RBI has significantly tightened bank lending norms for stock brokers and other capital market intermediaries (CMIs), mandating that all fresh credit facilities extended to them should be fully backed by collateral from April 1, 2026.
Under the RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 issued on February 13, the central bank has shifted decisively toward asset-backed lending, eliminating the scope for unsecured exposure to brokers.
100% Collateral Now Compulsory
The most impactful change is the requirement that all credit facilities to CMIs be provided on a fully secured basis. It simply means, 100 percent collateral cover. Earlier, banks could structure facilities such as bank guarantees (BGs) with a mix of fixed deposits and unsecured components like personal or corporate guarantees. That flexibility has now been removed.
The RBI has also specified that banks must apply suitable haircuts on securities accepted as collateral, with a minimum haircut of 40 percent in case of equity shares.
Stricter Rules for Bank Guarantees
For guarantees issued on behalf of brokers in favour of stock exchanges or clearing corporations, banks must ensure a minimum collateral cover of 50%. Of this, at least 25% must be in cash.
In case of guarantees issued for proprietary trading, the facility must be fully secured by cash, cash equivalents, and government securities, with a minimum 50% in cash.
No Bank Funding for Proprietary Trading
In a major move aimed at curbing leverage, the RBI has barred banks from providing finance to brokers for buying stocks on their own account, effectively prohibiting funding for proprietary trading activities.
Limited exceptions have been provided for market making in equity and debt securities, subject to strict safeguards. Additionally, short-term working capital finance for warehousing of debt securities has been permitted for up to 45 days to meet firm client demand.
Exposure to Be Counted as Capital Market Exposure
All exposures to CMIs will now be classified as Capital Market Exposure (CME). This means such lending will be subject to overall capital market exposure limits and concentration norms applicable to banks.
Market participants say this could reduce banks’ appetite for extending credit to brokers, particularly large leveraged intermediaries.
Continuous Monitoring and Margin Calls
Banks have been directed to monitor loan-to-value (LTV) ratios on an ongoing basis. Any breach must be rectified within seven working days. Facility agreements must also include explicit provisions for margin calls in case of collateral shortfall.
The RBI has clarified that collateral placed for such financing should generally belong to the borrowing CMI. Group or promoter collateral may be accepted only if it is unencumbered, exclusively charged for the facility, and legally enforceable.
Practical Impact on Brokers
Experts are of the view that new framework will significantly reduce leverage in the broking ecosystem. The requirement of full collateralisation is expected to increase capital blockage, raise the cost of bank guarantees, and make promoter guarantees alone insufficient for raising bank lines.
The directions will come into force from April 1, 2026. Existing loans and guarantees may continue until maturity, but any fresh or renewed facilities must comply with the revised norms.
