RBI tightens capital market exposure norms

The Reserve Bank of India (RBI) has notified Commercial Banks - Credit Facilities Amendment Directions, 2026, updating norms for how banks extend credit to stockbrokers and other capital market intermediaries. Banks must provide credit to SEBI regulated stockbrokers and similar intermediaries only on a fully secured basis. Collateral for such credit can include cash, government or eligible securities, immovable property and other approved financial assets, but partial unsecured guarantees or promoter only guarantees will no longer suffice.

Bank guarantees issued in favour of exchanges or clearing houses must be backed by at least 50 percent collateral, of which 25 percent must be in cash, and equity shares accepted as collateral will attract a minimum 40 percent haircut for prudential valuation. RBI has tightened guidelines that govern lending activities of banks to capital market intermediaries (CMIs) such as brokers, mandating that all credit facilities to CMIs shall be provided on a fully secured basis. This indicates that for a bank to provide a Rs 100 loan to a broker, the broker must provide collateral equalling that amount to the bank.

 

The RBI has updated limits on loans against capital market securities, directly impacting retail and institutional borrowing. Loans against listed shares and convertible debt are capped at 60% loan-to-value (LTV). Central bank noted that banks cannot fund proprietary trading by brokers. Loans against mutual funds, ETFs, REITs, and InvITs are capped at 75% LTV. Loans against debt mutual funds capped at 85% LTV. Loans against eligible securities are limited to Rs. 1 crore per individual borrower. Loans up to Rs. 25 lakh will be allowed for secondary market share purchases, while banks may also finance IPO, FPO, and ESOP subscriptions up to Rs. 25 lakh.

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