RBI Annual Report FY 2025-26: Financial Markets — Money Market, Government Securities and Corporate Bonds

The RBI Annual Report FY 2025-26 describes Indian financial markets as resilient despite substantial global uncertainty. Money-market rates broadly followed the policy repo rate and liquidity conditions, while government-security yields initially softened and subsequently hardened. Corporate bond yields declined overall but displayed a hardening bias, while secondary-market turnover increased.

For RBI Grade B, RBI promotion examinations, UPSC, IBPS and banking interviews, this chapter is important because it connects monetary policy with actual market outcomes.

The core transmission chain is:

RBI policy rate → system liquidity → money-market rates → G-sec yields → corporate borrowing costs → financial conditions

Understanding this chain is more valuable than memorising isolated numbers.

1. Financial Markets in 2025-26: The Big Picture

Indian financial markets had to navigate:

global fiscal concerns;
changing growth-inflation conditions;
US tariff uncertainty;
geopolitical tensions;
changing expectations of monetary-policy easing;
crude-oil price movements;
portfolio investment flows; and
domestic fiscal and borrowing requirements.

Despite these headwinds, the RBI assessed Indian financial markets as resilient.

The broad pattern was:

Market	Major 2025-26 development
Money market	Rates broadly tracked repo and liquidity
G-sec market	Yields softened initially, then hardened
Corporate bonds	Yields declined overall but spreads widened
Equity market	Volatile, with second-half weakness
Forex market	INR depreciated
FPI debt	Net investment remained positive
Liquidity	Largely surplus during the year

2. Why the Money Market Matters

The money market deals primarily with short-term funds and instruments.

For monetary policy, it is especially important because changes in the RBI’s policy rate influence short-term market rates.

The RBI retained the:

Weighted Average Call Rate (WACR)

as the operating target of monetary policy.

The revised liquidity framework also retained a:

symmetric 50-basis-point policy corridor

around the policy repo rate.

Therefore:

Repo rate → WACR → other short-term rates

is an important monetary-policy transmission mechanism.

3. WACR in 2025-26

The Weighted Average Call Rate (WACR) moved broadly in line with the policy repo rate and changing liquidity conditions.

Its average spread over the repo rate was:

–7 basis points in 2025-26

compared with:

+6 basis points in 2024-25

This indicates that, on average, the call rate traded slightly below the repo rate during the year.

4. WACR Volatility Increased

Although WACR remained aligned with the policy framework, its volatility increased.

The coefficient of variation of WACR rose to:

4.8% in 2025-26

from:

2.2% in 2024-25

Exam Point

Remember the pair:

WACR average spread vs repo = –7 bps

WACR volatility = 4.8%

5. How WACR Moved During the Year

The year can be divided into distinct phases.

April–early July 2025

Large surplus liquidity caused WACR to hover around the:

SDF rate

which forms the floor of the policy corridor.

Mid-July 2025 onwards

The RBI absorbed liquidity through:

Variable Rate Reverse Repo (VRRR) auctions

WACR consequently moved closer to the repo rate.

Mid-December 2025–January 2026

As liquidity surplus moderated, WACR moved towards the:

MSF rate

the ceiling of the policy corridor.

February 2026

WACR eased.

End-March 2026

WACR remained relatively elevated due to seasonal factors.

6. Collateralised Money Markets Dominated

The Indian money market remained dominated by collateralised segments.

The average shares were approximately:

Triparty repo — 67%
Market repo — 30%
Call money — 3%

Therefore:

Collateralised markets accounted for about 97%

of the money market on this measure.

This is an important structural feature.

7. Money-Market Volumes Increased

Average daily money-market volume increased by:

16%

to:

₹6.4 lakh crore

during 2025-26,

from:

₹5.5 lakh crore

in the previous year.

The RBI notes that increasing call-money-market volumes from Q2 onwards could partly be attributed to extended market timings.

8. Market Timings Were Extended

Effective:

July 1, 2025 — call money market trading hours extended to 7:00 PM
August 1, 2025 — triparty repo and market repo trading hours extended to 4:00 PM

This is a small fact, but exactly the kind of detail that can appear in an RBI departmental examination.

