Funding from banks for capital market players has become highly restrictive with the recent squeeze in liquidity and the interest rates charged have also sharply increased.
Interest rate has risen across the board for lending against shares to 11-12 per cent from 7-8 per cent.
Banks have also asked brokers to clear their positions on a daily basis and warned that the stocks pledged would be liquidated immediately on default.
Earlier, banks would allow brokers a few days before liquidating the stocks pledged but the scene has changed since banks have become too cautious now.
Moreover, the banks have also stopped providing clean overdrafts to brokers and are now insisting on collateral.
While most of the banks have limited their funding to stock market brokers, majority of them prefer broking firms with daily turnover of more than Rs 200-250 crore (Rs 2-2.5 billion).
Banks have become cautious on lending since the liquidity has become tight following the hike in the cash reserve ratio.
The RBI raised CRR by 50 basis points in two tranches to 5.5 per cent effective December 23 and January 6.
For optimum allocation of funds, banks are focusing on those sectors where they do not have to set aside additional funds for provisioning.
Provisioning is to be done by the banks when they fear default in lending to a riskier sector.