RBI tightens bank lending norms for stock brokers

“The collateral cover, as applicable, shall be maintained on an ongoing basis and the facility agreements shall have explicit provisions for margin calls in the event of shortfalls,” the RBI’s guidelines, which come into effect from April 1, said.

Previously, it was not mandated that the entire loan amount has to be fully secured.

Meanwhile, banks can lend to brokers and other capital market intermediaries to fund their day-to-day operations, including financing of margin trading undertaken by stockbrokers, and market making for equity and debt securities. Market making is an important part of financial markets that involves the provision of ‘quotes’ to buy or sell securities and assets. This ensures liquidity in the market for these securities and assets, and they are not stuck in inventory.

Banks can also issue guarantees on behalf of brokers or professional clearing members and in favour of exchanges or clearing houses in lieu of an acceptable security deposit and margin requirements. Any such guarantees must have a minimum collateral of 50%, of which 25% must be in the form of cash, the RBI said.

While listing the permissible lending categories by banks to CMIs, the RBI said lenders cannot provide money to these intermediaries for buying securities on their account, including for proprietary trading or investments — except in certain cases, such as market making in debt and equity as well as warehousing of debt securities.

Further, a bank can provide a guarantee for proprietary trading as long as it is fully secured by cash, cash equivalents, and government securities. However, at least 50% of the collateral must be in the form of cash.

As part of the amended guidelines issued Friday for banks’ credit facilities, the RBI also fixed a higher-than-initially-proposed limit for banks to fund takeovers and acquisitions. In October 2025, the central bank’s draft rules had placed a cap of 10% on a bank’s tier-1 capital for acquisition financing. However, the final norms announced Friday, which will come into effect from April 1, have seen this limit set at 20%.

“Many entities have sought an increase in acquisition finance cap of 10% of tier-1 limit,” the RBI said in a statement Friday on the feedback it received on the draft directions, adding that it had accepted the recommendation.

The draft proposal announced in October was a big plus for Indian lenders as it finally opened the acquisition segment for them to lend to. It came at a time when credit growth, while on the up, is well below levels from a decade ago, with non-bank sources of funds as well as the capital markets increasingly becoming more important routes for companies to raise funds. As such, funding acquisitions provides new business for banks.

As per the final guidelines released by the RBI Friday, banks can lend up to 75% of the acquisition value, up from 70% proposed in the draft norms.