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INTRODUCTION AND BACKGROUND
The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Amendment Directions), dated February 13, 2026, amending the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 (Credit Facilities Directions).
Among other changes, a key modification is the insertion of a new Chapter XIII A titled “Credit Facilities to Capital Market Intermediaries (CMIs)”, contained in point 3(6) of the Amendment Directions. This new chapter introduces a dedicated and more granular framework for bank lending to capital market intermediaries, including brokers, clearing members, custodians and other regulated entities providing market infrastructure and execution services.
The new provisions effectively clarify the scope of permissible and prohibited bank exposures to CMIs, align such financing with broader capital market exposure (CME) and concentration risk norms, and ensure that credit support to CMIs is provided within a prudentially sound, fully collateralised and risk-sensitive framework.
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SCOPE AND GENERAL CONDITIONS FOR LENDING TO CMIS
Under the newly inserted Chapter XIIIA, the following key features are provided in relation to bank credit facilities to CMIs:
- Applicability: The chapter applies to credit facilities extended to Capital Market Intermediaries (“CMIs”) as defined in the Credit Facilities Directions, i.e., regulated entities undertaking trade execution and market infrastructure services in capital markets (such as broking, clearing, custody and market-making), excluding Standalone Primary Dealers and Qualified Central Counterparties.
- Regulatory status and compliance: Banks may extend credit facilities only to CMIs that are registered and regulated by a financial sector regulator and that are in compliance with the prudential norms prescribed by such regulator.
- Treatment as capital market exposure: All exposures to CMIs are to be treated as CMEs, except where specifically exempted under the Credit Facilities Directions.
- Board-approved limits and concentration risk: Banks are required to put in place counterparty-level as well as aggregate exposure limits for lending to CMIs, within the overall prudential limits for CME and the Large Exposures Framework and intra-group transactions and exposures norms under the Reserve Bank of India (Commercial Banks – Concentration Risk Management) Directions, 2025.
- Permissible and prohibited credit facilities: The new chapter delineates the types of facilities that banks may and may not extend to CMIs, as summarised below:
- Permissible credit facilities:
- Need–based operational funding: Banks may provide need-based credit facilities to CMIs to fund their day-to-day operations, including general working capital.
- Margin trading finance via brokers: Banks may extend specific facilities for financing margin trading undertaken by stockbrokers for their clients, subject to applicable SEBI regulations and RBI conditions.
- Settlement-related facilities: Overdrafts and credit lines may be granted to stockbrokers, commodity brokers and clearing members to address settlement-related timing mismatches.
- Market- making activities: Banks may provide credit to CMIs for market making in equity and debt securities (including government securities), subject to conditions, including that securities in which market making is undertaken by the borrower are not accepted as collateral for such facilities.
- Guarantees to exchanges / clearing corporations: Banks may issue guarantees on behalf of brokers or professional clearing members in favour of exchanges or clearing corporations in lieu of security deposits or margin requirements, as permitted by exchange regulations. Such guarantees must be backed by a minimum 50% collateral, of which at least 25% must be in cash.
- Working capital for warehousing of debt securities: Banks may provide working capital finance to CMIs for warehousing of debt securities for up to 45 days where this is to fulfil firm client demand or requests.
- Proprietary trading guarantees subject to full collateralisation: Banks may extend guarantees in favour of exchanges/clearing corporations for proprietary trading by CMIs, provided such guarantees are fully secured by cash, cash equivalents and government securities, with a minimum 50% cash component.
- Prohibited credit facilities: Banks are expressly prohibited from providing finance to CMIs for acquisition of securities on their own account, including for proprietary trading or investment, other than in the limited manner permitted via fully secured guarantees as noted above.
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SECURITY COVERAGE AND COLLATERAL REQUIREMENTS
The chapter prescribes stringent collateralisation norms for lending to CMIs:
- Fully secured facilities as the norm: As a general principle, all credit facilities to CMIs must be fully secured (100% collateralised). Acceptable collateral includes eligible securities and other collaterals such as cash, other permissible financial assets (excluding commercial papers and non-convertible debentures of original/initial maturity up to one year), immovable properties, receivables, bank guarantees and standby letters of credit.
