RBI’s New Rule Shakes Stock Market – Why Are Indian Stocks Falling Today?

In the unpredictable field of finance, a surprising move from the Reserve Bank of India (RBI) almost always guarantees a response from the Indian stock market. On February 17, 2026, investors are facing a dramatic drop in stock prices for banks, brokerages, and exchanges. 

While there are many different opinions explaining the big drop in the Sensex and Nifty indices, there are a lot of people who are attributing this drop to the RBI's new rule announced on February 13, which is a new policy restricting lending to banks' capital market intermediaries. People are concerned about the implications for trade and less liquidity.

So what exactly is causing the turmoil in the market? The RBI's new directive, which is officially known as the “Commercial Banks – Credit Facilities Amendment Directions, 2026”, focuses on reducing the systemic risks posed by excessive leverage in the financial markets and aims to improve overall systemic stability. 

These rules, starting April 1st, 2026, state that all credit facilities to securities firms, including stock and commodity brokerage firms, will need to be fully collateralised. Furthermore, banks are not allowed to provide credit in relation to broker proprietary trading activities, and the minimum haircut thresholds on collateral are raised to 40% for equity securities and 25% for cash equivalents used in bank-guaranteed transactions.”

Proposed rules established by the Reserve Bank of India (RBI) have overshadowed the recent hike in transaction tax for equity futures and options trading. Such rules aim to curb speculation in a rapidly expanding derivatives trading market. It is believed that proprietary trading desks, responsible for up to 50% of the trading volume in stock options and 30% in cash market National Stock Exchange (NSE) trading, will be hit hardest by the new regulations. Concern surrounds the prospect of a decrease in overall market activity, affecting market participants from day traders to institutional investors.

It is important for individuals, regardless of their trading experience, to comprehend the implications of the policy due to its impact on the economy in general. This analysis will shed light on the consequences of the RBI policy on stock market activity, the reason for the stock market's recent decline, the fallout from the Indian stock market crash, and the overall impact of the RBI announcement on brokers and investors. It will be beneficial to read this in order to have awareness of the implications of the RBI policy on the economy.

Understanding the RBI New Rule Today

The RBI's new rule today is different from every other news coming to Dalal Street. Let us discuss the specifics. On Feb 13, 2026, it was announced that from 4/1/2026, it would be law that all banks would have to have 100% collateral on all loans given to brokers and other members of the market. No more extended credits where the credit line was only partially secured; it is now all in, and secured with all the highest quality collateral of cash and government bonds.

So why is it all of a sudden? Since the markets have all steadily been growing, their justification is a logical one. The last few years have seen the markets growing, with rapid increases in derivatives trading. 

Proprietary trading firms have been driving the discretionary trading volumes and have been using bank loans as their own driving >15% of equity options turnover over the last year. This is significant as it increases the level of risk in the market.

The Important Part is:

- No Lending for Proprietary Trading: Banks may not fund brokers' own account trading or investments.

- More Collateral: Brokers have to post more than 25% in cash or cash equivalent for bank guarantees than before.

- Minimum Haircut Requirements: 40% on equities and other instruments because of value declining.

- More Stringent Exposure Limit Requirements: Banks are to monitor and manage credit to control overexposure.

These changes are designed to lower systemic leverage and enhance the system's responsiveness to changes. For margin funding-reliant brokers like HDFC Securities, it could mean alterations to margin funding and possibly increased costs for customers. A decline of 10% in derivatives revenue has been estimated by BSE analysts from Jefferies.

The new regulation may also achieve the RBI's intended outcome of reducing speculative trading. It is unlikely there will be external funding for high-leverage trading.

Impact of RBI Policies on the Stock Market

The RBI policies have significantly impacted the stock market in various ways. RBI's policy changes have consistently influenced market psychology, and this instance is no exception. There will be a decrease in trading, and the RBI is reducing the credit available to brokers, limiting the steady flow of liquidity in the capital market. This will affect the volumes and profits of the brokers and the exchanges.

Make sense of the data: Proprietary trading has been a cornerstone of business activities, generating substantial income for businesses such as BSE and NSE. Since banks are now prohibited from financing these types of operations, proprietary desks may need to shrink their operational scope or instead opt for more costly financing. Along with the recent increase in the transaction tax, this will likely diminish interest in the derivatives market, where trading activity has been unprecedented.

In relation to the system as a whole, the scenario will likely bring more advantages to the economy as it will reduce systemic risk. With less leverage in the system, there will be a decreased risk of large-scale collapses in the markets. Conversely, in the short term, there will be pressure on the financial sector stock prices. For instance, on February 16, the Nifty Capital Markets Index underperformed the broader market, suggesting that the market was concerned that the financial markets might generate less income.

There are mixed implications for banks. While lending will become safer, this may lead to reduced lending margins due to increased collateral requirements.

In summary, the impact of RBI policy on the stock market highlights the central bank's efforts to balance growth and stability. With these policies in place, the market will likely transition from speculation-based investing to investing grounded in solid fundamentals.

Why the Stock Market is Falling Today

The RBI's recent changes to regulations are causing the stock market to fall today. Indian indices opened lower as of February 17, 2026, with the Sensex dropping over 500 points. Brokerage and exchange shares fell as investors anticipated the effects of the regulations.

Investors are fearful of diminishing market liquidity. With the new regulations, brokers may find it more challenging to offer high-margin products, leading to lower trading. This resulted in BSE shares dropping by 9.9% during trading on February 16, ultimately closing 7.3% lower. Angel One and Groww fell by 4.7% and 1.7%, respectively. Increased selling from investors contributed to the downward trend.

Geopolitical tensions and rising US bond yields are contributing to the downturn. Analysts indicate margin requirements on bank guarantees could increase from 50% to 100%, which would restrict leverage. Retail investors might withdraw from options trading, which would further lessen market volume.

Investors are selling due to uncertainty, and uncertainty will continue to generate selling pressure.

The primary reason for the decline in the stock market can be attributed to traders anticipating a more risk-averse and less confident trading strategy, which may suppress the bull run that India has been experiencing.

Conclusion

The Indian stock market has definitely been jolted by the RBI's new rule, which explains why stocks are declining today. The immediate RBI announcement effect creates volatility, but it also creates the conditions for long-term growth. Investors must to be knowledgeable and adjust to this changing regulatory landscape.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.