9. Three Important Short-Term Instruments: T-Bills, CDs and CPs

The longer-tenor money-market instruments highlighted in the report include:

Treasury Bills (T-Bills)

Short-term government securities.

Certificates of Deposit (CDs)

Negotiable short-term instruments issued by banks and certain other eligible institutions.

Commercial Papers (CPs)

Short-term market instruments used by eligible corporates and other entities for raising funds.

Their yields generally followed the broader movement in short-term interest rates.

10. H1 vs H2: An Important Turning Point

During H1:2025-26:

T-bill, CD and CP yields softened.

However, during H2:

CD rates remained elevated.

Why?

Because banks faced:

Higher credit offtake + funding requirements

and therefore increased CD issuance.

CP rates also moved upward in H2.

This is directly connected to Part 5.

11. Certificate of Deposit Issuances Increased

CD issuances rose substantially.

Q1:2025-26

₹2.3 lakh crore

Q4:2025-26

₹5.3 lakh crore

Total CD issuances during 2025-26:

₹13.5 lakh crore

compared with:

₹11.9 lakh crore in 2024-25

Why did this happen?

The report links higher CD issuance to banks’ need to meet funding requirements amid stronger credit offtake.

Thus:

Credit demand ↑

↓

Deposit growth insufficient

↓

Banks require additional funding

↓

CD issuance ↑

12. Commercial Paper Issuances

CP issuance showed a different pattern.

During H1, surplus liquidity and favourable interest rates supported a steady trend in new CP issuances.

In H2, CP issuances declined as:

higher rates encouraged a shift towards bank borrowings.

Despite this, total CP issuances increased to:

₹16.9 lakh crore in 2025-26

from:

₹15.7 lakh crore in 2024-25.

13. G-Sec Market: Why It Matters

Government securities, or G-secs, are central to India’s financial system.

They serve as:

a major investment avenue for financial institutions;
collateral in financial transactions;
an instrument for RBI liquidity operations; and
a benchmark for pricing other debt instruments.

Consequently, G-sec yields are highly sensitive to:

Monetary policy + liquidity + government borrowing + inflation + growth expectations + global factors.

14. Q1: G-Sec Yields Softened

During Q1:2025-26, the domestic G-sec yield curve steepened.

The pattern was:

short-term yields → softening bias;
medium-term yields → softening bias;
long-term yields → relatively range-bound.

This occurred amid:

monetary-policy easing; and
RBI liquidity-infusion measures.

The RBI also conducted OMO purchase auctions aggregating:

₹2.39 lakh crore

during Q1.

15. June 2025 Changed Market Expectations

After the monetary-policy stance changed to:

Neutral

in June 2025, expectations of further rate cuts declined.

As a result:

G-sec yields hardened.

This demonstrates the importance of expectations.

A market does not react only to the current policy rate.

It also reacts to:

Expected future policy.

16. Q2: G-Sec Yields Hardened

During Q2:2025-26, G-sec yields hardened following:

better-than-expected Q1 GDP data;
fiscal concerns;
higher US tariffs;
GST rationalisation-related uncertainty.

However, the increase was capped as concerns regarding government-security oversupply moderated.

Greater clarity regarding the limited revenue impact of GST rationalisation and the government’s H2 borrowing programme also helped.

17. Q3: Two-Way Movement in G-Sec Yields

During Q3:2025-26, G-sec yields moved in both directions.

Upward pressure came from:

stronger-than-expected Q2 GDP data;
reduced expectations of further monetary easing after the December rate cut.

But:

RBI liquidity-injection measures

helped contain the upward pressure.

OMO purchases during Q3 aggregated:

₹1.81 lakh crore

of which:

₹1.50 lakh crore

were through auctions.

18. Q4: G-Sec Yields Hardened Sharply

Q4 brought additional pressure on government-security yields.

Major factors included:

higher-than-expected gross market borrowings announced in Union Budget 2026-27;
sharp increases in crude-oil prices;
escalation of the Middle East conflict.

On the final trading session of 2025-26:

10-year generic G-sec yield crossed 7%

for the first time since July 2024.

This is a high-priority fact.

19. Q4 OMO Purchases Were Large

Despite upward pressure on yields, the RBI continued liquidity support.

