS Mutual Funds Banking Sector CCIL