Industry watchers expect securities firms will rely more on shadow lenders and internal capital to finance both their own books and clients’ positions. They are also seen tapping the debt markets as access to credit from banks tightens.
The Reserve Bank of India said all credit facilities to securities firms will have to be backed by collateral. Lending for proprietary trading or investments by brokers is prohibited, according to a statement on Friday. The stricter measures – to come into effect from April 1 – are said to be aimed at curbing speculative market activity in India, where millions of people have turned to stock trading in recent years amid an investment boom.
“Brokerage firms will now look for other sources of financing – such as non-convertible bonds, non-bank finance companies and commercial papers,” said Ajay Manglunia, executive director of Capri Global Capital.
While Indian banks have traditionally not directly finance proprietary trading, the RBI’s directive will help close a loophole that allowed short-term working capital loans from banks to be diverted for trading by brokerage firms.
The central bank has also tightened lending rules for the margin trading facility, or MTF, under which stockbrokers offer leverage to their clients. Loans made by banks for this product will have to be fully backed by cash and other liquid securities.
Collateralized credit facilities of 100% or more would make the banking channel “unsuitable for brokers,” limiting their use to short-term liquidity mismatches, JM Financial analysts wrote in a Feb. 15 note.
Angel One Ltd., one of India’s largest brokerage firms, had total borrowings of 34 billion rupees ($375 million) as of March 31 last year, 50% of which came from banks, the analysts wrote. Angel One’s MTF book has grown “aggressively” to 61 billion rupees in recent years, she added. That’s versus 20 billion rupees as of December 2023.
Digital stockbroker Groww could also tap into the debt market as its MTF book quadrupled to 23 billion rupees in the December quarter from 5.4 billion rupees a year ago, JM Financial analysts wrote.
Spokespeople for Angel One and Groww did not immediately respond to requests for comment.
The RBI’s move comes amid a broader regulatory pivot. The government and market regulator – Securities and Exchange Board of India – have stepped up restrictions on derivatives and speculative trading, increased margin requirements and tightened disclosures to cool rising retail participation in futures and options. Earlier this month, taxes on equity derivatives were also increased.
Authorities are “trying to reduce the risks of the system so that there are no unnecessary excesses,” said Jimeet Modi, CEO of Samco Group. “In the long term, the risk of an explosion decreases.”
Proprietary trading firms accounted for more than 50% of stock option sales on the National Stock Exchange of India Ltd last year, according to data. – the largest stock exchange in the country. In cash trading, their share on the NSE hit a 21-year high of around 30%.
“Earlier, brokers could access relatively cheaper financing through intraday foreign exchange margin facilities. With these facilities no longer available, brokers will now face higher financing costs,” said Roop Bhootra, full-time director at Anand Rathi Share and Stock Brokers. He estimated that financing costs could increase by about 4% on the borrowed portion for the intraday margin requirement, depending on leverage levels.
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Published on February 16, 2026
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