Margin requirements for physical settlement of long options

The definition of options state that: The option gives the buyer the right, but not the obligation, to buy or sell the underlying asset at a particular price on or before a specified date in the future.

Then why does exchange stipulates blocking of additional margins so that client has sufficient funds to discharge his obligations when there is in fact no obligation on part of option buyer

You do get the option to exercise/ do not exercise your option on expiry but since you’ve only paid a small premium for it and it carries a risk for the exchange and the broker, if you will not be able to meet your obligation on expiry(funds in case of buy CE and stocks in case of buy PE). Hence, the exchange requires you to carry at least VaR+ELM(by expiry) to ensure that minimum market risk is covered.

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What is elm

Extreme Loss Margin
Read more about VaR & ELM here