On February 13, 2026, the RBI issued amendments to its Commercial Banks—Credit Facilities Directions to tighten how banks can lend to and support capital market intermediaries like brokers and clearing members. The changes take effect from April 1, 2026 (banks can adopt earlier). Existing facilities can run to maturity, but new facilities and renewals after adoption must comply.
Note: There’s significant confusion across the industry about the scope and interpretation of these rules. Banks, brokers, and clearing members are still working through the implications. This analysis represents our current understanding based on the circular and conversations with industry experts, but interpretations may evolve as more clarity emerges from RBI or through industry practice.
What the circular does for capital markets
The key change is that RBI has inserted a new Chapter XIII A: “Credit Facilities to Capital Market Intermediaries (CMIs)”—a single, consolidated set of rules for how banks can lend to (and issue guarantees for) entities like stockbrokers, clearing members, professional clearing members, custodians, and other market intermediaries. In plain terms, RBI is trying to ensure that bank credit is used for client and settlement-related purposes, not to provide cheap leverage for trading risk at intermediaries.
The chapter does three big things. First, it standardizes collateral expectations for different kinds of bank support to CMIs (loans, intraday limits, guarantees). Second, it tightens the conditions under which banks can give credit or issue guarantees tied to exchange/clearing obligations. Third, and most importantly for brokers, it draws a hard line between client facilitation and a broker’s own proprietary positions.
That’s what the RBI said. But what does it actually mean for how markets work?
To understand the implications, we spoke with several industry veterans who’ve been navigating broker-bank relationships for decades. Here’s what’s actually changing, who’s most affected, and what happens next.
Prop trading loses bank funding
Here’s the most immediate change. If you ran a prop desk, you could walk into a bank with ₹50 crore in collateral, get a bank guarantee (BG) for ₹100 crore, and use that BG to post margin at the clearing corp. That effectively doubled your trading capacity.
Not anymore. “Now it is absolutely clear you can’t do it, full stop,” multiple sources confirmed. Banks were never comfortable with this setup, but private sector banks had figured out workarounds. The new circular closes that door. Bank guarantees for prop trading are no longer allowed.
Look at Chapter XIII A if you want the specifics: “Banks shall not provide finance to a CMI for acquisition of securities on its own account, including for proprietary trading or investments. “ There are tiny carve-outs for market making and warehousing debt for client orders, but the door is essentially closed on leveraged prop trading via bank credit.
Professional clearing members face higher costs
This surprised many in the industry. Professional Clearing Members provide clearing for smaller trading members in F&O. Most people assumed they played by the same rules as everyone else.
They didn’t. PCMs were operating with bank guarantee margins of just 25%. Not the 50% everyone else had to put up. “It was never 50, which I came to know this afternoon incidentally,” one source admitted. Even veterans didn’t know about this arrangement.
The new rules close this gap. PCMs now need the same 50% minimum cash collateral as regular brokers. Their costs just doubled overnight. And you know what happens next—they pass it downstream. Trading members clearing through PCMs? Higher charges are coming. The whole derivatives ecosystem feels this.
Intraday funding gets more expensive
Big retail brokers loved their intraday credit lines. The math was beautiful: park ₹500 crore with the bank, get ₹1,000 crore in morning credit, use it for client and prop positions all day, square up by evening. Rinse and repeat.
That model doesn’t work anymore. The new rules demand 100% collateral for intraday facilities, and 50% of that has to be cash. “Receivables were taken as collateral, but receivables are not 100; you had to put a cash margin… They used to be very comfortable at 30-40% ” industry experts explained.
And here’s the thing—this doesn’t just hurt prop desks. Regular retail brokers who give their clients intraday leverage are caught in this too. Either they cut client limits, or they lock up way more capital. Neither option is fun.
MTF faces higher costs
Margin Trading Facility—brokers lending money to clients for buying and holding shares—continues under the new rules, but with higher costs. Banks now require 100% margins for MTF funding, with 50% of it in the form of cash.
Before you panic, here’s the reality check. Exchange data shows bank funding makes up only about 20% of the total MTF book. Most of that—around 90%—comes from bank-owned brokerages. For them, this is basically an accounting reshuffle. The parent bank pumps capital into the brokerage arm, which pledges it back as collateral. Problem solved.
Independent brokers, though? They’re in a tougher spot. MTF margins are razor-thin. You’re making maybe 12-15% annualized on these loans. If your cost of capital doubles because of new collateral rules, suddenly the math stops working.
