Reserve Bank of India tightens broker funding norms: Will stock brokers feel the squeeze?

Beginning April 1, 2026, the Reserve Bank of India (RBI) will implement significant amendments to the funding norms for stock brokers, fundamentally altering their operating environment. The most notable change is the requirement for fully secured funding, eliminating previous allowances for unsecured instruments in funding structures. Previously, brokers could use a mix of secured and unsecured guarantees; however, the new regulations stipulate that at least 100% of funding must be fully secured. Moreover, bank guarantees for exchanges will now require a minimum collateral ratio of 50%, with 25% of that needing to be in cash. The amendments also restrict banks from providing funding for proprietary trading, limiting exceptions to select functions such as market making. Additionally, all exposures will be classified under capital market exposure, potentially impacting banks' lending capacities. Continuous collateral monitoring will be mandated, and agreements must incorporate margin call clauses to address shortfalls. These changes aim to curtail leverage in the market and increase the capital commitment required from brokers, likely resulting in higher costs for bank guarantees and decreased operational flexibility. Overall, the RBI's new framework represents a pivotal shift that could significantly affect stock brokers and their funding strategies in the evolving capital markets landscape.