After SEBI gutted their F&O goldmine, India's discount brokers are betting their futures on margin trading — but the ₹1.33 lakh crore leverage pile carries risks retail investors may not fully see coming.
There's a number that quietly crossed a milestone last October and barely made the front pages. The Margin Trading Facility (MTF) book — the total amount brokers have lent to retail investors to buy stocks — surged to a record ₹1.33 lakh crore in June 2026, its third consecutive monthly rise, and has stayed above ₹1 lakh crore since first crossing that milestone in October 2025.
That's not a random data point. It's the financial industry's version of a plot twist — and to understand why it matters, you need to start about two years earlier, when India's discount brokers were riding what looked like an unending wave of gold.
Between 2020 and early 2024, India became the world's largest derivatives market by volume. Not by value, not notionally — by the sheer number of contracts traded every single day. Options trading had become a national sport. Brokers like Zerodha, Groww, and Angel One built their entire business models around cheap, frictionless access to weekly options contracts for millions of first-time retail traders.
The problem was that most of those traders were losing, badly. A SEBI study found that 91% of individual investors who traded largely in options incurred average losses of ₹1.1 lakh in FY2024-25, with cumulative losses reaching ₹2.88 lakh crore between FY2021-22 and FY2024-25. SEBI's then-chairperson Madhabi Puri Buch framed it bluntly: household savings were being funnelled into speculation rather than productive investment.
The regulator's response came in waves. In the Union Budget 2024, the government hiked the Securities Transaction Tax (STT) on F&O trades sharply — the options STT rate rose from 0.0625% to 0.1%, a roughly 60% increase. SEBI then implemented a range of structural changes in November 2024 — limiting weekly expiries to only Nifty and Sensex contracts, increasing the minimum notional lot size from ₹5–10 lakh to ₹15–20 lakh, and increasing margins for expiry-day trading. For retail traders who had grown used to punting on cheap, weekly Bank Nifty options with a few thousand rupees, the new regime was a different game entirely. A trader who previously bought one Nifty 50 call option with a lot of 25 units now needed a lot of 75 units — three times the premium outlay and three times the potential loss per lot.
The impact on discount brokers was immediate and painful. Angel One saw a sharp revenue decline across FY26; for the full fiscal year FY26, Angel One's total income dipped 1.8% and profit after tax fell 21.9%. The old playbook — build a cheap, slick app, give people access to weekly options, collect a flat fee per order — had hit a regulatory wall.
So what do you do when your biggest revenue driver is being structurally dismantled? You find the next closest thing.
The Margin Trading Facility (MTF) works like this: an investor spots a stock they want to buy but doesn't have the full cash on hand. MTF is a facility provided by select brokers that enables investors to purchase stocks by paying only a partial price; the broker funds the rest, and interest is charged on that loan. The bought shares act as collateral, securing the loan while interest accrues daily until repayment or sale. You get more buying power; the broker gets a running income stream. Typically, the interest charged ranges between 9% and 15% per annum.
MTF isn't new — SEBI formalised it in 2004 — but it gained massive traction post-2020 as zero-brokerage apps and a roaring bull market drew over 15 crore demat accounts into the market. The real acceleration, though, came after the F&O crackdown. The increase in derivatives taxation led many investors to exit the F&O segment, and yield-hungry traders looking for leverage naturally migrated to the cash market's MTF facility, where they could still get leverage on stock deliveries without paying the higher derivatives taxes.
The numbers bear this out vividly:
Groww's MTF revenue rose 42% quarter-on-quarter to ₹110 crore in Q4 FY26, compared with just ₹17 crore a year earlier, with the MTF book scaling to ₹2,810 crore at the end of the quarter. Angel One's client funding book grew to ₹5,450 crore, a 41% increase year-on-year, with the average book during Q4 at ₹5,850 crore.
Here's the structural reason brokers are so enthusiastic about MTF, and it goes beyond the headline growth number.
F&O brokerage is transactional: a client trades, you collect a fee. If they stop trading — because markets are quiet, because they're nervous, or because SEBI has raised the cost — the fee evaporates. MTF, by contrast, generates recurring interest income for as long as the funded position is open. It's the difference between a one-time sale and a subscription. The meter keeps running whether the market is up, flat, or choppy — as long as the position exists, the interest accrues.
This is changing the profit profile of these businesses in a material way. Groww's consolidated Q4 FY26 net profit surged 122% year-on-year to ₹686 crore, on revenue that jumped 88% to ₹1,505 crore, with EBITDA more than doubling to ₹939 crore. For Angel One too, Q4 FY26 was the quarter investors had been waiting for — after a bruising FY26 where F&O regulatory changes and a difficult macro environment compressed margins, the March quarter brought a sharp reversal, with profit more than doubling year-on-year and margins hitting their highest level in eight quarters.
MTF isn't the sole driver — derivatives revenue also bounced back strongly in Q4 as market volatility picked up — but it is a meaningful and growing cushion. Revenue diversification is accelerating: the share of equity derivatives in Groww's total income declined to 55% in Q4 FY26 from 57% a year earlier, while MTF and commodity trading contributed more — a positive structural shift, since F&O revenue is volatile and tied to market activity levels, while MTF is stickier.
The competitive metric for brokers is shifting from the size of the client file to the depth of the active wallet. MTF, wealth management, and loans against securities are how you deepen that wallet — and unlike derivatives income, MTF doesn't evaporate the moment SEBI issues a circular.
Zoom out and the industry-level growth is striking. From ₹25,000 crore in FY23, outstanding MTF exposure has grown to a fresh record: the MTF book reached ₹1.33 lakh crore as of June 24, 2026 — a 5.9% month-on-month jump, following gains of 9.7% in April and 8.8% in May. Despite a dip in February and March driven by geopolitical volatility, the book has sustained above ₹1 lakh crore since October 2025.
