Banks' lending to brokers surged on rising market activity

Mumbai: Institutional lending to stockbrokers and brokerage firms surged 28% in 2024-25, reflecting higher trading activity and rising investor participation in equities market.

Bank lending to stockbrokers stood at ₹1.52 lakh crore in FY25, showed annual reports of banks that represent over 90% of the banking system.

Punjab National Bank showed the steepest growth at 372% to ₹120 crore in FY25, while ICICI Bank maintained the leadership position of the largest lender providing ₹39,458 crore in loans, up 11% over FY24.

The country's largest lender State Bank of India, in contrast, reduced its exposure to this segment by 18% year-on-year.

Stockbrokers borrow from banks to deposit with stock exchanges as capital required to trade in stocks. Brokers generally have a combination of stocks, cash and bank guarantees with stock exchanges that enable them to take positions depending on the amount of the value of assets deposited in exchanges.

Brokers fund their clients to take positions by providing a portion of the funds required to buy stocks. Then the remaining is lent by brokers to fund the transactions, which is known as margin funding. For instance, an investor can buy stocks worth ₹1,000 with just about ₹200 or ₹300 and the remaining is funded by the brokers under margin funding mechanism. Banks funding towards margin trading to brokers declined 72% to ₹525 crore in FY25.

Banks provide loans to stockbrokers and brokerage firms for a short term against highly liquid stocks. The loan to value margin is as high as 50% in most cases and is availed by brokers to meet personal needs or further their business.