RBI mandates 100% collateral for broker funding; no bank funding for prop trading under new amendments

The amendments clarify that banks cannot fund proprietary trading by brokers, although financing may continue for market‑making activities and short‑term warehousing of debt securities.

• RBI revises bank lending norms for stockbrokers, effective 2026
• Broker credit must be fully secured, no partial guarantees allowed
• Bank guarantees need 50 percent collateral, 25 percent in cash

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The Reserve Bank of India (RBI) on Friday issued the Commercial Banks – Credit Facilities Amendment Directions, 2026, updating norms for how banks extend credit to stockbrokers and other capital market intermediaries. The amendments, effective April 1, 2026 — follow a draft consultation process last year, including when the central bank released draft Commercial Banks – Capital Market Exposure Directions in October 2025 for public comments.

Under the revised directions, banks must provide credit to SEBI‑regulated stockbrokers and similar intermediaries only on a fully secured basis. Collateral for such credit can include cash, government or eligible securities, immovable property and other approved financial assets, but partial unsecured guarantees or promoter‑only guarantees will no longer suffice. Bank guarantees issued in favour of exchanges or clearing houses must be backed by at least 50 percent collateral, of which 25 percent must be in cash, and equity shares accepted as collateral will attract a minimum 40 percent haircut for prudential valuation.

The amendments clarify that banks cannot fund proprietary trading by brokers, although financing may continue for market‑making activities and short‑term warehousing of debt securities. Margin trading facilities provided by brokers to clients remain eligible for secured credit, but banks must include margin call provisions in agreements and monitor collateral values on an ongoing basis.

All credit exposures to stockbrokers and capital market intermediaries will be counted as part of banks’ capital market exposure, which has prudential limits within broader exposure norms, potentially affecting the total amount banks can lend to the sector.

The Reserve Bank of India noted on its website that on October 24, 2025, they issued two draft Directions on Capital Market Exposure, namely Reserve Bank of India (Commercial Banks – Capital Market Exposure) Directions, 2025 and Reserve Bank of India (Small Finance Banks – Capital Market Exposure) Directions, 2025 seeking feedback from stakeholders. The draft Directions were aimed primarily to provide an enabling framework for banks to finance acquisitions by Indian corporates and enhance the limit for lending by banks against shares, units of REITs, InvITs while removing the regulatory ceiling altogether on lending against listed debt securities. Additionally, it aims to put in place a more principle-based framework for lending to capital market intermediaries (CMIs).