What changed
RBI clarified that the existing prohibition on advances against shares/debentures for trading or to stockbrokers is absolute. UCBs cannot provide any credit—secured or unsecured, fund-based or non-fund-based—to stockbrokers, including against fixed deposits or LIC policies. Similarly, no facility, including guarantees, is allowed for commodity brokers. Advances against mutual fund units are restricted to individuals only.
What it means for you
UCBs must immediately stop all lending to stockbrokers and commodity brokers, including guarantees. This tightens risk exposure to volatile markets. Existing non-compliant loans must be recalled or closed, and a compliance report sent to the regional RBI office. Banks should review all credit portfolios to ensure no indirect exposure remains.
What you must do
- Identify and close all fund-based and non-fund-based credit facilities to stockbrokers and commodity brokers immediately.
- Ensure no guarantees are issued on behalf of commodity brokers.
- Restrict advances against mutual fund units to individual borrowers only.
- Submit a compliance report to your regional RBI office without delay.
- Review all existing credit facilities for any indirect exposure to prohibited entities.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Stockbrokers and commodity brokers seeking credit from UCBs, UCB credit and risk management teams, RBI regional offices monitoring compliance
Does this ban cover non-fund-based facilities like letters of credit or guarantees?
Yes, the prohibition explicitly includes non-fund-based credit facilities, such as guarantees, for both stockbrokers and commodity brokers.
Can UCBs give loans to individuals against mutual fund units?
Yes, advances against units of mutual funds are permitted only to individuals, similar to the rules for shares, debentures, and bonds.
What should we do if we currently have a loan to a stockbroker?
You must withdraw or close that facility without any delay and report compliance to your regional RBI office.