How RBI’s New 40% Haircut and Cash Mandate Rules Will Change Trading in India?

Key Takeaways 
 

• RBI introduced new broker lending rules from April 1, 2026. The banks must now take full collateral, apply a 40% cut on equity collateral value, and cannot fund proprietary trading.
   
• The RBI earlier updated its credit rules for banks on February 13, 2026. The aim was to tighten how banks lend to brokers and other market intermediaries.
   

April 1, 2026, brought major changes for Indian traders. The Reserve Bank of India banned bank funding for proprietary trading and made full collateral mandatory for broker loans. 

Banks must also apply a minimum 40% haircut on equity collateral and follow stricter rules for bank guarantees. The Securities Transaction Tax (STT) on futures increased to 0.05% from 0.02%, and on options it rose to 0.15% from 0.1%.

The impact was negative in the short term. Shares of firms like BSE Ltd and Angel One fell by up to 10%, as investors worried about higher trading costs and lower volumes. But the goal is financial stability in the long term. The RBI wants to reduce risk in the banking system, even if it lowers market liquidity for some time.

What does this mean for Everyday Traders and Retail Investors?

The access to funds has become stricter and more costly for retail investors using Margin Trading Facility (MTF). MTF loans must now be fully backed by collateral like cash, cash equivalents, and government securities, with at least 50% in cash.

The brokers earlier could get funding with lower collateral requirements. Now, even intraday funding needs 100% collateral, which makes trading more expensive than before.
 

High-leverage trading products will reduce. Margin-based strategies will be affected as banks tighten funding and apply higher haircuts. Trading costs may increase if brokers pass their higher funding and compliance costs to clients.

Experts Speak: Is This a Necessary Fix or an Overreach?

Nithin Kamath, founder and CEO of Zerodha, was among the first to flag the industry-wide impact. He warned in a post on X that “costs are rising across the board for brokerages, and this may or may not get passed to you, the customer.” However, Zerodha users will not be affected. The company does not depend on external funding and is a self-clearing member.

The Association of NSE Members of India opposed the rules. It asked for a six-month delay, saying the changes may reduce liquidity, increase costs, and hurt Indian firms compared to foreign players. ANMI also pointed out that this sector has very low NPAs. Even bank guarantees worth ₹1.2 lakh crore were not used during crises like the 2008 financial crisis and COVID-19.

Conclusion

The Reserve Bank of India has ended the phase of easy and low-collateral funding for brokers. The 40% haircut and cash rules will change how much traders can trade and at what cost. The retail investors may not feel the impact immediately. But if brokers pass on higher costs, trading will become more expensive.

RBI has chosen stability over faster market activity. How quickly the market adapts will decide the future of trading in India.