The RBI's New Capital-Market Rules Take Effect — Tighter on Brokers, Looser on Dealmakers
The Reserve Bank's revised capital-market exposure framework, in force since July 1, both squeezes bank lending to stockbrokers and opens the door to bank-financed corporate takeovers — a rebalancing that early trading data suggest is already reshaping market behaviour.
The Indian Account desk · 2026-07-08
On July 1, 2026, a set of rules that banks and brokers had been arguing over for months finally became binding. The Reserve Bank of India's revised framework for how banks lend into the capital markets — issued under the Banking Regulation Act, 1949, and deferred once already — is now the law of the land for commercial lenders. It is tempting to file this as another chapter of central-bank caution: the RBI clamping down on speculation. The fuller picture is more interesting, and more consequential. The framework tightens some channels and deliberately widens others.
The headline number is a ceiling. A bank's total capital-market exposure is capped at 40 per cent of its Tier 1 capital — the core equity cushion that absorbs losses — on both a standalone and consolidated basis. Within that, direct exposure, which now explicitly includes financing for acquisitions, is capped at 20 per cent of Tier 1 capital. Those limits set the outer walls; most of the change is in how the rooms inside are arranged.
For stockbrokers and other market intermediaries, the framework is unmistakably stricter. The RBI has inserted a dedicated chapter for credit to capital-market intermediaries and made full, 100 per cent collateralisation the general rule for such lending. It has also barred banks from financing brokers' proprietary trading — the practice of firms betting with their own capital — except against cash or cash-equivalent collateral. Loans against listed shares are capped at a 60 per cent loan-to-value ratio, while loans against mutual funds, ETFs, REITs and InvITs are capped at 75 per cent.
For individual investors, the rules loosen. Banks may now lend up to ₹1 crore per person against eligible securities, with a separate ₹25 lakh ceiling for subscribing to public offers and employee stock plans. Crucially, the RBI clarified that these caps apply at the banking-system level, not per bank — meaning a borrower cannot stack the same limit across several lenders. That single design choice closes an obvious avenue for circumvention.
The most significant liberalisation is acquisition finance. Banks may now fund up to 75 per cent of the cost of one company buying another, subject to eligibility tests on the acquirer's net worth, profitability and credit standing. This is new territory for Indian banks, which were long kept at arm's length from takeover lending.
The early market reaction has been concentrated where the rules bite hardest — the brokers. In the first three trading days of July, the Multi Commodity Exchange's options-premium average daily turnover fell by close to 40 per cent, to about ₹5,632 crore from roughly ₹9,338 crore the previous month. Volumes on the BSE were reported down between 7 and 10 per cent on the first two trading days, and the share of proprietary traders in NSE index options slipped from about 52 per cent in June to 51.3 per cent. Shares of MCX and BSE themselves fell over several sessions as the restrictions took hold.
These are days, not trends, and turnover figures are volatile by nature. But the direction is consistent with the design: constrain leveraged, speculative activity at the intermediary level, and some of that activity thins out. Whether it migrates elsewhere, shrinks permanently, or returns as the market adapts is the question the coming quarters will answer.
The same conservative instinct surfaced days later on a different front. On July 2, RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan appeared before Parliament's Standing Committee on Finance, chaired by BJP MP Bhartruhari Mahtab, and urged that crypto assets be kept out of payments and settlements and that banks' exposure to the sector be limited. In a background note, the central bank argued that applying conventional financial regulation to crypto would risk legitimising speculative products and creating a false sense of safety among users. It also criticised privately issued stablecoins as a threat to monetary sovereignty, pointing investors instead toward its own central bank digital currency, the digital rupee.
The through-line across both episodes is a central bank that will finance what it can supervise and ring-fence what it cannot. The capital-market rules test that philosophy in a live market. The measure of their success is not whether trading volumes dip in July, but whether the banking system is genuinely sturdier when the next downturn arrives.