Brokerages may tap bonds and CPs as bank funding turns ‘unsuitable’

The new Reserve Bank of India (RBI) rules on bank funding to capital market intermediaries state that all borrowing will now require 100% collateral – including at least 50% in cash for many facilities – making the bank channel uneconomical for most intermediaries.

The RBI norms aim to curb leveraged trading in equity and commodity markets and reduce systemic risk for banks.

Earlier, brokers were not required to fully cover the loan, and partial security, promoter guarantees and other flexible arrangements were widely used.

The new guidelines, effective April 1, 2026, mandate 100% collateral with strict haircut and cash-margin requirements. Haircuts on equity collateral are raised to at least 40%, up from roughly 25% earlier.

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IIFL Capital expects lower speculative and leveraged volumes in cash and derivatives markets once the rules take effect, particularly in the near term as intermediaries adjust balance sheets and liquidity.

The tightened framework restricts banks’ ability to fund leveraged activity across equity and derivatives markets, raising capital requirements for brokers and proprietary trading firms. Cost Inflation
Analysts said the new rules will increase funding costs, compress margins and lower returns on equity, with proprietary traders – who account for 30-50% of market volumes – facing the steepest impact as leverage becomes more expensive.

“We believe credit facilities with 100% (or higher) collateral will make the bank channel unsuitable for brokers, and they will only use it for short-term mismatches,” JM Financial Institutional Securities said in a report.

Brokerages that relied heavily on bank lines for margin trading facilities (MTF) or working capital will face the most significant shift, analysts said.

According to JM Financial, Angel One – which raised half of its total funding of ₹3,400 crore in FY25 – will now have to depend more on CPs, non-convertible debentures (NCDs) and NBFC borrowing.

Groww, which is largely equity-funded, is also expected to tap the market for borrowings as its MTF book expands rapidly.

Under the new framework, RBI has restricted banks from providing finance for proprietary trading or investment positions of capital market intermediaries (CMIs).

“These measures will directly affect proprietary traders (props) and brokers by increasing capital requirements, compressing margins, and lowering ROE. Market liquidity may also be impacted, as prop traders contribute 30-50% of cash and derivatives volumes,” Devesh Agarwal, senior VP, IIFL Capital, said in a note.

Analysts also said brokers will face tighter liquidity because banks must apply minimum haircuts of 40% on equity collateral, 25% on ETFs/REITs/InvITs, and 15-40% on debt securities, depending on rating. These high haircuts significantly reduce usable collateral value, raise effective funding costs and push intermediaries toward bond markets for more flexible borrowing structures.