Major Indian brokerage firms are shifting from traditional commission-based revenue to interest-heavy lending through the Margin Trading Facility (MTF). With the industry's total MTF book reaching a record ₹1.52 lakh crore, investors should monitor rising credit risks, regulatory oversight, and how firms manage liquidity when markets become volatile.
The Indian brokerage industry is undergoing a significant transformation, moving away from a reliance on simple transaction commissions toward credit-driven business models. As competition forces transaction fees down, brokerage firms are increasingly using the Margin Trading Facility (MTF) to generate steady interest income. Recent industry data shows the total MTF book has expanded to a record ₹1.52 lakh crore, signaling a structural change in how these firms generate revenue.
The primary driver behind this shift is the sharp decline in brokerage income. Over the past decade, the average fee earned per order has dropped significantly, falling from ₹20–25 in 2010 to roughly ₹3–5 today. Faced with this compression, firms are pivoting to lending, where they provide capital to clients for share purchases and earn interest in return. This transition shifts the business from a service-fee model to one that resembles a lending institution.
Strategic approaches to this shift vary among key players. Angel One, for example, has been aggressive in using debt to fund its MTF book, which reached ₹7,150 crore as of June 2026. Other players like Groww are also operating in this space but have maintained a lower MTF penetration, leaving them with more room to expand their lending portfolios. While this strategy provides a cushion against volatile trading volumes, it brings new challenges.
The rapid expansion of loan books has attracted regulatory attention. SEBI is currently reviewing the MTF framework, with proposals to increase the minimum net-worth requirement for brokers. This is intended to ensure that firms have enough capital to handle potential defaults. A core risk that regulators are monitoring is the "wrong-way risk"—a scenario where the stocks pledged by clients as collateral lose value sharply during a market downturn. If this happens, brokers may face liquidity stress, as recovering their money becomes difficult.
For investors, this transition into lending is a double-edged sword. While it offers a new, predictable revenue stream, it also introduces credit and concentration risks that were less prominent in pure commission-based businesses. The sustainability of this model will largely depend on how effectively these firms manage their loan books during periods of high market volatility.
Key monitorables for investors include any further regulatory updates from SEBI regarding net-worth norms, trends in credit quality within the MTF books, and the ability of these firms to maintain liquidity as their reliance on borrowed capital grows.