OMO purchases during Q4 aggregated:

₹4.57 lakh crore

of which:

₹3.5 lakh crore

were conducted through auctions.

Thus:

Higher borrowing + crude prices + geopolitical risks

created upward pressure on yields,

while:

RBI liquidity operations

provided a countervailing force.

20. Total OMO Purchases: The Bigger Picture

From the quarterly figures:

Q1: ₹2.39 lakh crore
Q3: ₹1.81 lakh crore
Q4: ₹4.57 lakh crore

The liquidity-management chapter separately records total net OMO purchases of approximately:

₹8.78 lakh crore

during 2025-26.

This illustrates the scale of RBI’s durable liquidity operations during the year.

21. Why Do OMO Purchases Affect G-Sec Yields?

When RBI purchases government securities:

Demand for G-secs ↑

↓

Bond prices ↑

↓

Bond yields ↓, other things equal.

Therefore, OMO purchases can help counter upward pressure on yields.

But this relationship is not mechanical because yields simultaneously respond to:

fiscal borrowing;
inflation expectations;
global yields;
crude prices;
monetary-policy expectations;
portfolio flows.

The 2025-26 experience demonstrates precisely this interaction.

22. Foreign Portfolio Investors in Debt

Foreign portfolio investors had three broad channels for investing in debt:

General Route
Voluntary Retention Route (VRR)
Fully Accessible Route (FAR)

The FAR provides eligible non-resident investors unrestricted access to specified central government securities, subject to the applicable framework.

23. FPI Debt Investment in 2025-26

FPIs invested:

₹16.1 thousand crore

in debt instruments during 2025-26.

At end-March 2026:

Route	Limit	FPI Holding	Utilisation
General Route	₹1,470.7 thousand crore	₹186.6 thousand crore	12.7%
VRR	₹250.0 thousand crore	₹188.8 thousand crore	75.5%
FAR	₹4,751.2 thousand crore	₹313.3 thousand crore	6.6%

Exam Point

The VRR had the highest utilisation ratio among the three at 75.5%.

24. Corporate Bond Market

The corporate bond market is crucial because it provides companies with an alternative to bank financing.

The 2025-26 environment showed:

Corporate bond yields ↓ overall

but:

Hardening bias during the year.

The spread of AAA-rated three-year corporate bonds over comparable G-secs increased somewhat amid mixed corporate earnings performance.

25. Corporate Bond Yields: Key Numbers

AAA-rated three-year bond yields were:

Issuer	March 2025	March 2026	Change
PSUs, FIs & Banks	7.48%	7.33%	–15 bps
NBFCs	7.70%	7.53%	–17 bps
Corporates	7.62%	7.36%	–26 bps

Thus, despite the hardening bias during parts of the year, the March-to-March comparison showed lower yields.

26. Secondary Corporate Bond Market Expanded

Average daily secondary-market turnover in corporate bonds increased to:

₹7.1 thousand crore

in 2025-26,

from:

₹6.2 thousand crore

in 2024-25.

This indicates greater trading activity and depth in the secondary corporate bond market.

27. Primary Corporate Bond Issuances Declined

Primary issuances of listed corporate bonds through domestic stock exchanges declined to:

₹9.1 lakh crore

in 2025-26,

from:

₹9.9 lakh crore

in the previous year.

There was also moderation in mobilisation through overseas issuances.

So the market exhibited an interesting combination:

Secondary-market turnover ↑

but:

Primary listed issuance ↓

28. Private Placement Remained Dominant

Private placement remained the preferred channel in the domestic corporate bond market.

It accounted for:

99%

of total resources mobilised through the domestic bond market.

This is an exceptionally important objective-exam fact.

Remember:

Corporate bond mobilisation → Private placement = 99%

29. FPI Investment in Corporate Bonds

FPI investments in corporate bonds increased during 2025-26.

However, utilisation of approved FPI limits declined to:

15.0% at end-March 2026

from:

15.8% a year earlier.

The decline occurred because the absolute investment limits increased.

This is a classic example of why:

Utilisation ratio ≠ absolute investment

An increase in the denominator can lower utilisation even when actual investment rises.

