The Reserve Bank of India (RBI) has tightened rules governing bank lending to capital market intermediaries, mandating that all such credit facilities will now need to be fully backed by collateral. Experts say the move by the banking regulator that comes into effect in April may reduce trading costs for stock market brokers, while the higher collateral requirement could also make bank funding more difficult.
In general, RBI now mandates that all credit facilities to capital market intermediaries (CMI) shall be provided on a fully secured basis, which means that if a bank is lending Rs 500 to a broker, there will have to be 100% collateral that will need to be provided by the broker.
In respect of financing to brokers for margin trading facility (MTF) provided by them to their clients, the facility shall be fully secured by collateral of cash, cash-equivalents and Government securities, out of which a minimum of 50% shall be cash.
A bank shall apply suitable haircuts to various eligible securities accepted as collateral as per its policy, subject to a minimum haircut of 40% in case of equity shares.
“For loans to CMIs, 100 per cent collateral requirement for funding (out of which 50% must be cash for MTF) and 40% haircut on shares for collateral value calculations may reduce bank funding access and result in high trading cost for brokers,” said analysts at JM Financial Institutional Securities.
The analysts noted that 50 per cent of Angel One’s March 2025 borrowings of Rs 3,400 crore came from banks and feel the stockbroker may “immediately relook” at its funding for its MTF book. Groww, on the other hand, may need to tap markets as its MTF book scales aggressively, they added.
“We believe credit facilities with 100 per cent collateral will make the bank channel unsuitable for brokers, and they will only use it for short-term mismatches,” said the JM Financial analysts.
Not surprisingly, shares of Angel One were down over 5% on Monday, Billionbrains Garage Ventures (Groww) fell around 2%, and the stock exchange BSE declined as much as 7%
According to Jay Prakash Gupta, the founder of Dhan, the RBI has “fundamentally” reshaped how proprietary trading can be funded in India.
“Proprietary trading must now be funded primarily through your own net worth and retained earnings. Leverage-driven proprietary models are likely to become less rewarding. Capital efficiency, risk discipline, and balance sheet strength become strategic advantages,” opined Gupta.
The measures could make the market a better place, felt market veteran Arun Kejriwal, although there could be some short-term pain.
“Sudden market upswings and downswings will not affect the liquidity that we associate the market with,” he said in an interaction with Business Today TV.
While business could, to a certain extent, get impacted, if the entities are well-capitalised and not taking undue risk in doing business, he did not see any problem.
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