RBI Tightens Broker Lending: New Rules for Proprietary and Margin Trading
The Reserve Bank of India (RBI) is introducing stricter lending rules for firms involved in proprietary trading and margin trading. Effective April 1, 2026, these changes are expected to push brokerage firms away from traditional bank loans and toward alternative sources of capital.
Industry experts anticipate that securities firms will increasingly rely on shadow lenders (NBFCs), internal funds, and debt markets to finance their own trading books and client positions as bank credit becomes harder to access.
100% Collateral Mandate
Under the new RBI directive, all credit facilities provided to securities firms must be fully backed by collateral. Banks are now strictly prohibited from lending to brokers for their own trading accounts or proprietary investments.
These measures aim to reduce speculative activity in India’s markets, which have seen a massive surge in retail participation over the last few years. According to Ajay Manglunia, Executive Director at Capri Global Capital, broking firms will now likely turn to non-convertible debentures (NCDs) and commercial papers to fill the funding gap.
Closing the Loophole
While Indian banks generally do not finance proprietary trading directly, the RBI’s new rules close a common loophole. Previously, some firms could use short-term working capital loans for trading purposes. The new mandate ensures that bank credit is not diverted into speculative market positions.
Impact on Margin Trading Facilities (MTF)
The central bank has also tightened rules for the Margin Trading Facility (MTF), where brokers provide leverage to their clients.
- Full Security: Bank loans for MTF must now be fully secured by cash or other liquid assets.
- Standardized Haircuts: Banks must apply a minimum 40% haircut on equity shares used as collateral. This means if a broker pledges ₹100 worth of shares, the bank will only provide ₹60 in credit.
Pressure on Top Brokerages
Large retail firms like Angel One and Groww are expected to feel the impact. Analysts at JM Financial noted that Angel One, which had half of its ₹34 billion borrowings sourced from banks last year, may need to rethink its funding strategy. Similarly, Groww may tap the debt market as its MTF book continues to grow rapidly.
A Long-Term Move for Market Stability
These changes are part of a broader push by the government and SEBI to de-risk the financial system. By raising margin requirements and tightening disclosure rules, regulators hope to cool off “excesses” in the derivatives and speculative trading markets.
While the new rules may increase borrowing costs for brokers by an estimated 4%, market leaders believe the shift will protect the system from major “blowups” during periods of market stress. In the long run, these rules aim to foster a more stable and disciplined investing environment in India.
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