Source: Business Standard
Context
A new RBI framework on bank credit to Capital Market Intermediaries (CMIs) comes into effect on Tuesday, 1 July 2026, after being deferred by three months from 1 April 2026 following representations from banks, brokers, and industry bodies. The framework — issued as RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised) on 30 March 2026 (replacing the 13 February 2026 original) — inserts a new Chapter XIII A “Credit Facilities to Capital Market Intermediaries (CMIs)” prescribing 100% collateralisation, bars bank finance for CMI proprietary trading, allows market-makers funding against 100% cash/cash equivalents, and brings all CMI exposures under Capital Market Exposure (CME) + Large Exposure Framework (LEF) norms. On 24 June 2026, a four-member broker delegation met Union Finance Minister Smt. Nirmala Sitharaman and DEA Secretary Smt. Anuradha Thakur seeking relief — particularly a carveout for “liquidity providers” in designated liquid derivatives contracts, with bank provisions linked to SPAN (Standard Portfolio Analysis of Risk) utilisation below 50% of margin. The industry warns of widening bid-ask spreads + higher impact costs; bank guarantees account for ~₹1.2 trillion of the ₹11-12 trillion collateral pool at clearing corporations, with intraday funding facilities contributing another ₹80,000 crore. CareEdge Ratings has flagged potential adverse impact on trading volumes and market activity.
What are the 3 broad objectives of the framework?
- Enabling framework for banks to finance acquisitions by Indian corporates (incl. mergers + amalgamations).
- Rationalisation of lending limits for individuals against shares + units of REITs/InvITs.
- Principle-based framework for lending to Capital Market Intermediaries (CMIs) — brokers, clearing members, custodians, market makers.
Who are Capital Market Intermediaries (CMIs)?
- Regulated entities undertaking trade execution + market infrastructure services in capital markets.
- Includes: broking, clearing, custody, market-making, and other incidental services.
- Excludes: Standalone Primary Dealers (SPDs) and Qualified Central Counterparties (QCCPs).
What are the key changes for CMIs (Chapter XIII A)?
| Element | Norm |
|---|---|
| Eligibility | Only SEBI-registered + regulated CMIs in compliance with prudential norms |
| Treatment | All exposures to CMIs = Capital Market Exposure (CME) |
| Collateral | 100% (Fully Secured) for all credit facilities, including intraday |
| Eligible Collateral | Eligible securities + cash + permissible financial assets + immovable property + receivables + bank guarantees + SBLC |
| Excluded as Collateral | Commercial Paper + Non-Convertible Debentures of original/initial maturity ≤ 1 year |
| Proprietary Trading Funding | PROHIBITED (banks shall NOT provide finance to CMIs for acquiring securities on their own account) |
| Limited Exception | Market-makers can be funded — but against 100% cash or cash equivalents |
| Intraday Facilities | Permitted at 50% collateral minimum for centrally cleared client trades |
| Group/Promoter Collateral | Acceptable if unencumbered + exclusively charged + legally enforceable |
| Counterparty Limits | Required at counterparty + aggregate level under Large Exposure Framework (LEF) |
What are the bank guarantee norms (for CMIs)?
| Purpose | Collateral Requirement |
|---|---|
| Non-Proprietary (client) Guarantees | Minimum 50% collateral; at least 25% in cash |
| Proprietary Trading Guarantees | 100% Secured; at least 50% in cash |
What are the loan-against-securities (LAS) norms (for individuals)?
- Loan-to-Value (LTV) cap on listed shares: 60%.
- IPO subscription loans: Capped at ₹25 lakh per individual; minimum 25% margin.
- Minimum haircut on equity shares: 40%.
- LAS caps: Apply at banking system level (not just per-bank).
What is the acquisition finance norm?
- Scope expanded to include mergers + amalgamations.
- Permitted only for acquisition of CONTROL of a NON-FINANCIAL target.
- Maximum financing cap: 75% of acquisition value.
- Refinancing: Only after deal is complete + control established.
- SPV/subsidiary acquisitions: Require corporate guarantee from acquiring company.
What are brokers seeking?
| Demand | Detail |
|---|---|
| Carveout for Liquidity Providers | Recognition in designated liquid derivatives contracts |
| SPAN-Linked Treatment | Bank provisions linked to SPAN < 50% margin utilisation for liquidity providers |
| Interim Arrangement | Formal liquidity-provider recognition could take time |
| Wider Market-Making Definition | Currently narrow (restricted to SME platforms) |
| Commodity Brokers | Capital gains tax exemption on Electronic Gold Receipts (EGRs) |
What is SPAN?
- Standard Portfolio Analysis of Risk — a portfolio-based margining system developed by Chicago Mercantile Exchange (CME) in 1988.
- Used globally + by Indian exchanges to compute initial margin on F&O positions.
- Calculates worst probable loss under multiple scenarios.
