India revises broker lending rules; RBI makes full collateral mandatory from April 1

The Reserve Financial institution of India (RBI) has tightened norms governing financial institution lending to capital market intermediaries (CMIs), mandating that every one contemporary and renewed credit score services be prolonged strictly on a totally secured foundation beginning April 1, 2026.

The revised framework requires banks to again 100 per cent of loans to brokers, clearing members, and securities companies with eligible collateral, valued after making use of prescribed haircuts. The transfer is geared toward strengthening danger administration and aligning capital market publicity guidelines with evolving market practices.

Full collateral cowl, ongoing monitoring

Below the brand new guidelines, banks should be sure that collateral — after adjusting for asset-specific haircuts — absolutely covers the publicity always. If collateral values fall attributable to market actions, lenders should search further safety or scale back the credit score line.

The RBI has specified indicative haircuts on eligible collateral, together with a 40 per cent haircut on listed fairness shares, 15 per cent on AAA-rated listed debt securities, 25 per cent on sovereign gold bonds, and 15–25 per cent on industrial paper relying on its credit standing.

Banks are additionally required to construct express margin-call provisions into facility agreements to deal with shortfalls. Beforehand, full collateralisation of the whole mortgage quantity was not necessary.

No funding for proprietary buying and selling

The central financial institution has barred banks from financing proprietary buying and selling or funding positions of capital market intermediaries. Nevertheless, lenders might proceed to offer need-based services for working capital, margin buying and selling funding, settlement timing mismatches and market-making actions.

Ensures issued on behalf of brokers in favour of exchanges or clearing companies should additionally meet stricter collateral necessities.

Publicity caps retained

The RBI has maintained prudential ceilings on general capital market publicity. A financial institution’s whole publicity to capital markets can not exceed 40 per cent of its Tier 1 capital on a solo or consolidated foundation. Direct capital market publicity, together with sure funding and acquisition finance exposures, stays capped at 20 per cent of Tier 1 capital.

Banks should additionally strengthen inside counterparty limits and tighten end-use monitoring.

Dealer funding from banks performs a key position in supporting margin buying and selling, settlement obligations, and liquidity administration. By mandating full collateralisation and uniform haircuts, the RBI has successfully tightened leverage situations inside segments reliant on short-term credit score.

Analysts count on some moderation in buying and selling exercise in choose segments, notably proprietary desks, as funding buildings regulate to the revised norms.

The central financial institution stated contemporary and renewed services should adjust to the brand new instructions from April 1, 2026, whereas current exposures might proceed till maturity.