30. How the G-Sec and Corporate Bond Markets Are Connected

Corporate bonds are generally priced relative to government securities.

The relationship can be simplified as:

Corporate Bond Yield = Risk-free/G-sec Yield + Credit/Other Spread

Therefore, if G-sec yields rise, corporate borrowing costs can also face upward pressure.

But the corporate bond yield also depends on:

issuer credit quality;
liquidity;
market risk;
investor demand;
corporate earnings;
broader financial conditions.

This is why the RBI tracks corporate-bond spreads over comparable G-secs.

31. Money Market → G-Secs → Corporate Bonds

The complete market transmission mechanism during 2025-26 can be visualised as:

RBI policy easing

↓

Liquidity injection

↓

Short-term money-market rates soften

↓

G-sec yields initially soften

↓

Expectations of further rate cuts change

↓

G-sec yields harden

↓

Fiscal borrowing + crude prices + geopolitical risk add pressure

↓

RBI OMOs counter some upward pressure

↓

Corporate bond yields and spreads respond to G-sec yields + credit conditions

This is the conceptual framework you should use for descriptive answers.

32. The Role of Liquidity

Liquidity was one of the most important forces influencing financial markets during the year.

The RBI reported that:

Average daily system liquidity surplus = ₹1.86 lakh crore

during 2025-26.

The Standing Deposit Facility absorbed a large portion of the surplus:

84.9% of average total LAF absorption

or approximately:

₹2.02 lakh crore

out of average total LAF absorption of:

₹2.38 lakh crore.

33. Why Liquidity Was Volatile Despite Being Mostly Surplus

Major drivers included:

changes in Government of India cash balances;
currency in circulation;
foreign-exchange operations;
capital flows.

The RBI notes that liquidity withdrawn because of higher currency demand and forex operations was more than offset by durable liquidity injections.

This explains why:

System liquidity could remain broadly surplus even when temporary liquidity deficits occurred.

34. The RBI’s Liquidity Toolkit

During 2025-26, the RBI used:

Variable Rate Repo (VRR) operations;
Variable Rate Reverse Repo (VRRR) operations;
Open Market Operations;
term repo;
long-term forex swaps; and
CRR reduction.

The objective was not simply to increase liquidity permanently.

It was to:

Manage liquidity conditions consistently with monetary-policy objectives and facilitate effective transmission.

35. Important Liquidity Numbers

Indicator	2025-26
Average daily liquidity surplus	₹1.86 lakh crore
Average LAF absorption	₹2.38 lakh crore
SDF absorption	₹2.02 lakh crore
SDF share of absorption	84.9%
Q1 OMO purchases	₹2.39 lakh crore
Q3 OMO purchases	₹1.81 lakh crore
Q4 OMO purchases	₹4.57 lakh crore
March 2026 OMO purchases	₹1 lakh crore in two ₹50,000 crore tranches

36. March 2026: Special OMO Intervention

The RBI conducted OMO purchases of Government of India securities totalling:

₹1 lakh crore

in two tranches:

₹50,000 crore on March 9, 2026
₹50,000 crore on March 13, 2026

This occurred against a backdrop of significant market pressures in Q4.

37. Financial-Market Regulation Also Evolved

The RBI’s Financial Markets Regulation Department continued to focus on:

development;
regulation;
surveillance; and
modernisation of market infrastructure.

Its regulatory mandate covers:

money markets;
government securities;
interest-rate derivatives;
foreign exchange;
credit derivatives.

38. Secured Overnight Rupee Rate — SORR

A major market-development initiative was introduction of the:

Secured Overnight Rupee Rate (SORR)

It is a benchmark based on secured money markets, specifically:

basket repo; and
triparty repo.

FBIL commenced publication of the SORR from:

July 7, 2025

Why important?

As collateralised markets became dominant, a benchmark based on secured overnight transactions became increasingly relevant to the market structure.

39. FIMMDA Recognised as an SRO

The:

Fixed Income Money Market and Derivatives Association of India (FIMMDA)

was granted recognition as a:

Self-Regulatory Organisation (SRO)

in financial markets.

This is another high-value fact for RBI examinations.

