India’s central bank, the Reserve Bank of India (RBI), has introduced a set of stringent new rules on bank financing for trading firms that is expected to significantly reshape the country’s capital markets. The measures, set to take effect from April 1, 2026, are aimed at curbing excessive leverage and risk in the equity derivatives market but are widely seen as a major squeeze on proprietary trading firms and smaller domestic brokers.
Under the new framework, banks will be prohibited from lending to proprietary trading desks and must provide other credit to brokers only if it is backed by 100 percent eligible collateral, a substantial tightening from earlier norms. Collateral requirements for bank guarantees have also been raised, and intraday and margin financing will be restricted to fully secured transactions.
Analysts and executives say the restrictions could cut profit margins sharply and reduce derivative trading volumes by up to 20 percent, particularly affecting smaller firms that have traditionally relied on cheap leverage from banks. Without access to low‑cost funding, many such firms may find their models unsustainable, potentially forcing some to shut down or shift operations offshore where financing remains easier and less costly.
India’s equity derivatives market one of the world’s largest by volume, centred on the National Stock Exchange has grown rapidly in recent years, attracting significant participation from both high‑frequency traders and retail investors. Regulators have said the measures are part of broader efforts to cool speculative activity that has sometimes resulted in large losses for individual participants and heightened systemic risk.
Brokers’ associations have urged regulators to delay implementation by six months to better assess potential impacts on liquidity, trading costs and market participation. Meanwhile, the RBI has indicated it does not plan to revisit the new lending rules ahead of their scheduled rollout.
The policy shift reflects increasing concern among Indian authorities about reliance on leverage in capital markets and the potential spillover effects on investors and financial stability. However, critics warn that it could disadvantage domestic market participants while offering a competitive edge to foreign firms with greater access to offshore funding.
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