Nithin Kamath Breaks Down New RBI Lending Rules for Brokers

In a recent LinkedIn post, Nithin Kamath, founder of Zerodha, discusses the significant implications of new lending rules introduced by the Reserve Bank of India (RBI) for financial brokers. Kamath clarifies that while the changes are substantial, they will not directly affect Zerodha’s customers due to the company’s self-clearing model and lack of external financing.

Kamath highlights that the core of the new regulations targets how banks can fund proprietary trading activities. Previously, banks found workarounds to facilitate this, which the RBI has now explicitly prohibited. He explains the mechanics of these past practices:

“Prop desks would deposit an FD of Rs 50 crore, get a bank guarantee for Rs 100 crore, and place it with the clearing corporation for margins to trade with 2x leverage. That’s now completely shut down.”

Key Changes for Brokerages

The post further details other critical shifts. One notable change is the removal of preferential treatment for Professional Clearing Members (PCMs). According to Kamath, PCMs previously benefited from lower collateral requirements, needing only 25% collateral for a bank guarantee compared to 50% for other intermediaries. This advantage is now gone, with PCMs also required to provide 50% collateral going forward.

As Nithin Kamath notes, this shift is likely to increase costs for brokers who depend on PCMs for clearing services. He emphasizes that this particular change does not impact Zerodha because they self-clear across all segments.

Impact on Intraday Funding and MTF

Another significant area affected by the RBI’s circular is intraday funding and Margin Trading Facility (MTF) financing. Kamath points out that the requirement for 100% collateral for intraday funding, an increase from the previous 50%, will make these services more expensive.

Similarly, MTF financing is also expected to see a cost increase. Nithin Kamath explains that banks now need 100% collateral for MTF, with at least 50% of that being cash or cash equivalents. He states:

“MTF financing will also likely cost more since banks now need 100% collateral with at least 50% as cash or cash equivalents.”

These new collateral requirements for both intraday funding and MTF are set to take effect from April 1, 2026.

Broader Cost Implications

Kamath suggests that these regulatory changes contribute to rising costs across the brokerage industry. He raises the question of whether these increased operational expenses will ultimately be passed on to the end customer.

In his view, the evolving landscape necessitates careful consideration by all market participants. He concludes by mentioning that more details can be found via a link in the comments of his original post, indicating the ongoing nature of understanding and adapting to these new rules.

The insights shared by Nithin Kamath provide a clear breakdown of complex regulatory shifts, offering valuable perspective for industry professionals and investors alike on the evolving financial landscape in India.