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RBI’s stricter collateral norms trigger up to 10% fall in BSE, MCX, Angel One, Groww amid fears of higher funding costs.
RBI’s stricter collateral norms trigger up to 10% fall in BSE, MCX, Angel One, Groww
Shares of exchange operators BSE and Multi Commodity Exchange of India (MCX), along with brokerage firms such as Angel One and Groww, plunged on Monday after the Reserve Bank of India (RBI) tightened lending norms for capital market intermediaries, threatening to raise funding costs and compress margins across the sector.
BSE shares fell 10% to Rs 2,726.30. Angel One declined 6%, MCX dropped as much as 7%, and Groww slipped 4% as investors reacted to sweeping restrictions that will take effect from April 1, 2026.
What Triggered the Sell-Off?
The RBI has mandated that banks can now extend only fully secured funding to capital market intermediaries. Earlier, guarantees could be partially backed by unsecured instruments.
For margin trading facilities (MTF), the rules are stricter:
- 100% collateral remains mandatory
- At least 50% of this must now be in cash
- Equity shares pledged as collateral will face a steep 40% haircut
This significantly increases the cash burden on brokers and proprietary traders.
Earnings Impact
Brokerage firm Jefferies estimates the new framework could cut BSE’s earnings by around 10%. The impact stems from higher cash collateral requirements that could dampen proprietary trading volumes.
“We estimate that if 50% of prop trading volumes (excluding HFTs) are impacted, it could affect 10–12% of options turnover, translating into roughly a 10% earnings hit for BSE,” Jefferies said.
The exchange may partly offset the impact through fee hikes, as its options charges are currently about 7% lower than competitors.
Impact on Brokers
JM Financial noted that Angel One may need to reassess funding for its Rs 6,100 crore MTF book. As of March 2025, nearly half of its Rs 3,400 crore borrowings came from banks.
Groww, whose MTF book surged fourfold to Rs 2,300 crore in the third quarter, may need to tap capital markets more aggressively as it scales up.
Jefferies, however, believes discount brokers may face limited direct impact since many already meet collateral norms and largely self-fund their MTF books. Groww, which holds around 2% market share in margin trading, funds most of its MTF exposure through internal equity, reducing reliance on bank support.
Still, analysts caution about a potential second-order impact if proprietary traders reduce activity, leading to lower liquidity in cash and derivatives segments.
Funding Shift Ahead
The new framework effectively shuts the traditional bank funding channel for most brokers, pushing them toward costlier alternatives such as commercial paper (CP) and non-convertible debentures (NCDs).
Banks can no longer finance proprietary trading and must classify broker exposures strictly as capital market exposure. For bank guarantees issued to exchanges:
- Minimum 50% collateral is required
- At least 25% must be cash
Previously, guarantees could be structured with partial fixed deposits and unsecured guarantees — that flexibility has now been removed.
Banks may still offer need-based working capital, settlement-related overdrafts, and certain market-making facilities. However, even market-making guarantees for proprietary trading must now be fully secured with at least 50% cash.
JM Financial said fully collateralised credit lines would make bank funding unattractive, restricting usage to short-term mismatches.
What Brokers May Do
Angel One is expected to pivot toward non-bank financial companies (NBFCs). As of March 2025, it had Rs 800 crore outstanding with NBFCs and Rs 900 crore in commercial paper. The firm also recently placed an NCD worth Rs 500 million.
Groww, despite reporting Rs 5.5 billion in third-quarter profit and raising Rs 1.1 billion through its IPO, may also need to tap debt markets as its MTF book expanded sharply to Rs 23 billion.
Additional Compliance Burden
The RBI amendment introduces continuous collateral monitoring and explicit margin call provisions, requiring brokers to maintain collateral cover at all times — adding operational complexity amid rising costs.
With the April 1, 2026 deadline approaching, firms have roughly six weeks to restructure funding models that have supported years of rapid growth in India’s retail trading ecosystem.
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