RBI Mandates Full Collateral for Broker Financing, Raises Equity Haircuts From April 2026

On February 14, the Reserve Bank of India (RBI) made announcements to change the structure of exposures of banks to stockbrokers, putting into place more rigid collateral requirements and valuation standards. According to the notification of the central bank, the new rules will be effective on April 1, 2026, and they will be implemented to enhance protection in bank lending connected with capital markets.

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The action will aim at shielding the banking system against uncertainties in the capital markets by making sure that the money offered to brokers is supported by real assets instead of non-fund-based guarantees.

Personal and Corporate Guarantees Discontinued

Brokers under the current regime were able to purchase bank guarantees (BGs) by making 50% of their fixed deposits and the other half by personal or corporate guarantee. This is a provision that has been withdrawn by the RBI.

Beginning April 1, 2026, 100% of such funding should be obtained by means of eligible collateral. Individual and business guarantees will cease to be incorporated in the security structure. In addition, on bank guarantees issued in favour of stock exchanges, a minimum of 50% should be supported by collateral. Out of this, at least 25% should be held in the form of cash. For instance, for a ₹100 guarantee, ₹25 will have to be held as cash collateral, limiting its use for other business purposes.

Stricter Collateral Norms for Exchange Exposures

The amended guidelines standardise collateral backing for guarantees issued to exchanges. According to the RBI, a minimum of half the guarantee amount must be supported by eligible collateral, strengthening the quality of security available to banks.

The requirement that 25% of the guarantee value be maintained in cash increases the liquidity buffer in case of stress. The central bank said the changes are part of efforts to ensure that exposures to capital market intermediaries are supported by readily realisable assets.

Minimum 40% Haircut on Pledged Shares

The RBI has also made it mandatory that the minimum haircut on equity shares that are accepted as collateral for broker exposures should be 40% or less. It implies that when a broker commits shares to 100, banks will only count 60 against the borrowing limit with a haircut.

The haircut requirement is to take into consideration the possible changes in the equity prices, as well as to act as an extra cushion against market volatility, which is presented in the notification.

Limits on Proprietary Trading Funding

The new regulations also restrict the requirements of proprietary trading by funding brokers that consist of positions considered on the own capital of a firm. There will only be an exception to essential activities, like market making or debt warehousing.

According to the central bank, the amendments have harmonised norms of capital market exposure with other general prudential standards, and are intended to enhance risk management procedures in the lending of banks to brokers. To conclude, the RBI has mandated complete collateral support of the funding to the brokerage, a minimum 40% haircut on pledged equities, and capped proprietary trading exposures as of April 1, 2026.