After the tepid growth in margin trading facility (MTF) exposures in FY2023, the MTF exposures crossed ₹50,000 crore, reaching a new high in December 2023 amid the improvement in secondary market returns, according to ICRA.

With the sharp growth in the MTF book, the commercial paper (CP) borrowings outstanding for ICRA’s sample of leading securities broking companies increased to an all-time high of ₹45,000 crore, accounting for 11 per cent of the overall CP outstanding in November 2023 compared to 2 per cent two years ago.

The share of CP outstanding of LAS-focused NBFCs has also crossed four per cent from less than two per cent till a few years ago. “Given the restrictions on bank funding for capital market exposures, and CPs being the most competitive borrowing avenue for capital market lending, stock broking and allied entities have been primarily relying on CP borrowings for growing their MTF and LAS books,” ICRA said.


Most of the players issue CPs of 91 days or less, given the short-term nature of the loan product, which can be repaid by the borrower without notice and can be recalled by brokers at short notice. In turn, competitiveness in money market borrowings has become a key driver of the market position in the MTF and LAS segment.

Bank brokers have cornered a dominant market share of 55-60 per cent in the MTF segment. They hold four of the top five positions, in terms of market share. “While brokers have witnessed a narrowing of lending spreads with the gradual increase in money market borrowing rates amid tight liquidity in the banking system, the churning in the MTF exposures has supported an increase in delivery cash volumes,” ICRA said in a note.

The ratio of industry-wide MTF exposure to market capitalisation of NSE listed entities has trebled since March 2020. MTF-led trading volumes now account for a material proportion of daily cash delivery volumes. “With sizeable increase in leveraged positions, the industry’s ability to manage the heightened risk during periods of market turmoil remains to be seen,” the note said.

MTF loan exposures are, however, fairly diversified across over 600 scrips (with funded amounts of at least ₹10 crore) with the largest single scrip exposure at less than 2 per cent of the overall MTF exposure at an industry level. A single scrip exposure by a broker is also limited to 10 per cent of its overall permissible MTF exposure. Moreover, the collateral margin on the LAS and the MTF exposures is actively monitored and these MTF and LAS loans are recallable on demand by the lender.