What Rising Market Exposure Limits Mean for Active Traders?

On February 13, 2026, the Reserve Bank of India announced new lending norms, effective April 1, around collateral and bank funding for capital market exposure. It means banks must demand more secure collateral from investors and brokerage firms before lending money to fund stock market activities.

These changes aim to reduce structural risks by limiting banks’ exposure to the market, but may change trading behaviour, cost, and liquidity in the market. Active traders must take note of these changes.

What Has RBI Changed?

The most important changes that the RBI introduced include:

• Bank guarantees for clearing houses have to be backed by 50% collateral.
• Of the collateral, at least 25% must be cash or equivalent, like Fixed Deposits (FDs), certain Treasury Bills, or cash in a savings or current account, to avoid a “haircut”.
• Other instruments, such as listed equity shares, mutual funds, convertible debt securities, units of Real Estate Investment Trusts (REITs), corporate bonds, and sovereign gold bonds (SGBs) will attract a haircut of up to 40%.
• For brokerage firms, loans from banks to fill their Margin Trading Facility (MTF) book require 100% collateral, with at least 50% of it in cash or cash equivalents.
• For investors trading using MTF, 50% of the margin must be cash or cash equivalents.

So, previously, to get ₹100 crore from the bank, the broker could simply show their balance sheet or provide corporate guarantees. Now, the broker must provide at least ₹50 crore hard collateral, of which ₹25 crore must be in cash or FDs. The other ₹25 crore can be gold or stocks after taking into account the haircut.

So, what is a haircut? So, say you were to provide the other ₹25 crore in listed equity shares, the bank would only consider 60% of it. If Paytm share price is ₹1,000, then you would need to provide shares worth ₹41.67 crore to equal ₹25 crore in collateral.

Why is RBI Tightening These Rules?

The RBI is concerned about rising leverage in the market. The number of individual traders in the derivatives market has risen by 120% between FY22 and FY25. And data reveals that nearly 90% of investors faced overall losses in those four years, showing that most investors do not fully understand the mechanism or the risks involved.

With strict collateral rules, funding remains secured, and lenders are protected in case the market tanks. Furthermore, it prevents a “domino effect”. Say, if the market crashes and the broker has pledged shares as collateral, the lender will sell those shares, further lowering the market. With cash as collateral being made mandatory, there is a buffer to ensure the markets aren’t put under further strain.

Whom Does This Affect Most?

It affected the below participants.

Stockbrokers: Naturally, brokers are adversely affected, as part of their operating cash will now be tied up as collateral. This will make it more challenging for them to allow multiple big trades. Stockbrokers will be watching MWPL (Market Wide Position Limits) very closely to ensure efficient utilisation of funds.

Proprietary traders: These are firms that use their own money and not their clients’ money to generate profits for the company. Banks are now essentially discouraged from lending to proprietary traders, reducing high-frequency, algorithmic trading in the market.

MTF providers: Funding for the MTF book requires 100% collateral with at least 50% in cash, making it more expensive for the broker to offer. This will likely be passed on to retail investors as interest.

Large investors: With haircuts up to 40% on certain assets, large investors cannot borrow as much as they used to, while also having to furnish liquid collateral up front.

The Bigger Picture

The new lending rules are intended to reduce systemic risk in the capital markets by lowering speculative trading and some of the advantages that the biggest players enjoyed. It creates an environment where even small investors can participate, knowing that the market is a little more secure, regulated, and stable.

For active traders, the message is clear. Your leveraged positions will get more expensive, but it is in the interest of the overall health of the market, which will benefit everyone in the long run, including them.