RBI Defers New Capital Market Rules Till July 1 Amid Iran War Volatility

The deferment allows brokers to continue operating under existing norms, including the use of bank guarantees with 50 per cent margin. Banks, for now, are not required to insist on 100 per cent cash backing. This ensures that trading activity does not face an immediate cash squeeze and that overall market liquidity remains protected during the next three months.

The relief holds considerable importance for market participants. Had banks enforced 100 per cent cash backing immediately, brokers would have faced reduced funding access, potentially leading to a decline in trading volumes. The cost of buying and selling shares would have increased, while foreign investors could have lost interest due to weakened liquidity conditions. The RBI’s decision reflects a calibrated approach, as it seeks to avoid further disruption in already volatile markets affected by the Iran conflict.

However, the central bank’s broader objective remains unchanged. The RBI identified that certain brokers were using short-term bank loans, originally intended for business needs, to engage in trading activities. The new rules, now set to take effect from July 1, are designed to curb such practices.

Under the revised framework, banks will be permitted to lend to brokers only if such loans are fully backed by cash or cash-like securities. Market makers will be allowed to obtain funding against the same shares they deal in. Additionally, banks providing payment guarantees to stock exchange clearing corporations will benefit from relatively easier capital rules.

From July 1, stricter borrowing limits will also come into force across all banks. Individuals will be allowed to take only Rs 10 lakh loan against shares and up to Rs 25 lakh for IPO funding. These limits cannot be accessed simultaneously from multiple banks, tightening the overall credit environment linked to capital markets.

In a parallel development, the RBI has introduced a major change in acquisition financing. Banks are now permitted to fund acquisitions, including mergers, a practice that was previously restricted. Such funding, however, will be limited to transactions aimed at acquiring control in non-financial companies.

The central bank has also extended relief to mutual funds by relaxing a technical rule applicable to non-debt mutual funds, thereby easing an operational constraint faced by the sector.

Despite the temporary reprieve, the impending regulatory shift signals a tighter financial regime ahead. Once implemented, banks will require 100 per cent cash backing for guarantees, funding for trading activities will become more restrictive, and costs for proprietary traders are expected to rise. The RBI’s move underscores a balancing act between immediate market stability and long-term regulatory discipline.