India’s
central bank will not soften its new lending rules for retail brokers and prop
traders, Reserve Bank of India (RBI) Governor Sanjay Malhotra confirmed today
(Monday), dismissing industry calls to revisit the restrictions before they
kick in on April 1.
“There
is no change that we are contemplating,” Malhotra said at a press
conference following the RBI’s board meeting.
The rules,
issued earlier this month after a public consultation process that began in
October 2025, require banks to back all credit to capital market intermediaries
with 100% eligible collateral, a significant tightening from a system where
partial or promoter-backed guarantees were common.
Banks are
also now barred entirely from financing brokers’ proprietary trading, closing a
structure that had effectively let prop desks borrow at twice the value of
their deposits through leveraged bank guarantees.
India’s
retail traders have lost an estimated $34 billion over four years, with 91% of
individual futures and options traders recording losses in the fiscal year
ending March 2025 – data that has placed India’s regulatory toolkit under the
global spotlight.
A detailed
breakdown of how those losses may be shaping enforcement approaches in
Australia, Europe, and beyond is available through the new FMIntel
Datalab, where
registration is free.
Brokerage Stocks Already
Felt the Blow
The
announcement hit Indian brokerage stocks hard when the rules first landed. BSE,
the country’s major exchange operator, fell as much as 9.9%, while Angel One
and Groww dropped 9.5% and 4.8%, respectively. Motilal Oswal Financial Services
shed 3.3%.
Jefferies
estimated that proprietary trading accounts for roughly half of all equity
options premium turnover – meaning the ban on bank financing for such activity
could squeeze a substantial chunk of market liquidity.
The bank
pegged BSE as the most exposed, forecasting a potential 10% hit to the
exchange‘s earnings. Angel One, according to JM Financial analysts, would need
to “immediately relook” its funding for its margin trading facility,
while Groww may need to tap external markets for fresh capital.
Brokerage
firms pushed back by writing to the market regulator to seek a review.
Malhotra’s statement Monday offers little encouragement for that effort.
India’s Derivatives Market
Faces Mounting Pressure
The RBI’s
move is the latest in a series of measures aimed at cooling India’s derivatives
market, where retail investor losses have drawn growing scrutiny from
regulators. Combined with a recently hiked transaction tax on equity futures
and options, analysts expect the cumulative effect to dampen trading volumes
further.
When India
raised its securities transaction tax earlier this year, it prompted questions
about whether traders might migrate to unregulated CFD platforms to sidestep
the levies, a concern FinanceMagnates.com
covered in
depth following the STT hike announcement.
The broader
regulatory tightening has already reshuffled the foreign broker
landscape. FBS suspended
all marketing activities globally months after exiting the Indian market entirely. Exness halted
new client onboarding from
India despite the country representing nearly 30% of its global traffic.
Meanwhile, Indian authorities raided offices
of Zara FX and froze bank accounts as part of an expanded enforcement push against unauthorized forex
and derivatives operations.
Inflation Mandate Heads
Into a Scheduled Review
Malhotra
also addressed India’s inflation-targeting framework on Monday, confirming the
RBI has sent its recommendations to the government ahead of a formal review due
by the end of March. He declined to reveal the contents of those
recommendations.
India
currently requires the central bank to hold retail inflation at 4%, within a
tolerance band of 2% to 6%. The country recently updated its inflation
measurement methodology, reducing the weight assigned to food prices in the
consumer basket. Malhotra said those technical changes would not, on their own,
shift the RBI’s thinking on what the appropriate inflation target should be.
This article was written by Damian Chmiel at www.financemagnates.com.
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