Brokers to Approach RBI as Tighter Norms Squeeze Funding for Proprietary Desks

Why It Matters

The policy reshapes broker funding structures, increasing capital costs and curbing leverage, which could dampen trading volumes and alter risk dynamics across India’s capital markets.

Key Takeaways

• 100% collateral required for broker bank loans
• Banks prohibited from funding proprietary trading
• Uniform haircuts: 40% equities, 25% bonds, 15‑40% debt
• Brokers face higher funding costs, reduced leverage
• Margin‑trading funding now explicitly allowed

Pulse Analysis

The RBI’s overhaul reflects a broader regulatory trend toward tighter risk controls in emerging markets. By insisting on full collateral coverage, the central bank aims to eliminate hidden exposures that can amplify systemic shocks. This shift compels brokerage houses to reassess their balance sheets, potentially turning to internal capital or alternative financing channels such as capital markets or fintech lenders. The move also aligns India’s prudential standards with global best practices, reducing the likelihood of contagion from over‑leveraged proprietary desks.

For brokers, the immediate impact is a recalibration of funding economics. The uniform haircuts—40 percent on listed equities and tiered reductions on bonds, REITs, and debt instruments—lower the effective loan‑to‑value of pledged assets, driving up the cost of capital for leveraged strategies. Firms with sizable proprietary books may need to unwind positions or scale back market‑making activities, which could thin order flow and modestly impair short‑term liquidity. However, the explicit permission for banks to fund client‑driven margin trading offers a silver lining, preserving a key revenue stream for retail‑focused brokerages.

Long‑term, the framework is poised to enhance market stability. By stripping banks of the ability to bankroll high‑risk proprietary bets, the RBI reduces the probability of rapid credit withdrawals during market stress. This structural reset encourages brokers to adopt more disciplined capital management and may foster the growth of non‑bank financing ecosystems. Investors can anticipate a market with lower volatility spikes, while regulators gain clearer oversight through standardized collateral valuations, ultimately supporting a more resilient Indian capital‑market infrastructure.

Brokers to approach RBI as tighter norms squeeze funding for proprietary desks

By Akshata Gorde · Updated · February 16, 2026 at 07:46 PM

The new framework mandates 100 per cent collateral backing for bank lending to capital‑market intermediaries and prohibits banks from funding proprietary trading positions.

Brokerage firms are preparing to make representations to the Reserve Bank of India (RBI) seeking clarifications and possible changes to the new capital‑market exposure norms, even as the industry braces for a structural reset in funding for proprietary trading operations from April 1, 2026.

The revised framework mandates that all bank lending to capital‑market intermediaries be fully backed by eligible collateral and continuously monitored. More significantly, banks will no longer be allowed to finance proprietary trading or brokers’ investment positions. Credit support for operational requirements—such as working capital, settlement mismatches, market‑making, and margin trading undertaken by clients through stockbrokers—will continue to be permitted.

Proprietary Trading Impact

While brokers say the rules improve transparency and financial stability, firms with large proprietary books argue that the blanket restriction could raise funding costs and reduce trading intensity, at least in the near term, prompting them to approach the regulator with implementation‑related concerns.

“The new RBI capital market exposure norms for banks are another step in that direction. By mandating 100 per cent collateral and higher capital backing for broker exposures, the framework is expected to meaningfully restrict proprietary trading activity. This is largely constructive for the broader market,” said Feroze Azeez, joint CEO of Anand Rathi Wealth.

Funding Cost Pressure

Higher capital commitments will increase the cost of funds for brokers, making highly leveraged proprietary positions less attractive and, in some cases, forcing firms to raise additional capital. In the short term, he said, the transition could lead to selective unwinding of positions, marginally lower liquidity and higher funding costs, even as the longer‑term impact points to reduced volatility and stronger market resilience.

Collateral Haircut Norms

At the operating level, the norms introduce uniform collateral haircuts: 40 % on listed equities; 25 % on sovereign gold bonds, mutual funds and REIT/ETF units; and 15–40 % on debt mutual funds and debt instruments. Market participants said this could marginally reduce the funding value of pledged assets for some brokers but removes ambiguity around valuation and risk management.

Ajay Garg, director & CEO at SMC Global Securities, said:

“The tightening of capital market exposure norms by the RBI marks a structural shift in how brokers, particularly those with significant proprietary trading operations, will access funding from April 1, 2026. This can lead to a moderate reduction in leverage among brokerage firms. Proprietary desks that earlier relied on bank funding may either scale down trading activity or increasingly depend on internal capital and alternative funding sources. However, brokers largely focused on client‑based activities are unlikely to see any meaningful impact on their core operations.”

Margin Trading Clarity

One area where the rules offer clarity is margin trading. Earlier, banks lacked a clear regulatory framework for extending margin‑trading funding to brokers. The revised norms explicitly allow banks to provide funding for margin trading undertaken by clients through stockbrokers, a move seen as positive for client‑facing businesses and lender comfort.

Ajay Kejriwal, executive director at Choice Broking, said:

“The Reserve Bank of India’s recent guidelines are a prudent step toward reinforcing systemic stability. For the broader broking ecosystem, the impact remains largely contained. However, proprietary‑desk brokers may experience a marginal effect in terms of capital allocation, leverage calibration and treasury efficiency.”