A big change is about to come for stock brokers working in the capital market of the country. Reserve Bank of India (RBI) has amended the rules related to funding and collateral, which will come into effect from April 1, 2026. These changes will have a direct impact on the functioning of brokers and their capital management.
Now only 100% secured funding
Under the new rules, now brokers will get only completely secured (100% secured) funding. Earlier, a part of the bank guarantee was secured by fixed deposits, while the remaining part could be covered by unsecured instruments like personal or corporate guarantees. Now this facility has been abolished. This means that a fully valid and solid mortgage will have to be given in exchange for funding.
Strictness on bank guarantee and collateral
RBI has also tightened the rules for bank guarantees issued in favor of the exchange or clearing corporation. Now it will be mandatory to give at least 50% collateral, out of which 25% should be in cash. Apart from this, if shares are pledged then there will be a haircut of at least 40%. This means that funding will be given only assuming the value of the shares is low.
Ban on proprietary trading
Under the new structure, banks will no longer be able to provide funding for proprietary trading (trading with their own money) of brokers. Only certain limited activities, such as market making or debt warehousing, will be exempted. Also, all such funding will now be considered as capital market exposure, which may impact the overall lending limit of banks.
Leverage will decrease, costs will increase
Experts believe that these rules will bring more transparency and risk control in the market. However, the cost of capital may increase for brokers and bank guarantees may become expensive. Overall, the new rules are being considered a big step towards reducing leverage in the system.