FILE PHOTO: Reserve Bank of India (RBI) | Photo credit: FRANCIS MASCARENHAS
All credit facilities to securities firms will have to be backed by collateral, while loans for proprietary trading or brokerage investments will be banned, according to a statement published on the Reserve Bank of India’s website late Friday. The so-called prudential rules for capital market intermediaries, such as stock and commodity brokers, will come into effect from April 1, the central bank said.
The stricter measures would increase the cost of raising capital by proprietary trading firms and put pressure on profits. While Indian banks have traditionally not directly finance proprietary trading, the directive closes a loophole that allowed short-term working capital loans from banks to be diverted for brokered trading.
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%.
The latest move comes just days after India sharply increased transaction taxes on trading in individual stocks and index derivatives in a bid to curb speculative trading. Combined with the new central bank rules, market participants fear the rules will hurt volumes.
The RBI has also asked banks to require that the guarantees given by them on behalf of a broker for proprietary transactions be fully guaranteed, with 50 percent of the collateral being put up in cash and the rest in the form of cash equivalents and government bonds. The new rule will limit the type of securities trading that companies can offer as collateral to banks.
The central bank has also tightened credit rules for margin trading facilities, where 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. A valuation discount of 40% applies to shares offered as collateral by brokers.
The margin trading facility has quickly grown into a more than 1 trillion rupees ($11 billion) market for stockbrokers, where clients can get leverage of up to five times their capital.
More stories like this are available at bloomberg.com
©2026 Bloomberg LP
Published on February 15, 2026
#RBI #restricts #lending #brokers #undermine #trading #volumes