Key Changes In Promoter Guarantees
Currently - Banks lend to Brokers against 50% Bank Guarantee and 50% personal or corporate Gtee. This is ending and will now be 100% BG.
Any Bank issuing BG favoring exchanges will need 50% collateral of which 25% cash. this means Rs 25 must now be locked away in non-productive cash.
Higher Haircuts and Trading Restrictions
Banks must now apply for a mininum 40% haircut on equity shares accepted as collateral.
if a broker pledges Rs 100 worth of shares, the bank will only recognise Rs 60 toward their borrowing limit, thus forcing firms to pledge significantly more assets in order to maintain the same level of credit lines.
In terms of a broker’s proprietary trading, meaning its own bets on the market, RBI has issued a tighter norm. Exceptions will only be granted for essential activities such as market making or debt warehousing.
I am sure there will be ripple effect when shares are pledged by traders…