Whalesbook
Zerodha Capital, the lending arm of brokerage giant Zerodha, reported a 45 percent jump in FY26 revenue to Rs 53.5 crore. The growth was driven by its Loan Against Securities business, while its Margin Trading Facility hit Rs 7,500 crore by May 2026. As competition among digital brokerages grows, the company is using its large client base to capture retail credit market share. Investors should monitor how this shift toward a lending-heavy model balances against the risks of market volatility.
What Happened
Zerodha Capital, the lending division of the prominent brokerage firm Zerodha, has announced its financial results for the fiscal year 2026. The company reported a 45 percent increase in annual revenue, reaching Rs 53.5 crore. Profitability also improved, with net profit climbing by 20.5 percent to Rs 14.7 crore, up from Rs 12.2 crore in the previous year. The growth was largely supported by the firm’s loan against securities (LAS) business, where investors borrow money against their existing stock and mutual fund holdings. By the end of the fiscal year, the company had established a loan book of Rs 580 crore.
Why This Matters For Investors
This performance signals a shift in the business model for large digital brokerages. Traditionally, firms like Zerodha earned most of their revenue from transaction fees when clients bought or sold stocks. By expanding into lending, they are diversifying their income streams to include interest earned from loans. Zerodha Capital is targeting a specific gap in the market by offering loans at interest rates between 10 percent and 11 percent. Founder Nithin Kamath has noted that these rates are often significantly lower than personal loans, which can be 5 to 10 percent higher. By leveraging its existing base of 69 lakh active investors, the company is attempting to capture a segment of retail credit that many customers might otherwise ignore.
The Margin Trading Facility Engine
Beyond basic loans, a major part of the company's financial story is the Margin Trading Facility, known as MTF. This service allows traders to borrow money to buy more stocks than they could afford with their own cash, using their existing portfolio as collateral. By May 2026, Zerodha’s MTF book had grown to Rs 7,500 crore. This is a substantial figure that indicates high demand for leverage among active traders. For the company, this generates interest income on the borrowed funds, creating a recurring revenue source that is distinct from standard brokerage charges.
Peer And Sector Check
The digital brokerage sector is seeing a race to build large credit books. Competition is intense, with peers like Angel One and Groww also scaling their lending verticals aggressively. Angel One reported a credit book of Rs 2,700 crore at the end of FY26, which includes both LAS and personal loans. In terms of MTF, Angel One’s book stood at approximately Rs 5,800 crore by the end of March 2026. Meanwhile, Groww has also been expanding, with its lending arm estimated to generate around Rs 250 crore in revenue, while its MTF book reached Rs 2,800 crore in the March quarter. Compared to these peers, Zerodha's MTF book is notably large, reflecting its heavy focus on active trading clients.
The Risk Factor
While the expansion into lending offers new revenue, it also introduces a different type of risk compared to the pure brokerage business. In a brokerage model, the firm is an intermediary. In a lending model, the firm takes on credit risk. If the stock market experiences a sharp decline, the value of the securities held as collateral for both LAS and MTF can drop rapidly. This could potentially lead to recovery challenges if borrowers cannot pay back the loans. Rating agency ICRA has noted that the company has strong financial standing and profits to scale these portfolios, but market volatility remains a key factor that investors should watch. Unlike traditional banking, these digital firms are highly sensitive to market cycles.
What Investors Should Track
The next steps for Zerodha Capital will depend on how it manages its credit quality and loan growth. Investors may look for updates on the percentage of bad loans, if any, and how the company manages margin calls during market downturns. Additionally, as competition increases, the ability of these firms to maintain interest margins without compromising on credit quality will be a major test. The primary monitorables include the growth rate of the loan book, any changes in regulatory guidelines regarding retail lending by brokers, and how the firm’s credit book behaves during periods of high market stress.
