RBI not revisiting lending norms for proprietary trading: Guv Malhotra

Reserve Bank of India Governor Sanjay Malhotra said on Monday that the banking regulator is not contemplating changes to its new norms tightening bank lending for proprietary trading, even as affected market players flagged their concerns in a meeting with finance ministry officials, and Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey indicated that the issue will be examined. 

Stressing that the regulator always undertakes consultations before finalising any regulations, the RBI Governor pointed out that the initial draft of the new norms, effected on February 13, had proposed to prohibit this particular lending for proprietary trades. 

“We now have a framework for making regulations. So before making any regulation, we publish the draft. We invite comments, suggestions, and this has been done after a proper consultation with all the stakeholders. Initially in the draft, this particular lending for proprietary trades was prohibited... After that, taking into account the comments and suggestions, we have now allowed it, with certain prudential norms. There is no change that we are contemplating,” Malhotra said in a press briefing after the RBI’s central board meeting attended by Finance Minister Nirmala Sitharaman. 

By restricting banks from extending credit for own-book trading and mandating stricter and fully collateralised lending norms, the RBI has effectively cut off cheap leverage for prop desks, the industry has argued. As a result, prop firms will have to rely more on internal capital, pushing up funding costs and squeezing profitability, especially for smaller players. 

Earlier on Monday, Sebi chairman Pandey said the stock market regulator has received a representation from the industry on the issue. “We will see what we can and we need to do on it because the RBI had initially issued draft guidelines and sought their opinion and many of them, they would have done it. It is in relation to particularly the issues around bank guarantees and how much collaterals have to be given for proprietary trading, and so on. There are three to four issues, so basically it is a matter with the RBI. Since the representation has also come to us, we will have a look at it.” 

Meanwhile, representatives from the Association of NSE members of India (ANMI) also met officials in the finance ministry on Monday, sources said. The officials have, during the meeting that lasted for about 40 minutes, sought data points and details of the gap areas in the final norms. 

According to sources, officials have asked ANMI to submit details on the earlier process, and if the draft guidelines by the RBI did not have any specific measures which have been formalised in the final norms. Their submissions are expected this week. 

In its submission to Sebi, ANMI has argued that RBI’s direction to raise the cash collateral requirement for bank guarantee (BG) facilities from 50 per cent to 100 per cent effectively restricts access to bank finance for proprietary trading positions. “This will unintentionally constrain proprietary market makers and arbitrage desks, which are key providers of liquidity and price efficiency,” it cautioned, adding that this will also impact market depth and enhance trading costs which could discourage foreign portfolio investors’ participation. 

ANMI also flagged that RBI’s consultation paper on the matter, issued in October 2025, did not indicate any increase in BG collateral requirements to 100 per cent, so market participants had no opportunity to provide their feedback or impact analysis on this measure.