RBI Rules Lead to a Decline in BSE and Brokerage Shares, Reducing Liquidity in the Market

RBI New Rules: Shares of companies involved in the capital markets and brokerage sector saw a sharp decline today. Shares of major brokerage firms such as BSE Limited, Angel One, and Grove fell by up to 10%. Experts believe the selling is due to new rules issued by the Reserve Bank of India on Friday evening that will change banks’ capital market exposure. The new rules may increase brokers’ funding costs. Angel One has a large margin trading portfolio and will now have to reconsider its funding strategy. Grow’s MTF portfolio is growing rapidly, but due to the new rules, it will have to raise additional capital. Analysts at JM Financial and Citi predict that this could reduce liquidity in the market and slow down trading activity.

What are the new RBI rules?

The Reserve Bank of India has issued the “Commercial Banks – Credit Facilities Amendment Directions, 2026,” which will come into effect from April 1, 2026. These regulations aim to protect the banking system from stock market volatility. According to the new guidelines, banks will now only lend to brokers or other intermediaries on a fully secured basis. Funding based on partial guarantees or promoter guarantees alone will no longer be possible.

If a bank provides a guarantee to an exchange or clearing house, a minimum of 50 percent collateral is mandatory, of which 25 percent must be in cash. If a broker pledges equity shares, the bank will impose a 40 percent haircut, meaning that for a share worth Rs 100, only up to Rs 60 of liquidity will be available.

Strict Restrictions on Proprietary Trading

The new regulations have had the greatest impact on proprietary trading. The RBI clarified that banks will no longer fund brokers’ proprietary trading. However, market making and funding of debt securities can continue. Proprietary trading accounts for approximately 40 percent of total F&O volume. These brokers will now be required to provide 100% collateral for bank guarantees, which will increase their operational costs. The new rule will not apply to bank guarantees issued for client trades.

Impact on F&O Segment and Intraday Volume

According to Dheeraj Relli, MD and CEO of HDFC Securities, client trades will remain unaffected, but brokers engaged in proprietary trading will face challenges under the new rules. Previously, these brokers generated significant volumes based on bank guarantees, but the requirement for cash collateral will impact their margins. This will put pressure on intraday limits and increase the likelihood of a decline in trading volumes.