- Relaxed collateral for specific intra-day settlement limits: Banks may extend intra-day limits to CMIs to cover shortfalls arising from settlement timing differences in centrally cleared client trades, against a minimum collateral of 50%, provided that receivables are from a Qualified Central Counterparty.
- Margin trading facilities: Financing by banks to brokers for margin trading facilities provided to clients must be fully secured by collateral comprising cash, cash equivalents and government securities, with at least 50% in cash.
- Haircuts on eligible securities: Banks must apply appropriate haircuts to eligible securities accepted as collateral, in line with their internal policies, subject to a minimum haircut of 40% for equity shares.
- Recognition of non-cash collateral and counter-guarantees: Notwithstanding the general restriction on issuing guarantees in favour of other regulated entities for onward lending, the Directions permit recognition of counter-guarantees from other Indian banks and SBLCs from reputed foreign banks (including foreign parents of CMIs) as eligible non-cash collateral, wherever permitted, subject to compliance with applicable FEMA regulations.
- Ongoing collateral maintenance and margin calls: Banks must ensure that applicable collateral coverage is maintained on a continuous basis, with facility documentation providing for margin calls in the event of shortfalls.
- Ownership of collateral: As a rule, collateral should belong to the borrower CMI. Collateral from group entities or promoters may be accepted only if it is unencumbered, exclusively charged for the relevant facility and legally enforceable.
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EFFECTIVE DATE AND TRANSITION
The amendments under point 3(6), including the insertion of Chapter XIII A on credit facilities to CMIs, will come into force from April 1, 2026, or an earlier date if adopted in entirety by a bank. Existing loans and guarantees outstanding up to the date of adoption/effective date may continue until their contractual maturity; however, any fresh or renewed loans/guarantees from that date must comply with the new requirements.
In parallel, RBI has indicated that related amendment directions under its other frameworks (including prudential norms on capital adequacy, concentration risk management, financial statement presentation and disclosures, and undertaking of financial services) have been issued separately to ensure consistency of treatment of bank exposures to CMIs.
| ELP Comments |
- The introduction of a dedicated chapter on bank credit facilities to CMIs, reflects a tighter regulatory approach of RBI toward financing of intermediaries/securities market participants. By defining permissible facilities and limiting exposures linked to proprietary trading and leveraged securities acquisition, the Directions standardise the funding framework applicable to CMIs, which may affect funding flexibility and influence market liquidity and funding conditions during periods of market stress.
- The framework establishes fully secured facilities as the default norm, prescribes collateralisation standards, including a 40% minimum haircut for equity collateral and treats such exposures as CME, thereby introducing a more conservative and standardised risk framework for banks’ dealings with CMIs. While market-support activities such as margin funding, settlement liquidity, market making and debt warehousing continue to be permitted, they remain subject to collateral and exposure controls that may increase operational requirements and compliance costs, particularly during periods of market stress.
- Proprietary trading desks operating within brokerages and other CMIs may experience adverse impact in funding dynamics under the new framework, as proprietary trading activities are largely excluded from direct bank credit support and the bang guarantees allowed have to be fully secured now. As a result, such desks may increasingly rely on internal capital or alternative funding sources to support inventory positions and trading strategies, which could influence trading capacity, market-making depth in certain securities, and overall profitability of proprietary operations. Smaller and mid-sized intermediaries, in particular, may need to reassess the scale or structure of proprietary trading activities, which could over time affect participant composition and liquidity conditions in certain market segments.
- From an operational perspective, banks and CMIs will need to undertake compliance and implementation measures ahead of the April 1, 2026, which is the effective date for the Amendment Direction. Existing credit arrangements, documentation frameworks, collateral structures and exposure monitoring systems may require reassessment and, where necessary, modification to align with the new requirements. Key implementation areas include identification of facilities falling within Chapter XIII A, recalibration of CME and counterparty limits, and deployment of collateral monitoring systems consistent with regulatory expectations. While the framework provides greater regulatory clarity, the increased emphasis on secured funding may influence financing structures and funding flexibility for certain capital market intermediaries, particularly smaller or less well-capitalised participants.
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The Amendment Directions dated February 13, 2026, is available here.
We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com or write to our authors:
KC Jacob, Partner, Email – kcjacob@elp-in.com
Shourya Tanay, Senior Associate, Email — shouryatanay@elp-in.com
