ANMI Flags Concerns Over RBI’s Tighter Funding Norms

The Association of National Exchanges Members of India (ANMI), one of the country’s largest associations of stock brokers, has cautioned about the Reserve Bank of India’s latest move to tighten bank funding norms for brokerage firms. The body has warned that the new framework could reduce liquidity in capital markets and potentially lower tax collections for the government.

Call for Six-Month Deferment

In a representation to the Securities and Exchange Board of India (SEBI), ANMI has sought a minimum 6-month postponement of the circular’s implementation. The association said the additional time would allow market participants to evaluate the operational and financial impact of the changes, submit feedback, and engage in constructive discussions with regulators.

Stricter Collateral and Risk Compliance

The revised norms, set to come into force from April 1, introduce tighter risk management standards and enhanced collateral requirements. Brokers will now face reduced borrowing flexibility, as banks must ensure that all funding extended to them is fully secured by collateral, eliminating the earlier practice of partial unsecured lending.

Additionally, where banks issue guarantees to exchanges on behalf of brokers, at least 50% of the exposure must be backed by collateral, with a minimum of 25% supported by cash. In cases where shares are pledged, banks can lend only up to 60% of the value of those securities.

Ban on Funding Proprietary Trading

The central bank has also barred banks from financing proprietary trading activities undertaken by brokers. Furthermore, all loans extended to brokerage firms must now fall within a bank’s overall exposure limits to the capital markets, tightening oversight and reducing systemic risk.

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Market participants argue that the stricter norms could raise trading costs, compress margins, and reduce liquidity on stock exchanges. ANMI maintains that without a phased rollout or transition period, the new rules may disrupt market activity and dampen overall participation in the securities market.

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