Reserve Bank of India tightens broker funding norms: Will stock brokers feel the squeeze?

Synopsis

A key change under the amendment is the shift toward fully secured funding for brokers. Going forward, only 100% secured funding will be permitted, with limited carve-outs such as intra-day settlement timing facilities.

The Reserve Bank of India’s amendment, effective 1 April 2026, ushers in sweeping changes to funding structures, collateral norms, and exposure rules within the capital markets ecosystem — a move that could reshape the operating landscape for stock brokers.

A key change under the amendment is the shift toward fully secured funding for brokers. Going forward, only 100% secured funding will be permitted, with limited carve-outs such as intra-day settlement timing facilities. Earlier, bank guarantees for instance of Rs 100 could be structured with Rs 50 backed by fixed deposits and the remaining Rs 50 supported through unsecured instruments such as personal or corporate guarantees. The revised framework removes this flexibility.

The amendment also introduces stricter rules for bank guarantees issued in favour of exchanges or clearing corporations. A minimum of 50% collateral will now be required, of which at least 25% must be in cash. In addition, equity shares accepted as collateral will be subject to a minimum haircut of 40%, marking a tightening of collateral valuation norms.

Another significant change relates to proprietary trading. Banks will no longer be permitted to provide funding for prop trading activities, with exceptions limited to areas such as market making and certain debt warehousing functions. Further, all exposures will now be classified as capital market exposure, meaning that banks’ overall limits for such exposures will apply, potentially affecting lending appetite.

The framework also introduces ongoing collateral monitoring and margin call provisions. Collateral cover will need to be maintained on a continuous basis, and facility agreements must include explicit clauses for margin calls in the event of shortfalls.

Overall, the amendment is expected to reduce leverage across the system and increase capital blockage for brokers. Bank guarantee costs are likely to rise under the revised structure, while promoter guarantees alone will no longer suffice as adequate support.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

...moreless

...moreless