40. Interest-Rate Derivatives Framework Revised

The regulatory framework for:

Rupee Interest Rate Derivatives (IRD)

was reviewed and re-issued on:

December 8, 2025

The objective was to reflect the evolving IRD market, strengthen risk management and enhance transparency.

41. Municipal Bonds Became Eligible Repo Collateral

To encourage the municipal-bond market:

Municipal bonds were notified as eligible collateral for repo transactions.

This was done in consultation with the Government of India.

Significance

It can improve:

liquidity;
marketability; and
financing conditions

for municipal bonds.

42. Tokenised Certificates of Deposit

The Annual Report also records an important intersection between financial markets and technology.

A pilot commenced for:

Tokenised Certificates of Deposit

using the:

Unified Markets Interface (UMI)

with settlement through:

Wholesale CBDC.

This connects Part 6 with the later articles on FinTech, CBDC and RBI innovation.

43. Government Securities Trading Became More Integrated

The RBI made provisions to connect:

NDS-OM

—the anonymous order-matching platform for government securities—

with:

global bond trading platforms

to facilitate greater electronification of non-resident government-security transactions.

44. Market Infrastructure Was Also Extended

Trading and guaranteed settlement facilities were expanded for forex forward contracts.

The eligible tenor was extended:

From 13 months → up to 36 months

Although this belongs partly to the forex-market discussion, it demonstrates the broader RBI objective of deepening financial-market infrastructure.

45. Financial Markets: Most Important Numbers

Topic	Number / Fact	Priority
WACR spread over repo	–7 bps	⭐⭐⭐⭐
WACR volatility	4.8%	⭐⭐⭐
Money-market average daily volume	₹6.4 lakh crore	⭐⭐⭐⭐
Triparty repo share	67%	⭐⭐⭐⭐⭐
Market repo share	30%	⭐⭐⭐⭐
Call money share	3%	⭐⭐⭐⭐
Total CD issuances	₹13.5 lakh crore	⭐⭐⭐⭐⭐
Total CP issuances	₹16.9 lakh crore	⭐⭐⭐⭐
Q1 OMO purchases	₹2.39 lakh crore	⭐⭐⭐⭐
Q3 OMO purchases	₹1.81 lakh crore	⭐⭐⭐⭐
Q4 OMO purchases	₹4.57 lakh crore	⭐⭐⭐⭐⭐
10-year G-sec yield	Crossed 7%	⭐⭐⭐⭐⭐
FPI debt investment	₹16.1 thousand crore	⭐⭐⭐⭐
Corporate bond secondary turnover	₹7.1 thousand crore/day	⭐⭐⭐⭐⭐
Listed corporate bond issuance	₹9.1 lakh crore	⭐⭐⭐⭐
Private placement share	99%	⭐⭐⭐⭐⭐
PSUs/FIs/Banks AAA 3-year yield	7.33%	⭐⭐⭐
NBFC AAA 3-year yield	7.53%	⭐⭐⭐
Corporate AAA 3-year yield	7.36%	⭐⭐⭐
SORR introduced	July 7, 2025	⭐⭐⭐⭐
FIMMDA	Recognised as SRO	⭐⭐⭐⭐
Municipal bonds	Eligible repo collateral	⭐⭐⭐⭐
Tokenised CDs	UMI + wholesale CBDC pilot	⭐⭐⭐⭐⭐

46. RBI Grade B / Promotion Exam: 15 Facts You Must Memorise

If you are revising this article at the last minute, focus on these:

WACR is the operating target of monetary policy.
WACR’s average spread over repo was –7 bps.
WACR volatility increased to 4.8%.
Average daily money-market volume was ₹6.4 lakh crore.
Triparty repo had approximately 67% share.
Market repo had approximately 30% share.
Call money had approximately 3% share.
CD issuance reached ₹13.5 lakh crore.
CP issuance reached ₹16.9 lakh crore.
Q4 OMO purchases were ₹4.57 lakh crore.
The 10-year G-sec yield crossed 7% at end-March 2026.
FPI debt investment was ₹16.1 thousand crore.
Corporate-bond secondary turnover rose to ₹7.1 thousand crore per day.
Private placement accounted for 99% of domestic corporate-bond mobilisation.
SORR began publication on July 7, 2025.

