India’s move to tighten bank lending norms for firms engaged in proprietary trading of shares and commodities is set to push these companies toward alternative sources of capital.
Industry watchers expect securities firms to lean more on shadow lenders and internal capital to fund their own books as well as client positions. They are also seen tapping debt markets as access to credit from banks narrows.
The Reserve Bank of India said all credit facilities to securities firms will have to be backed by collateral. Lending for trading on their own account or investments by brokers will be prohibited, according to a statement on Friday. The stricter measures — which come into effect from April 1 — are seen aimed at curbing speculative market activity in India, where millions of individuals have taken to equity trading in recent years amid an investing boom.
“Broking firms will now look for other sources of funding — like non-convertible debentures, non-bank finance companies and commercial papers,” said Ajay Manglunia, executive director at Capri Global Capital.
While Indian banks traditionally do not directly finance proprietary trading, the RBI’s directive will help close a loophole that allowed short-term working capital loans given by banks to be diverted for trading by brokerage firms.
The central bank also tightened lending rules for margin trading facility, or MTF, under which stock brokers offer leverage to their clients. Loans given by banks for the product will have to be fully secured by cash and other liquid securities.
Credit facilities with 100% or higher collateral would make the bank channel “unsuitable for brokers,” limiting its use to short-term liquidity mismatches, analysts at JM Financial wrote in a note dated Feb. 15.
Angel One Ltd., one of India’s largest retail stockbroking firms, had aggregate borrowings of 34 billion rupees ($375 million) as of March 31 last year, of which 50% came from banks, the analysts wrote. Angel One’s MTF book has expanded “aggressively” to 61 billion rupees over the past couple of years, they added. That’s versus 20 billion rupees as of Dec. 2023.
Digital stock broking firm Groww may also tap the debt market as its MTF book quadrupled to 23 billion rupees in the December quarter from 5.4 billion rupees a year ago, JM Financial’s analysts wrote.
Spokespersons for Angel One and Groww didn’t immediately respond to requests seeking comment.
The RBI’s action comes amid a broader regulatory pivot. The government and the market regulator – Securities and Exchange Board of India – have stepped up curbs on derivatives and speculative trading, raising margin requirements and tightening disclosures to cool surging retail participation in futures and options. Taxes on equity derivatives were also hiked earlier this month.
Authorities “are attempting to de-risk the system, so no undue excesses are built,” said Jimeet Modi, chief executive of Samco Group. “In the long term, the blowup risk goes down.”
Proprietary trading firms accounted for more than 50% of equity options turnover on the National Stock Exchange of India Ltd. — the country’s biggest stock bourse — last year, according to data. In cash equities trading, their share hit a 21-year high on the NSE at around 30%.
“Earlier, brokers could access relatively cheaper funding through intraday facilities for exchange margins. With these facilities no longer available, brokers will now face higher funding costs,” said Roop Bhootra, whole-time director at Anand Rathi Share and Stock Brokers. He estimated that borrowing costs could rise by around 4% on the borrowed portion for intraday margin requirement, depending on leverage levels.
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Published on February 16, 2026