NSE continues to dominate the MTF segment with a 96% market share.
What's driving this beyond the broker push? A few things converge. After a strong equity market recovery, retail investors who had made money wanted more — and MTF is the most accessible lever in the cash market now that cheap weekly options have been constrained. As one industry executive put it: "Over the years we have seen MTF books growing when markets have risen" — the book climbed from ₹72,000 crore to ₹95,000 crore between April and July 2025 as the Nifty recovered from 21,000 to 25,000. Investors take leverage positions when they see opportunity.
All leverage has two sides. MTF amplifies gains — but it amplifies losses by exactly the same magnitude, with daily interest costs eating into returns whether you're up or down.
The mechanics are stark. A 10% fall in a stock bought on 25% margin wipes out 40% of your invested capital before interest. And if the stock falls enough to breach the maintenance margin threshold, the broker doesn't wait for a convenient moment.
If the shortfall is not covered in time, the broker may sell part or all of the funded shares to recover their money — at whatever price the market offers in that moment. In January 2026, Zerodha founder Nithin Kamath cautioned that in a sharp market downturn, leveraged positions could trigger "synchronised liquidations", exacerbating volatility, particularly in less liquid stocks. He has repeatedly noted that the MTF book has grown fivefold across the industry without commensurate upgrades in broker risk models.
We already had a real-world test run. The MTF book fell over 8% month-on-month in March 2026, against the backdrop of an 11% slump in stock markets driven by a flare-up in geopolitical tensions and a surge in oil prices. The forced selling didn't collapse the market — but it added pressure during an already stressed period. A substantial market correction of even 20–30% could trigger synchronised liquidations due to high leverage, severely impacting investors and broker balance sheets — and the tight liquidity during market drawdowns, coupled with minimal short-selling, exacerbates this risk.
The bulls have a counter-argument. As one brokerage executive put it, while the absolute numbers appear elevated, "the book size remains comfortable when viewed in the context of overall market capitalisation and daily turnover" — the exposure is highly granular and well-diversified across a large number of stocks, with no single-stock position exceeding approximately ₹2,200 crore, which significantly mitigates concentration risk.
Both views have merit. The systemic risk from MTF is real but not yet at a scale that should cause panic. The concern is the trajectory — and whether risk management at individual brokers is keeping pace.
There's another layer to this story that rarely surfaces: where do brokers actually get the money to fund all these loans?
Currently, brokers can fund MTF with their own money, money they borrow from banks and NBFCs, commercial papers, and unsecured loans from directors and promoters. But the RBI's early 2026 directive aimed at curbing bank lending to brokers for MTF tightened that tap. Despite these curbs, firms are largely relying on internal accruals and NBFC borrowings — channels less directly impacted by the directive — with Angel One's Group CFO noting this has prevented an immediate slowdown.
However, funding MTF through internal accruals alone may not be sustainable if the current growth pace continues without bank funding, potentially leading to higher costs for customers. This creates a constraint that could either slow MTF growth — acceptable from a systemic-risk standpoint — or push brokers toward costlier sources and pass those costs on to retail clients.
Unlike its approach to F&O, where the regulator reached for the scalpel, SEBI's response to MTF's rapid growth is more surgical. Rather than curtailing the product, it is working to fortify the plumbing.
On June 19, 2026, SEBI issued a consultation paper proposing changes to the rules governing MTF, aiming to further strengthen risk management given the rapid growth of the business.
The proposed changes include:
SEBI has invited public comments on these proposals by July 9, 2026. The direction is clear: the regulator wants MTF to grow up, not to go away.
Here's what gets lost in the broker earnings calls and SEBI consultation papers: the retail investor on the other end of this transaction.
MTF marketing is seductive. You're told you can buy more of a stock you believe in, with a modest upfront payment. What is less often explained is the daily interest clock ticking from day one, the fact that a 20–25% fall in the underlying stock can wipe out your entire invested margin, and that the broker has a contractual right to sell your position — at whatever price the market offers in the moment — without asking.
The structural similarity to F&O is striking: a leveraged product, heavily intermediated by discount brokers who earn the more you use it, with a retail base largely unfamiliar with the mechanics of margin calls. Groww's significant reliance on derivatives and MTF revenue makes it susceptible to regulatory shifts and market volatility — risks less prominent in more diversified revenue models. SEBI spent three years publishing studies, issuing warnings, and finally tightening the screws on F&O. One hopes it doesn't take that long with MTF.
India's discount brokers didn't pivot to MTF because it's better for their clients. They pivoted because it's better for their income statements — and the two aren't always the same thing.
That's not a moral indictment; it's a structural reality of how financial businesses work. The more interesting question is whether the MTF boom is durable, or whether it is a regulatory-arbitrage trade with a shelf life.
The answer probably depends on two things. First, whether SEBI's forthcoming framework — the higher net worth requirements, the tighter ring-fencing, the better disclosures — arrives before the next significant market correction, or after. Second, whether brokers actually treat MTF as a credit product requiring credit discipline, or as a transaction product dressed up in a loan's clothing.
The irony here is rich. SEBI cracked down on F&O to protect retail investors from leverage they didn't fully understand. And the unintended consequence — accelerated MTF adoption — has put a different kind of leverage, with slower-burning but equally real risks, into the same retail hands. The regulator is now racing to build guardrails around the very product its earlier intervention helped create.
From ₹25,000 crore in FY23 to ₹1.33 lakh crore in June 2026 — that is roughly three years and a fivefold multiplication of retail leverage in the cash market. The machine keeps running. Whether the brakes are good enough is a question we may only get to answer once.