Why Brokers Want A Pause On RBI’s New Funding Rules Before April 1

India’s brokerage community has launched a last-minute push to stall the Reserve Bank of India’s (RBI) new funding directives. The framework, set for implementation on April 1, 2026, forces banks to double the collateral required for guarantees issued to proprietary trading desks.

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In a formal letter to the Securities and Exchange Board of India (SEBI) dated February 18, the Association of NSE Members of India (ANMI) warned that the move would “unintentionally constrain” the primary providers of market liquidity. The brokers’ body is calling for a six-month deferment to allow for a proper impact analysis.

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The 100% Collateral Mandate Explained

Under the revised norms, banks must back guarantees for proprietary traders with 100% collateral. Currently, the industry standard is 50%. The new structure is rigid:

• 50% Cash Margin: Must be maintained in hard cash.

• 50% Cash Equivalents: Can be held in G-Secs, Sovereign Gold Bonds, or listed instruments.

K. Suresh, National President of ANMI, noted that the RBI’s October consultation paper never signaled this jump. Therefore, market participants were blindsided by the finality of the 100% requirement, leaving no room for feedback or structured transition.

Liquidity at Risk: The Prop Desk Dominance

Proprietary trading desks—which trade using a firm’s own capital rather than client money—are the backbone of Indian market depth. As of January 2026, their footprint is massive:

• 50.7% of Equity Options turnover.

• 31.7% of Equity Futures activity.

• 30.1% of Cash Market volumes.

ANMI cautions that restricting bank finance for these desks will widen bid-ask spreads and inflate trading costs for retail investors. “Limiting domestic bank funding could shift business toward foreign proprietary desks,” the association warned, as offshore firms can utilize foreign standby letters of credit to bypass these domestic hurdles.

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Industry Defense: A “Near-Zero” Default History

The brokerage body argues that the RBI is fixing a system that isn’t broken. They cite a 20-year record where non-performing assets (NPAs) in the bank guarantee category have remained near zero. Even during the 2008 financial crisis and the 2020 pandemic, there were zero instances of bank guarantee invocations in this segment.

Currently, of the ₹90,000 crore in BGs held by NSE Clearing Ltd, approximately ₹45,000 crore belongs to proprietary firms. Doubling the collateral requirement would lock up an additional ₹22,500 crore in capital—a move brokers say is disproportionate to the actual risk.

Reality Check

Banks defend the move as a necessary “refresh” of decade-old guidelines. “Lending to prop traders is exposing deposits to market risk,” one senior banker noted. Still, the RBI’s focus on “depositor safety” often clashes with “market efficiency.” Therefore, while the central bank wants to de-risk the banking system, it may inadvertently create a liquidity vacuum in the derivatives market, which relies on the high-frequency activity of these very desks.

The Loopholes

The new rule applies to domestic bank guarantees. In fact, foreign proprietary desks can often secure funding through their parent companies or international banks using Standby Letters of Credit (SBLCs). Therefore, the RBI’s rule creates a “competitive loophole” where Indian firms are starved of leverage while global giants continue to trade at full capacity. This could lead to a “hollowing out” of domestic market-making capabilities.

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What This Means for You

If you are a retail trader, realize that after April 1, your trades might become more expensive. First, monitor the bid-ask spreads on Nifty and Bank Nifty options; if they widen, your entry and exit costs will rise. Then, expect lower volatility but potentially “gappier” markets if market makers are forced to reduce their positions.

Finally, understand that the RBI is unlikely to budge unless SEBI intervenes on the grounds of “market integrity.” You should diversify your trading strategies to account for potentially lower liquidity in mid-cap derivatives. Before the April deadline, follow the SEBI Board meeting updates to see if they advocate for the requested six-month delay.

What’s Next

SEBI is expected to review ANMI’s letter and consult with the RBI by late February. Then, if no stay is granted, banks will begin recalling or renegotiating BG facilities by March 15, 2026. Finally, the full impact on NSE turnover will be visible in the first week of April trading.

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