From April 1, 2026, banks must fully secure all lending to stock brokers and other capital market intermediaries.
The Reserve Bank of India (RBI) has tightened norms governing bank lending to capital market intermediaries (CMIs), mandating that all fresh and renewed credit facilities be extended strictly on a fully secured basis starting April 1, 2026.
The revised framework requires banks to back 100 per cent of loans to brokers, clearing members, and securities firms with eligible collateral, valued after applying prescribed haircuts. The move is aimed at strengthening risk management and aligning capital market exposure rules with evolving market practices.
Full collateral cover, ongoing monitoring
Under the new rules, banks must ensure that collateral — after adjusting for asset-specific haircuts — fully covers the exposure at all times. If collateral values fall due to market movements, lenders must seek additional security or reduce the credit line.
The RBI has specified indicative haircuts on eligible collateral, including a 40 per cent haircut on listed equity shares, 15 per cent on AAA-rated listed debt securities, 25 per cent on sovereign gold bonds, and 15–25 per cent on commercial paper depending on its credit rating.
Banks are also required to build explicit margin-call provisions into facility agreements to address shortfalls. Previously, full collateralisation of the entire loan amount was not mandatory.
No funding for proprietary trading
The central bank has barred banks from financing proprietary trading or investment positions of capital market intermediaries. However, lenders may continue to provide need-based facilities for working capital, margin trading funding, settlement timing mismatches and market-making activities.
Guarantees issued on behalf of brokers in favour of exchanges or clearing corporations must also meet stricter collateral requirements.
Exposure caps retained
The RBI has maintained prudential ceilings on overall capital market exposure. A bank’s total exposure to capital markets cannot exceed 40 per cent of its Tier 1 capital on a solo or consolidated basis. Direct capital market exposure, including certain investment and acquisition finance exposures, remains capped at 20 per cent of Tier 1 capital.
Banks must also strengthen internal counterparty limits and tighten end-use monitoring.
Broker funding from banks plays a key role in supporting margin trading, settlement obligations, and liquidity management. By mandating full collateralisation and uniform haircuts, the RBI has effectively tightened leverage conditions within segments reliant on short-term credit.
Analysts expect some moderation in trading activity in select segments, particularly proprietary desks, as funding structures adjust to the revised norms.
The central bank said fresh and renewed facilities must comply with the new directions from April 1, 2026, while existing exposures may continue until maturity.
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