MUMBAI: Even as banks have been facing tepid credit demand from most key sectors, with the incremental lending adding up only about 10% so far this fiscal, there was a silver lining for harried lenders. Brokerages, which have been borrowing heavily to oil their margin trade funding (MTF) book, jumped more than 2.3 times on-year in August to cross the Rs 1 trillion-mark for the first time.
This comes even as the market was muted in the month with heavy selloff by foreign funds as well as the Sebi curbs on margin funding in the derivatives segment since last November when the regulator massively increased the upfront payment by retail investors.
According to the data brokerages shared with exchanges, at the end of August, their MTF books, which in turn indicates banks’ exposure to brokerages, stood at Rs 1,00,306 crore, which is more than 2.3x the book size in the year-ago period.
If we look at a longer period, this growth is much bigger: in the pandemic-hit March 2020, the MTF book was a pale shadow of this at a low Rs 3,200 crore.
MTF is a facility that brokerages offer their clients to do leveraged trading for a fee wherein the interest rate varies from 13-17%. While the percentage of margin being offered varies from one brokerage to another, on an average this is 70% more of your own fund on a given day; there are also brokerages that offer—on a day when the market is rallying—five to seven times of your own fund.
Also, some brokerages like HDFC Securities offer MTF for 270 trading days while most others give it for a week or month. At the end of the given date, if your MTF stocks are not taken into delivery, because you don’t have funds to convert them into delivery, the brokers have the power to liquidate those stocks and recover their funds.
This higher loan growth comes amidst the muted demand from segments of the credit market -- be it demand for home, auto or personal loans, leave alone corporate demand, which was the slowest at 3.8% so far this fiscal.
Retail credit, which comprises 33% of bank loans, has grown by under 10% in Q1. Home loans, which remain the largest constituent of retail credit with 50% share, are also slowing and corporate loans, which account for 38% of bank loans, grew only 3.8% till July. Of the Rs 171-trillion corporate credit pie, banks account for 40%, while capital markets contribute to over a third. Only loans to small businesses, which constitute 17% of the overall credit, have been growing steady at 14% this fiscal. Gold loans are another exception clipping at the fastest pace of 31%.