RBI Digs in on Broker Crackdown; Inflation Mandate Up for Review

MUMBAI — The Reserve Bank of India (RBI) has signaled a strict adherence to new lending norms for retail brokers, ruling out relaxation before the April 1 deadline. The stance triggered a sell-off in financial stocks, with BSE plunging nearly 10%.

Liquidity Squeeze and Regulatory Wall

Governor Sanjay Malhotra confirmed that banks must back credit to intermediaries with 100% eligible collateral, explicitly barring financing for brokers' proprietary trading desks.

Analysts at Jefferies estimate proprietary trading drives 50% of equity options premium turnover. Removing bank leverage is expected to drain liquidity and increase volatility in INR-denominated assets. This follows data showing retail losses of $34 billion, with 91% of traders in the red.

Key Market Data

• Implementation Date: April 1
• Market Reaction: BSE declined 10%
• Proprietary Trading Volume: ~50% of total turnover.
• Retail Stats: $34 billion in losses; 91% failure rate.
• Inflation Target: 4% (Tolerance: 2% to 6%).

Foreign Broker Exodus

The regulatory tightening has impacted foreign exchange and CFD providers. FBS has suspended marketing, while Exness halted onboarding despite India previously comprising nearly 30% of its traffic. Recent actions include bank account freezes against unauthorized operators.

Monetary Policy: Inflation Target Under Review

The RBI has submitted recommendations for the inflation mandate review due by end-March. Current targets aim for 4% retail inflation within a 2% to 6% band.

Despite technical adjustments to CPI methodology, fundamental views remain consistent. With the Federal Reserve cutting rates, the mandate review is critical for the Indian Rupee (INR) trajectory.