What is a “Liquidity Provider” in capital markets?
- An entity that continuously quotes bid + ask prices across market segments.
- Maintains narrow spreads + market depth.
- Absorbs buy/sell orders — helping investors enter/exit with minimal market impact.
- Different from Market-Makers, who are formally designated under SEBI’s market-making framework.
What is the Large Exposure Framework (LEF)?
- RBI’s prudential framework capping a bank’s exposure to a single counterparty + group of connected counterparties as a percentage of Tier 1 capital.
- Single counterparty limit: 20% of Tier 1 capital (extendable to 25% in exceptional cases).
- Group limit: 25% of Tier 1 capital.
What is Capital Market Exposure (CME)?
- A prudential category for bank exposures linked to capital market activities (loans against shares, financing brokers, IPO funding, etc.).
- Aggregate CME of a bank is capped at 40% of net worth (with sub-limits on direct + indirect exposures).
- All exposures to CMIs are now explicitly classified as CME under the new framework.
What are Electronic Gold Receipts (EGRs)?
- A digital instrument representing physical gold stored in a vault.
- Traded on Indian exchanges like NSE, BSE under SEBI’s EGR framework.
- Approved by SEBI in September 2021.
- Commodity brokers seek capital gains tax exemption on EGRs (currently treated as securities).
Practice MCQs
Q1. With reference to the RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised), consider the following statements:
- The Directions take effect from 1 July 2026, after being deferred from 1 April 2026.
- The Directions insert a new Chapter XIII A titled “Credit Facilities to Capital Market Intermediaries (CMIs)”.
- The Directions are issued under the Banking Regulation Act, 1949.
- The Directions apply only to NBFCs and not to commercial banks.
How many of the above statements are correct?
(a) Only one (b) Only two (c) Only three (d) All four (e) None
(Statement 4 is wrong; the Directions apply specifically to COMMERCIAL BANKS, NOT NBFCs.)
Q2. With reference to the framework for bank credit to Capital Market Intermediaries (CMIs), consider the following statements:
- All credit facilities to CMIs must be on a fully secured (100% collateralised) basis.
- Banks are prohibited from financing CMIs for acquiring securities on their own account, i.e. proprietary trading.
- Bank funding for market-makers is permitted against 100% cash or cash equivalents.
- The Standalone Primary Dealers and Qualified Central Counterparties are also classified as CMIs under the framework.
How many of the above statements are correct?
(a) Only one (b) Only two (c) Only three (d) All four (e) None
(Statement 4 is wrong; Standalone Primary Dealers (SPDs) and Qualified Central Counterparties (QCCPs) are EXCLUDED from the definition of CMIs.)
Q3. With reference to the broker delegation that met the Finance Minister on 24 June 2026, consider the following statements:
- The four-member broker delegation met Union Finance Minister Smt. Nirmala Sitharaman and DEA Secretary Smt. Anuradha Thakur seeking relief.
- The brokers sought a carveout for “liquidity providers” in designated liquid derivatives contracts.
- The brokers proposed bank-credit treatment for liquidity providers linked to SPAN utilisation below 50% of margin.
- Commodity brokers sought capital gains tax exemption on Electronic Gold Receipts (EGRs).
How many of the above statements are correct?
(a) Only one (b) Only two (c) Only three (d) All four (e) None
(All four statements are correct.)
Q4. With reference to the size of the collateral pool, consider the following statements:
- Bank guarantees account for approximately ₹1.2 trillion of the ₹11-12 trillion collateral pool maintained with clearing corporations.
- Intraday funding facilities contribute approximately ₹80,000 crore to the collateral pool.
- A CareEdge Ratings report has flagged potential adverse impact on trading volumes and market activity.
- The Indian capital markets currently have no collateral pool with clearing corporations.
How many of the above statements are correct?
(a) Only one (b) Only two (c) Only three (d) All four (e) None
(Statement 4 is wrong; the collateral pool with clearing corporations is approximately ₹11-12 trillion, NOT non-existent.)
Answer Key
- (c) — Statement 4 wrong: Apply to commercial banks, not NBFCs.
- (c) — Statement 4 wrong: SPDs and QCCPs are EXCLUDED from CMIs.
- (d) All four — all statements correct.
- (c) — Statement 4 wrong: Collateral pool is ~₹11-12 trillion.
Exam Relevance
| Exam | Relevance |
|---|---|
| RBI Grade B (Phase I + II) | CRITICAL — Direct subject — Capital market exposure, CMIs, prudential norms, BR Act 1949, LEF, CME, broker regulation; Phase II ESI + FM essay-worthy |
| SEBI Grade A | Critical — Direct subject — CMIs, broker regulation, market-making, SPAN, EGR |
| NABARD Grade A | High — RBI prudential norms (recurring) |
| SIDBI / IRDAI Grade A | High — Banking regulation, capital markets |