47. Descriptive Answer Framework

Question:

“Discuss the developments in Indian financial markets during 2025-26.”

Introduction

Indian financial markets remained resilient despite global volatility, geopolitical tensions, tariff uncertainty and changing monetary-policy expectations.

Money Market

Mention:

WACR;
policy corridor;
surplus liquidity;
collateralised-market dominance;
T-bills/CDs/CPs;
increased market volumes.

Government Securities

Mention:

Q1 softening;
June policy-statement shift;
Q2 and Q3 hardening/two-way movements;
Q4 yield pressure;
10-year yield crossing 7%;
OMO purchases.

Corporate Bonds

Mention:

decline in March-to-March yields;
hardening bias;
widening spreads;
higher secondary turnover;
lower primary issuance;
99% private-placement share.

Conclusion

The financial-market developments reflected effective interaction between monetary policy, liquidity management and market-based financing, while global and fiscal risks continued to influence yields and investor behaviour.

48. The One Concept You Should Not Forget

The most important lesson from this chapter is:

Interest rates are not determined by the RBI repo rate alone.

Market rates respond to:

Policy rate

Liquidity

Inflation expectations

Growth expectations

Government borrowing

Global yields

Crude prices

Capital flows

Geopolitical risk

This explains why the RBI could ease monetary policy while G-sec yields later hardened.

It also explains why corporate bond yields can decline on a March-to-March basis while spreads simultaneously display a hardening bias during parts of the year.

Key Takeaways

Indian financial markets remained resilient despite global volatility.
WACR broadly tracked the repo rate and liquidity conditions.
WACR’s average spread over repo was –7 bps.
WACR volatility increased to 4.8%.
Collateralised markets dominated, with triparty repo at about 67% and market repo at about 30%.
Average daily money-market volume increased to ₹6.4 lakh crore.
CD issuance increased to ₹13.5 lakh crore.
CP issuance increased to ₹16.9 lakh crore.
G-sec yields softened during Q1 but subsequently hardened.
The 10-year generic G-sec yield crossed 7% at the end of FY2025-26.
RBI used substantial OMO purchases to inject durable liquidity.
FPI debt investment amounted to ₹16.1 thousand crore.
Corporate-bond yields declined from March 2025 to March 2026, although spreads showed a hardening bias during the year.
Corporate-bond secondary-market turnover rose to ₹7.1 thousand crore per day.
Listed corporate-bond primary issuance declined to ₹9.1 lakh crore.
Private placement accounted for 99% of domestic corporate-bond mobilisation.
SORR was introduced as a secured overnight money-market benchmark.
FIMMDA received SRO recognition.
Municipal bonds were made eligible as repo collateral.
Tokenised CD issuance and settlement using wholesale CBDC entered pilot implementation.

Final Revision Sheet

Money Market

WACR → –7 bps spread

WACR volatility → 4.8%

Volume → ₹6.4 lakh crore/day

Triparty repo → 67%

Market repo → 30%

Call money → 3%

Money-Market Instruments

CDs → ₹13.5 lakh crore

CPs → ₹16.9 lakh crore

Government Securities

Q1 OMO → ₹2.39 lakh crore

Q3 OMO → ₹1.81 lakh crore

Q4 OMO → ₹4.57 lakh crore

10-year G-sec → crossed 7%

Corporate Bonds

Secondary turnover → ₹7.1 thousand crore/day

Primary listed issuance → ₹9.1 lakh crore

Private placement → 99%

Market Innovation

SORR → July 7, 2025

FIMMDA → SRO

Municipal bonds → Repo collateral

Tokenised CDs → UMI + wholesale CBDC

That is the numerical and conceptual core of Part 6.

Next Part — Part 7

RBI Annual Report FY 2025-26: Equity Markets, Institutional Flows, Indian Rupee and Financial-Market Trends

The next article will focus on the Sensex and Nifty, mid-cap and small-cap performance, FPI and DII flows, primary-market mobilisation, IPOs/QIPs, mutual-fund SIPs, rupee depreciation, NEER, REER, forward premia and the interaction between global uncertainty and Indian financial markets.