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The Reserve Bank of India (RBI) has revised norms governing banks’ lending to brokers and capital market intermediaries (CMIs) to enhance transparency in these loan activities.
Zerodha founder and CEO Nithin Kamath said the RBI’s revised lending norms for brokers mark a significant shift for the industry, noting higher collateral requirements, a clampdown on bank-funded proprietary trading and rising costs, while stressing that Zerodha’s customers will remain unaffected.
"...nothing changes for any of our customers. We have 0 external financing, and are a self-clearing member, so our charges for clients will also remain unaffected," Kamath wrote on X.
Changes listed by Nithin Kamath
Listing out the changes, following the revised RBI norms, Kamath wrote on X, "The big change: Banks can no longer fund proprietary trading. This was never actually allowed, but banks had found workarounds. Here's how it worked-prop desks would deposit an FD of Rs 50 crore, get a bank guarantee for Rs 100 crore, and place it with the clearing corporation for margins to trade with 2x leverage. That's now completely shut down."
"Another change: Professional Clearing Members (PCMs) enjoyed lower collateral requirements—they only needed 25% collateral to get a Rs 100 bank guarantee, while other intermediaries had to put up 50%. That preferential treatment is now gone. PCMs also need 50% collateral going forward. This likely means higher costs for brokers who rely on PCMs for clearing. Doesn't impact us at Zerodha since we self-clear across all segments," he added.
Kamath said costs are increasing across the brokerage industry and these may or may not eventually be passed on to customers.
"Now, because of this circular, intraday funding will get more expensive with the new 100% collateral requirement (up from 50%). MTF financing will also likely cost more since banks now need 100% collateral with at least 50% as cash or cash equivalents. All of this kicks in from April 1, 2026," Kamath said.
RBI's new norms
The RBI circular restructures the lending framework between banks and brokers by tightening collateral requirements and standardising loan-to-value (LTV) ratios, which measure loans against the value of pledged securities.
The central bank said all credit facilities extended to brokers and related intermediaries must be on a fully secured basis or backed by 100 per cent collateral. It added that banks may also lend to individuals against eligible securities, with an LTV of 60 per cent for listed shares and listed convertible debt securities, and 75 per cent for mutual funds (excluding debt mutual funds), units of ETFs, and units of REITs and InvITs. Earlier, LTV norms were not standardised and typically ranged from 50 per cent to 70 per cent for mutual funds and 80 per cent to 90 per cent for debt mutual funds.
Banks will also be allowed to lend to brokers for their margin trading facility (MTF) books against 100 per cent collateral. At present, brokers primarily finance their MTF books through commercial paper borrowings.
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