Cost of margin funding, which used to be 14-16 per cent, has now increased to 18-20 per cent after SEBI tightened norms on short collection of margins.

“Cost of margin funding is a function of the amount being funded, tenor, percentage of margin that is being funded and, above all, the longevity of broker-client relationship,” said a BSE broker.

With banks revising base rates and NBFCs offering a 12.5 per cent yield on their non-convertible debentures, yield on margin funding was bound to increase said experts.

“Realising the opportunity, some brokers are using an increase in the base rate as an explanation or excuse to increase the yield on their margin funding,” said Mr Arun Kejriwal, Founder KRIS Research.

However, a section of smaller brokers said that they had to bring down interest rates on margin funding from 21 per cent to 18 per cent to prevent clients from leaving.

Marketmen said that small brokers and small NBFCs would be marginalised because larger NBFCs have cheaper access to funds. Smaller NBFCs would suffer if the RBI report on the issues and concerns in the NBFC sector is implemented, they said.

“Implementation of the RBI's working group's suggestion to increase the floor of net owned funds from Rs 2 crore to Rs 50 crore for NBFCs will ensure that many will no longer remain NBFCs,” said Mr Subhash Sharma, Senior Vice-President Operations, Gupta Equities.

If the proposed recommendations — such as 12 per cent Tier-1 capital adequacy; introduction of liquidity ratio; increase in risk weights for capital market exposures to 150 per cent for non-bank sponsored NBFCs; applicability of banking regulation to NBFC capital market lending — are implemented, the number of NBFCs with capital market exposure would drastically come down.

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