Hike funding

The higher cost of margin trading funds a setback for brokers; leaves them worried about stock market volatility

Hit by the stock market turmoil, traders could see another setback in the form of higher-margin trade funding. Zee Business’ has learned from its top sources that brokerage firms have increased their interest in margin trade finance. reports Brajesh Kumar. On average, NBFCs, which used to charge 12% interest on margin funding, now charge 15-20% interest.

The reason given is that banks have implemented 50% margin rules in intraday funding. Moreover, interest rate hike by the Reserve Bank of India (RBI) is also cited as the main reason for the change.

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Brokers claim they get money from the markets at 9-10% interest rates. Increased interest is also aroused due to uncertainties in the stock markets.

Even brokerage firms whose parent companies are banks have raised their interest rates by 2-3%.

However, the increase is lower compared to the increase made by the NBFCs.

According to experts, rising interest rates can lead to an increase in margin trade finance. And traders are worried about rising interest rates as stock markets are already facing high volatility.

The RBI in April imposed a sanction on a private bank and said the bank had failed to take adequate margin despite the rules mandating a margin of 50%. The central bank in the first week of May tightened the standards of broker funding rules. Previously, banks in breach of margin rules lent to brokers.