BS BSE Bombay Stock Exchange Index Loading... : Bullish and Bearish Analyst Opinions

The Reserve Bank of India (RBI) is tightening rules on loans taken by firms for proprietary trading and leverage offered to clients. These brokerages rely on cheap credit to fund margin trading facilities (a key revenue driver). Tighter rules mean higher cost of capital. Higher costs compress net interest margins and reduce trading volumes as leverage becomes more expensive for clients. SHORT. The structural change in funding costs impairs the earnings model for high-leverage brokerages. If the brokerages can pass costs to clients without losing volume, or if the market shrugs off the regulatory tightening.