On Monday, February 16, shares of brokerage and exchange-linked companies plunged significantly, following the announcement by the Reserve Bank of India (RBI) that it was making changes to the norms of capital market exposure of the banks. The amended framework requires full security in funding of brokers, and it requires more collateral, which will be effective on April 1, 2026, as per the directions of the central bank.

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In October 2025, the RBI was finalising changes proposed in a draft consultation paper, with changes being finalised in the Commercial Banks, Credit Facilities Amendment Directions, 2026.

Brokerage And Financial Stocks Decline In Trade

Shares of BSE Ltd. fell as much as 9.5% to an intraday low of ₹2,736. Angel One Ltd. declined 6% to ₹2,540.40 apiece, while Billionbrains Garage Ventures Ltd., the parent of Groww, dropped 5%.

Among other capital market-linked firms, JM Financial Ltd. shed 4.5%. Anand Rathi Wealth Ltd., Motilal Oswal Financial Services Ltd. and Jio Financial Services Ltd. declined between 1.5% and 3.5% during the session.
The declines followed the RBI’s move to tighten regulations governing loans extended to firms engaged in proprietary trading in equities and commodities, as well as those offering leverage to clients.

RBI Mandates Fully Secured Broker Funding

Under the revised framework, banks can extend credit to SEBI regulated brokers and intermediaries only on a fully secured basis. Partial security, unsecured guarantees and promoter-only guarantees will no longer be permitted.

The RBI has mandated 100% collateral coverage for broker funding, effectively transitioning to fully secured lending. In addition, guarantees issued in favour of stock exchanges and clearing corporations must be backed by at least 50% collateral, of which a minimum 25% must be maintained in cash.

Where equity shares are provided as collateral, banks must apply a minimum 40% haircut while valuing them. This means that if shares worth ₹100 are pledged, only ₹60 will be recognised towards the borrowing limit. The revised norms will come into effect from April 1, 2026.

Restrictions On Proprietary Trading And Exposure Limits

The RBI clarified that banks cannot fund proprietary trading by brokers, which refers to trading in shares, commodities or derivatives using a firm’s own capital. However, banks may continue to finance market-making activities and short-term warehousing of debt securities.

Margin trading facilities offered by brokers to clients can continue to receive bank funding, provided such lending is fully secured. Banks must also incorporate margin call provisions and monitor collateral values on an ongoing basis.

All lending to capital market intermediaries will be counted under banks’ capital market exposure limits, which are subject to prudential caps.

Brokerage View On Regulatory Impact

JM Financial said the revised norms could allow banks to participate in mergers and acquisitions and leveraged buyouts within defined exposure ceilings, while maintaining risk controls.

JM Financial added that the 100% collateral requirement, 40% haircut on shares and higher cash requirements for margin trading facilities could restrict bank funding to intermediaries. It said Angel One may reassess its ₹61 billion margin trading facility funding, while Groww may require market funding as its book expands.