How do tighter lending guidelines impression capital market intermediaries
The Reserve Financial institution of India (RBI) has tightened guidelines governing financial institution lending to capital market intermediaries, mandating that every one such credit score services will now have to be totally backed by collateral. Specialists say the transfer by the banking regulator that comes into impact in April could scale back buying and selling prices for inventory market brokers, whereas the upper collateral requirement might additionally make financial institution funding harder.
Generally, RBI now mandates that every one credit score services to capital market intermediaries (CMI) shall be offered on a totally secured foundation, which signifies that if a financial institution is lending Rs 500 to a dealer, there must be 100% collateral that can have to be offered by the dealer.
In respect of financing to brokers for margin buying and selling facility (MTF) offered by them to their purchasers, the ability shall be totally secured by collateral of money, cash-equivalents and Authorities securities, out of which a minimal of fifty% shall be money.
A financial institution shall apply appropriate haircuts to varied eligible securities accepted as collateral as per its coverage, topic to a minimal haircut of 40% in case of fairness shares.
“For loans to CMIs, 100 per cent collateral requirement for funding (out of which 50% have to be money for MTF) and 40% haircut on shares for collateral worth calculations could scale back financial institution funding entry and lead to excessive buying and selling value for brokers,” stated analysts at JM Monetary Institutional Securities.
The analysts famous that fifty per cent of Angel One’s March 2025 borrowings of Rs 3,400 crore got here from banks and really feel the stockbroker could “instantly relook” at its funding for its MTF guide. Groww, alternatively, could have to faucet markets as its MTF guide scales aggressively, they added.
“We imagine credit score services with 100 per cent collateral will make the financial institution channel unsuitable for brokers, and they’re going to solely use it for short-term mismatches,” stated the JM Monetary analysts.
Not surprisingly, shares of Angel One had been down over 5% on Monday, Billionbrains Storage Ventures (Groww) fell round 2%, and the inventory change BSE declined as a lot as 7%
In keeping with Jay Prakash Gupta, the founding father of Dhan, the RBI has “basically” reshaped how proprietary buying and selling may be funded in India.
“Proprietary buying and selling should now be funded primarily via your personal web value and retained earnings. Leverage-driven proprietary fashions are more likely to change into much less rewarding. Capital effectivity, threat self-discipline, and stability sheet energy change into strategic benefits,” opined Gupta.
The measures might make the market a greater place, felt market veteran Arun Kejriwal, though there could possibly be some short-term ache.
“Sudden market upswings and downswings won’t have an effect on the liquidity that we affiliate the market with,” he stated in an interplay with Enterprise In the present day TV.
Whereas enterprise might, to a sure extent, get impacted, if the entities are well-capitalised and never taking undue threat in doing enterprise, he didn’t see any downside.
