RBI Not Looking To Revisit Lending Rules For Proprietary Traders And Brokers

India’s central bank, Reserve Bank of India (RBI), is not planning to review or roll back its recently announced norms tightening bank financing to proprietary traders and brokers. The revised framework, issued earlier this month, will come into effect from April 1 as scheduled.

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The regulatory changes relate to bank exposure to brokerage firms and proprietary trading activities. The central bank indicated after its board meeting that the norms were finalised following a consultation process and will be implemented as notified.

Revised Collateral And Lending Norms

Under the new rules, the RBI has raised collateral requirements for bank guarantees issued to brokers. It has also barred banks from extending loans for proprietary trading undertaken by brokers.

The rules were finalised after consultation, RBI Governor Sanjay Malhotra said at a press conference following the board meeting. The changes are aimed at regulating bank exposure to capital market intermediaries and strengthening safeguards around lending linked to trading activities.

The updated norms form part of the RBI’s broader regulatory framework governing banks’ dealings with brokerage entities and proprietary trading operations. The effective date for implementation remains April 1.

Brokerage Firms Seek Review

Shares of brokerage firms fell last week after the new norms were notified, amid concerns that the tighter collateral requirements and lending restrictions could affect profit margins and trading volumes.

Brokerage firms have sought a review of the rules in a letter sent to the market regulator, according to the report. The sector has raised possible operational and financial concerns brought in by the new structure.

Despite these representations, the central bank has indicated that it does not intend to revisit the rules at this stage.

Implementation Timeline Unchanged

The central bank reiterated that the revised norms were finalised after consultation and will proceed as planned.

The framework includes the bank guarantee offered to brokers and lending, which is related to proprietary trading.

Brokerage firms will have to match their funding plans with the new regulatory rules as the deadline of April 1 approaches. Its advancements are in the light of the unremitting regulatory examination of the market intermediaries and increased vulnerability of the banking system to the capital markets.