Higher cost of margin trade funding a setback for brokers; leaves them worried amid volatility in stock markets

Hit by the upheavels in stock markets, traders may see another set back in the form of higher margin trade funding. Zee Business' has learnt through its top sources that broking firms have increased interest on margin trade funding

On an average, NBFCs, which charged 12 per cent interest on margin funding are now charging 15-20 per cent interest. Source: Reuters

Hit by the upheavels in stock markets, traders may see another set back in the form of higher margin trade funding. Zee Business' has learnt through its top sources that broking firms have increased interest on margin trade funding. Brajesh Kumar reports. On an average, NBFCs, which charged 12 per cent interest on margin funding are now charging 15-20 per cent interest.

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

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The brokers are claiming that they are getting monet from the markets at 9-10 per cent interest rates. Higher interest is also being taken as a result of uncertainities in the stock markets.

Even those broking firms whose parent companies are banks have increased interest rates by 2-3 per cent.

However, the increase is lower comparitively to the increase effected by the NBFCs.

As per the experts, the increase in interest rates may lead to an increase in margin trade funding. And the traders are worried about the hike in interest rates as the stock markets are already facing a lot of volatility.

The RBI in April had imposed penalty on a private bank and had said that this bank had not taken adequate margin when the rules prescribed for 50 per cent margin. The central bank in first week of May tightened the norms of broker funding rules. Prior to this, banks in violation to the margin rules lended brokers.

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