Stricter collateral, no prop-trading finance: RBI reshapes bank exposure to capital markets

The Reserve Bank of India (RBI) has tightened norms governing how commercial banks extend credit to stockbrokers and capital market intermediaries, while simultaneously proposing to open a new funding avenue for listed Real Estate Investment Trusts (REITs), signalling a calibrated shift toward stricter risk controls alongside selective market deepening.  

Tighter credit rules for brokers  

Under the Commercial Banks – Credit Facilities Amendment Directions, 2026, effective April 1, 2026, banks will be required to extend credit to stockbrokers and other intermediaries regulated by the Securities and Exchange Board of India (SEBI) strictly on a fully secured basis.  

Key provisions include:  

• Mandatory Collateralisation: Loans must be backed by tangible security such as cash, government securities, approved financial assets, or immovable property.  
• No Promoter-Only Guarantees: Partial unsecured guarantees or reliance solely on promoter backing will no longer qualify.  
• Bank Guarantees: Guarantees issued to exchanges or clearing corporations must carry at least 50% collateral, including 25% in cash.  
• Equity Collateral Haircut: Shares pledged as collateral will attract a minimum 40% haircut to account for market volatility.  

The RBI has also barred banks from financing proprietary trading by brokers, though funding may continue for legitimate activities such as market-making and short-term warehousing of debt securities. Margin trading finance remains permissible, provided banks embed robust margin-call clauses and continuously monitor collateral values.  

All such lending will now be classified under banks’ capital market exposure, bringing it within tighter prudential ceilings that could limit the aggregate flow of bank credit to intermediaries.  

These changes follow an October 2025 consultation, when the RBI released draft Capital Market Exposure Directions aimed at creating a more principles-based framework while enabling financing for corporate acquisitions and expanding lending avenues against certain securities.  

Opening the door to REIT financing  

In a parallel move, the RBI has proposed allowing banks to lend to listed REITs — a shift from its earlier stance that barred such financing.  

India currently has five listed REITs:  Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust and Knowledge Realty Trust.  

The draft framework permits lending only to REITs that:  

• Are listed and SEBI-regulated  
• Have completed at least three years of operations  
• Have faced no material adverse regulatory action in the preceding three years  

Bank exposure to a REIT — including its SPVs and holding entities — will be capped at 49% of the trust’s asset value as of the previous financial year, or lower if a bank’s board decides based on credit assessment.  

Loans must be structured as amortising facilities, with no bullet or balloon repayments, and banks must strictly monitor end-use to ensure funds are not diverted to prohibited activities such as land acquisition.  

Aligning REIT and InvIT frameworks  

The RBI said the move aims to harmonise lending norms between REITs and Infrastructure Investment Trusts (InvITs), which already have access to bank finance. Both vehicles were originally designed to free up bank capital locked in completed real estate and infrastructure projects by refinancing them through pooled institutional and retail investment.  

The central bank has invited stakeholder comments on the REIT lending proposal until March 6, 2026, with implementation targeted for July 1, 2026, or earlier.