The Economy
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.
What the rules actually do
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 framework is not a wall against the markets. It is a re-plumbing — cutting off leverage where the RBI sees fragility, and channelling it toward deals the central bank judges it can supervise.
The evidence, so far
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 crypto flank
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.
The State
Karnataka High Court Halts the Withdrawal of 52 Criminal Cases, Including the 2022 Aland Dargah Riots
A division bench found that the Congress government's move to drop prosecutions — among them seven cases tied to communal violence — relied on a reading of the law the court had already rejected, and stayed it pending a full hearing.
The Indian Account desk · 2026-07-08
On 2 July 2026, the High Court of Karnataka stayed the state government's decision to withdraw prosecution in 52 criminal cases, among them cases arising from the 2022 communal violence at the Ladle Mashak Dargah in Aland, Kalaburagi district. A division bench of Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha passed the interim order and posted the matter for a fuller hearing on 28 September. The immediate effect is narrow but consequential: prosecutions that the state had ordered dropped will proceed, at least until the court decides whether the government followed the law.
The order matters beyond Karnataka because it tests a boundary that recurs across Indian states — where an elected government's power to end criminal cases stops, and a prosecutor's independent duty begins.
What the government did, and what the court found
The sequence began in the cabinet. The Siddaramaiah government decided to withdraw the cases, a list that included charges against farmers, Dalit groups, Cauvery and Kalasa-Banduri agitators, and pro-Kannada activists. Around ten of the cases were against the veteran activist Vatal Nagaraj. Seven were connected to the 2022 Aland violence. A government order then directed public prosecutors to seek the withdrawals.
That instruction is the legal fault line. Withdrawal of prosecution is governed by Section 321 of the old Criminal Procedure Code (now Section 360 of the Bharatiya Nagarik Suraksha Sanhita). Under it, the public prosecutor — not the cabinet — must apply an independent mind before asking a court to drop a case, and the court must then grant consent. The petitioner, advocate Girish Bharadwaj, argued that the executive had inverted this by ordering prosecutors to withdraw. His counsel submitted that the discretion belongs to the prosecutor, to be exercised on legal considerations and public interest rather than on government direction.
The bench, at least at this stage, agreed. It found prima facie fault with the state's use of Section 321, noting that the approach contradicted an earlier High Court ruling — in a matter Bharadwaj himself had brought — which had held that prosecutors are not bound by government orders. The court issued notice to the state government and the Directorate of Prosecution, directing responses within two weeks.
The question the court has framed is not whether these accused are guilty, but who under Indian law is entitled to decide that a prosecution should end — the cabinet, or the prosecutor answerable to the court.
The Aland cases, and why they drew the fire
The Aland violence traces to early 2022, when a group attempted to perform a "purification" ritual around a Shivling said to lie inside the Hazrat Ladle Mashak Dargah, alleging the structure had been desecrated. The dispute triggered clashes; police personnel were among those caught up in the unrest. Thirteen cases were registered over the episode, of which the cabinet moved to drop seven.
The trigger for reopening these files was political as much as legal. Assembly Speaker U.T. Khader had written to Home Minister G. Parameshwara seeking a review and possible withdrawal of charges against what he described as "innocent" Muslim youth allegedly falsely implicated. That the Aland cases were bundled into a much larger list — alongside farmers and Kannada activists — became the crux of the row that followed.
The defence, and the politics around it
Government figures defended both the substance and the process. Parameshwara said the cabinet had not acted hastily and had discussed the matter thoroughly before deciding. Deputy Chief Minister D.K. Shivakumar argued the decision was not specific to Aland but covered a range of politically motivated cases. After the stay, Home Minister Priyank Kharge said the government would study the order before its next step, noted that the list also included cases involving BJP leaders, and maintained that no order had been issued in violation of the law.
The opposition read it differently. The BJP called the withdrawals "appeasement politics," and Union Minister Pralhad Joshi accused the government of shielding riot accused for electoral gain by clubbing communal cases with those of farmers and activists. Party leaders described the stay as a rebuke to the government.
Two things can be held apart here. Whether the accused in the Aland cases should ultimately be prosecuted is a question for trial, on evidence. Whether the government followed the correct procedure to end those prosecutions is the narrower question the court has stayed to examine. The interim order settles neither; it restores the cases to the position they were in before the withdrawal, and asks the state to justify how it exercised a power the law places, in the first instance, with the prosecutor. The answer will come on 28 September.
