New Delhi, Feb 28 (UNI) Fresh directions issued by the Reserve Bank of India (RBI) on credit facilities to capital market intermediaries (CMIs) are set to significantly alter the operating landscape for proprietary trading firms, according to a credit alert released by Crisil Ratings Limited.
The RBI’s “Commercial Banks – Credit Facilities Amendment Directions”, released on February 13 and effective from April 1, 2026, introduced a dedicated chapter on credit facilities to CMIs.
While banks may adopt the framework earlier, the new norms primarily redefine permissible credit exposure and collateral requirements for intermediaries operating in the capital markets.
CRISIL’s initial assessment indicates that the most pronounced impact will be on CMIs engaged in proprietary trading — that is, trading securities on their own account.
Under the revised norms, bank guarantees issued in favour of exchanges or clearing houses for proprietary trading must now carry 100pc collateral coverage, compared with 50pc earlier. Importantly, at least half of this collateral must be in cash, with the remainder restricted to cash equivalents or government securities.
This change effectively halves the leverage previously available to such entities. Banks had typically offered guarantee limits of up to twice the collateral value. With full collateralisation now mandatory, trading capacity for proprietary players is expected to reduce materially.
CRISIL noted that the bar on banks financing acquisition of securities for proprietary trading or investment purposes is unlikely to have a significant effect, as most firms were not relying heavily on such funding.
In contrast, intermediaries primarily engaged in broking services for clients are expected to see minimal disruption.
For guarantees issued on behalf of brokers or professional clearing members, the minimum collateral requirement remains at 50pc, though 25pc must now be in cash. CRISIL said these provisions are largely clarificatory and aligned with prevailing market practice.
The new framework also tightens rules on intraday credit limits. Banks will now be required to extend such facilities on a fully secured basis, as against the earlier 50pc collateral norm that effectively allowed two times leverage.
However, CRISIL observed that if intraday limits are used to address settlement timing mismatches in client trades, the collateral requirement may remain at 50pc, limiting the impact. Use of such limits for proprietary trading, however, will no longer be permitted, further constraining trading volumes in that segment.
For CMIs offering margin trading facilities (MTF) to clients, bank funding must now be fully backed by cash, cash equivalents or government securities, with 50pc in cash. Yet CRISIL does not expect material impact here either, given that most intermediaries have not relied on bank borrowings for MTF, especially after regulatory curbs on repledging client shares.
Overall, CRISIL believes the directions will compel proprietary trading entities to strengthen liquidity buffers and possibly explore alternative funding avenues. In the near term, trading volumes in this segment could witness a substantial moderation during the transition phase.
However, with implementation scheduled from April 1, 2026, intermediaries have some runway to recalibrate their business models and capital structures. CRISIL said it will continue to engage with rated CMIs to assess the implications for business growth, cost structures and profitability, and take rating actions where necessary.
