Indian banks’ capital market lending stays below 2% despite retail boom

At a time when one in every ten Indian households has exposure to the capital market, banks’ lending to the sector remains relatively small. The main reasons are the high risks associated with such loans and the Reserve Bank of India’s (RBI) curbs on capital market exposure.

As of March 2025, the combined exposure of the country’s top 12 banks to the capital market stood at ₹2.5 lakh crore—just 1.8% of their total loan book of ₹138.5 lakh crore, according to data from annual reports.

The share has inched up only gradually over the past three years, from 1.5% in FY23 to 1.6% in FY24.

Among Nifty Bank constituents, Axis Bank had the highest exposure at 4.03% of its loan book, followed by ICICI Bank at 3.7%. Kotak Mahindra Bank’s exposure stood at 2.9%, HDFC Bank at 2.2%, and State Bank of India at 1.3%.

In a significant step to rationalise norms and broaden the scope of capital market lending, the Reserve Bank of India (RBI) on Wednesday, October 1, raised the cap on loans against shares from ₹20 lakh to ₹1 crore. It also hiked the limit for IPO financing from ₹10 lakh to ₹25 lakh per person and removed the regulatory ceiling on lending against listed debt securities altogether.

The industry welcomed the move, expecting it to drive stronger credit growth for banks. “As more people move to the capital markets, which have remained strong, the increase in lending limits against market securities marks a positive step,” said Debadatta Chand, Managing Director and CEO of Bank of Baroda.

Dalal Street, too, welcomed the relaxation in lending norms, expecting it to bolster banks’ loan growth. Banking stocks gained on Wednesday, with Kotak Mahindra Bank rising 3.5%, Axis Bank 2.5%, and ICICI Bank 1.8%. The Nifty Bank index climbed 712 points, or 1.3%, to close at 55,348.

Retail participation in Indian markets has broadened sharply in recent years. From being the world’s 10th-largest market a decade ago, India has now climbed to the fifth spot, powered by a surge in retail investor activity. Individual investors are currently investing around ₹26,400 crore every month into mutual fund schemes through systematic investment plans (SIPs).

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