The Economy
RBI Renews Call to Keep Banks Away From Crypto and Private Stablecoins
In testimony to a parliamentary committee and in documents reviewed by Reuters, the Reserve Bank of India has restated its case for barring banks from crypto exposure and banning crypto for payments, even as the government's own policy on the asset class remains undecided.
The Indian Account desk · 2026-07-08
India's central bank has once again asked the country's lawmakers to keep the banking system at arm's length from cryptocurrencies. Appearing before Parliament's Standing Committee on Finance on 3 July 2026, RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan recommended banning the use of crypto assets for payments and settlements and limiting banks' exposure to the sector, according to the field notes gathered by this desk. Days later, government documents reviewed by the Reuters news agency showed the same institution pressing its case more broadly.
India's central bank has reasserted a call for a cryptocurrency policy "leaning towards prohibition," while the country's tax department warned that trading via offshore exchanges is hard to track. The RBI said banks and financial institutions should be barred from holding, trading or gaining exposure to crypto assets and privately issued stablecoins to limit contagion risks.
This matters because it concerns the plumbing of the financial system, not the fortunes of speculators. The RBI's stated worry is contagion — the risk that losses in a volatile, lightly governed asset class could travel through banks that hold or lend against those assets and reach ordinary depositors. Its instrument is a firewall: keep the assets outside the regulated core.
What the RBI actually asked for
Two distinct things are on the table, and they are easy to conflate. The first is a restriction on banks — that regulated lenders neither hold crypto nor take on exposure to it. The second is a functional ban on using crypto assets and privately issued stablecoins for payments and settlements. A stablecoin is a token designed to hold a fixed value by being pegged to a currency such as the rupee or the dollar; "privately issued" means it is minted by a company rather than a central bank. The RBI's own digital currency, the e-rupee, is the state-backed alternative it would prefer people use.
The central bank also made a subtler argument, per the desk's notes: that applying existing financial rules to crypto could inadvertently confer legitimacy on assets it regards as speculative. In other words, regulating a thing can look like blessing it — a reason the RBI gives for containment rather than accommodation.
A grey zone with 39 million residents
The context is a policy vacuum. India has allowed cryptocurrencies to exist in a grey zone since a court in 2018 struck down Reserve Bank of India policies that effectively banned them. Since then the state has neither embraced the asset class nor outlawed it; instead it has taxed transactions while declining to legalise or prohibit the underlying trade.
That ambiguity has not stopped adoption. Despite India's policy ambiguity, the country has nearly 39 million crypto traders who held about $2.1 billion in digital assets at the end of May. Nor has it forced banks in: at present, Indian banks are not prohibited from dealing in cryptocurrencies, but major lenders have avoided them following repeated warnings from the RBI. The proposal, then, would harden into rule what caution has already made into practice.
The RBI's aim is not to regulate crypto inside the financial system but to keep it outside — treating containment, not accommodation, as the safer default.
The global backdrop cuts the other way. Cryptocurrencies have gained greater acceptance globally following policy changes in the United States, where legislation backing broader use of stablecoins has fuelled expectations of wider adoption. While countries like Japan and Singapore have moved to regulate cryptocurrencies, China has prohibited the use of such tokens. India's central bank is arguing, in effect, for the Chinese pole of that spectrum even as allied economies drift toward rules-based tolerance.
The tension inside the government
The RBI does not have the last word, and the record shows it does not speak for the whole state. In September, in internal discussions, India's finance ministry, after consultations with the RBI, backed limited regulatory clarity for virtual assets, arguing that existing tax and other laws had helped contain risks from the asset class. The newer documents, dated May and June, mark a firmer line. They reveal a preference among key Indian agencies to use tighter curbs on virtual digital assets, even though the government has yet to adopt a policy to ban or regulate them.
Two caveats belong on the record. The material is drawn from documents reviewed by Reuters and from committee testimony, not from a published RBI rule; and India's finance ministry and the RBI did not respond to Reuters requests for comment. A long-promised policy paper is expected to reach Parliament during the monsoon session, at which point recommendation would meet decision. Until then, the firewall the RBI wants remains a proposal — and the 39 million people already trading are governed by a policy the state has not yet written.