RBI Tightens Broker Funding Norms, 100% Collateral Mandatory From April 2026; No Bank Support For Proprietary Trading

Mumbai: The Reserve Bank of India (RBI) has tightened lending rules for stockbrokers and capital market intermediaries, mandating that banks provide credit only against 100 percent collateral from April 1, 2026. The new norms are part of the Commercial Banks – Credit Facilities Amendment Directions, 2026, issued after a draft consultation process in October 2025.

Under the revised framework, banks can no longer extend partially unsecured loans or rely solely on promoter or corporate guarantees. Any credit facility extended to brokers must now be fully secured by acceptable collateral such as cash, government securities, approved financial assets or immovable property. Earlier, brokers could obtain a bank guarantee of Rs 100 with only Rs 50 backed by a fixed deposit and the rest covered through a promoter guarantee. That structure will no longer be permitted.

The RBI has also tightened rules for bank guarantees issued in favour of stock exchanges or clearing corporations. At least 50% of such guarantees must be backed by collateral, and within that, 25 percent must be in cash. Further, where equity shares are accepted as collateral, banks must apply a minimum haircut of 40 percent, meaning shares worth Rs 100 will be valued at only Rs 60 for lending purposes.

In a significant move, banks have been barred from funding proprietary trading activities of brokers. However, financing may still be allowed for market-making activities and limited short-term warehousing of debt securities. Margin trading facilities offered by brokers to clients can continue to receive bank funding, but only on a secured basis with strict margin call provisions and ongoing monitoring of collateral values.

All such lending will now be treated as part of banks’ overall capital market exposure, which is subject to prudential limits. This may restrict banks’ appetite for lending to the sector.

Overall, the amendments are expected to reduce leverage in the brokerage industry, increase capital blockage and raise the cost of bank guarantees, while strengthening financial stability.