Brokers highlight concerns in Fin Min meet, hopeful of 6-month extension in RBI norms

Brokers highlight concerns in Fin Min meet, hopeful of 6 months extension in RBI norms

• Brokers met Finance Ministry officials on RBI norms and STT hike concerns
• They warned new rules could hurt liquidity and market activity
• Brokers requested six-month extension and joint consultation on changes

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Brokers had a meeting with finance ministry officials on Monday, regarding the twin concerns of RBIs norms for full collateral against capital market intermediaries and the issue of Securities Transaction Tax (STT) hike. The meeting was held virtually and representatives of brokers associations like ANMI, BBF and CPAI participated in the meeting.

As per sources, in their meeting with officials of Department of Economic Affairs, Ministry of Finance, brokers raised the point that excessive restrictions could hurt entire market ecosystem and may have severe impact on market liquidity. Brokers flagged the timing risk, noting that higher STT on derivatives and the RBI directions both taking effect from April 1, may potentially amplify the impact.

One person aware of the details of the meeting said, “We highlighted that if both measures come into play from April 1, it will be very negative for the markets”.

Brokers also told Finance Ministry officials that several provisions in the circular were never part of the consultation paper and differ sharply from earlier interpretations. They argued that no other Asian markets have imposed such curbs and warned that excessive restrictions could damage market activity, citing the South Korean experience as a potential cautionary example for India’s capital markets and investor sentiment.

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Brokers urged at least six-month extension, saying the changes could affect the entire ecosystem, including exchanges, market participants, employment, and tax collections. Brokers called for a joint consultation of RBI, SEBI, Exchanges and broker associations to evolve a balanced framework in the interest of the market.

Another person said, “The officials patiently heard our concerns and advised us to submit a detailed note with proper data points supporting each argument.” The person added, “It seems that after this note, the ministry will seek views from the SEBI and then refer the matter to the Reserve Bank of India if it deems reconsideration necessary.” SEBI chairman, Tuhin Kanta Pandey, at an event on Monday said, “It is basically a matter with the RBI. But since the representation has also come to us, we will have a look at it.”

Brokers said banks’ capital market exposure has historically seen near-zero NPAs, even during crises, indicating low credit risk. They highlighted robust safeguards by clearing corporations that mitigate systemic risk. Post the Yes Bank episode, single-bank exposure caps were tightened: daily exposure is limited to 15 percent for AAA-rated banks and 10 percent for AA-rated banks of the SGF’s total liquid assets. Overall exposure to any one bank cannot exceed 15 percent . The Core Settlement Guarantee Fund (Core SGF) framework and controls preventing unchecked positions further strengthen market stability, even under extreme stress scenarios.

Another person who was part of the meeting said, “Finance Ministry officials did not give us any upfront assurance but understood and agreed with our concerns. So, at least a six-month extension of the RBI norms, we are expecting”.

What are RBI’s proposed restrictions?

On February 13, the Reserve Bank of India tightened capital market exposure norms, restricting bank funding for brokers and intermediaries. Banks are largely barred from financing proprietary trading, except limited market-making. Most exposures must now be fully collateralised with a strong cash component, shifting from earlier partial collateral norms.

Intraday funding is limited mainly to settlement pay-ins, not margin needs. Brokers believe the move will raise funding costs, strain derivatives operations, and tighten liquidity, especially near expiry periods and high-margin client exposures.

Though RBI has allowed banks for Margin Trading Facility funding, but only against full collateral, reducing the flexibility.