“If the business is not remunerative, brokers will get out,” one expert said flatly. Some will exit MTF completely. Others may increase the rates they charge their clients. Market forces will sort this out—they always do.
Impact on trading volumes
There’s concern about whether these changes will significantly reduce market liquidity and trading volumes. The experts we spoke with are skeptical of the more extreme scenarios.
“People will find the money. If there’s profit, if there’s margin, people will find the money to bring it there. I don’t think the markets will come to an end; all liquidity will go away, and bid-asks will go high.”
Here’s the thing. Capital chases returns, always has, always will. If prop trading is profitable enough, traders will figure it out—raise equity, tap family money, bring in partners, accept lower leverage. Whatever works. Markets adapt.
But yeah, short-term pain is coming. Smaller prop shops living on cheap bank credit? Many won’t survive. Clearing costs are going up. Some trades that worked at 2:1 leverage won’t make sense at 1:1. Natural selection in action.
The regulatory rationale
The core goal is cleaning up hidden leverage in the system. When a broker deposits ₹50 crore and trades with ₹100 crore, that’s 2x leverage. Except nobody sees it. Doesn’t show up as a loan on bank books. Off-balance-sheet risk dressed up as a guarantee.
The new rules bring this into the open. You want ₹100 crore in trading power? You need ₹100 crore (or close to it). Banks can help, but they need real collateral. Risk gets priced properly instead of hidden in footnotes.
There’s also a fairness angle. Big brokers with bank connections had cheap leverage that smaller players couldn’t touch. New rules level the field—same collateral standards for everyone. It may not make you happy, but at least it’s consistent.
Who gets affected and how
Proprietary trading firms face the biggest impact. Bank credit’s gone. You’ll need equity or non-bank leverage sources. Expect consolidation—smaller shops either get bought or shut down.
Retail brokers have difficult choices ahead. Intraday leverage gets expensive. Cut client limits? Charge more? Either way, costs are rising. MTF is still viable, but margins are getting squeezed. Some brokers will exit the business.
Professional clearing members will see their costs increase. They might pass some downstream and absorb some themselves. Either way, clearing just became less profitable.
For markets overall, there’ll be less speculative activity, maybe some wider spreads near-term. But markets adapt. HFTs running on equity capital are unaffected. Long-term investors won’t notice. The retail trader is using high intraday leverage? That person will see higher costs or reduced access.
Banks are confused too
Even senior banking execs are scratching their heads. Can they still do X? What about Y? The circular is 20 pages deep with definitions, provisos, and legal subclauses. Dense doesn’t begin to cover it.
Quick answers to the most common questions:
Loans against securities for working capital: Yeah, still fine. Corporate wants a business loan and pledges shares as collateral? No problem. The restrictions are specific to securities trading, not using securities as collateral for normal business lending.
IPO financing for retail: Still allowed. Up to ₹25 lakh per person, 75% LTV max. Different animal from margin trading.
Irrevocable Payment Commitments by custodians: Good to go, with conditions around pre-funding or having solid rights over securities.
Lines are clear if you read carefully. But that’s the catch—you actually have to read carefully. Banks will need to audit their entire cap markets lending book and fix what doesn’t fit.
What happens next
April 1, 2026, is the deadline, though banks can adopt earlier if they choose. Existing loans and guarantees run to maturity, but renewals or new facilities must comply with the new rules.
Over the next few weeks:
- Brokers will renegotiate credit lines (likely with less favorable terms)
- Prop desks will shut down or pivot to client-facing businesses
- Clearing charges will increase as PCMs pass costs along
- MTF rates will rise as brokers reprice
- Volumes may dip temporarily as leverage unwinds, then stabilize at a new level
Long-term, this is standard regulatory work—making leverage transparent, pricing risk properly, and reducing tail risks. Not dramatic, but necessary.
As one industry participant noted when discussing how policy gets made, “People don’t know.” Even officials often lack visibility into ground-level realities until someone explains them directly. This circular likely came from systemic risk concerns, but its real impact will be thousands of small adjustments across brokerages, banks, and trading desks.
Indian markets will adapt. They always do.
Note: This article synthesizes insights from conversations with industry experts. The transcripts were processed, and this article was written using Claude (Anthropic’s AI) to extract key insights and present them clearly. All substantive analysis comes from expert interviews and the RBI circular (RBI/2025-26/211 dated February 13, 2026).