According to reports from Business Standard, Zerodha's co-founder Nithin Kamath has raised significant concerns about the rapid growth of Margin Trading Facility (MTF) books across Indian brokerages. The alarm centers on a specific combination where investors pledge stocks as collateral, receive up to 80% margin on those holdings, and then use that margin to take leveraged positions worth 400% in the same stock. As reported by Business Standard, Kamath warned that if these stocks are mid or small-cap, circuits kick in and there's simply no exit if markets turn around.
As reported by Business Standard, Kamath highlighted that nearly 50% of total MTF exposure across brokers is in non-F&O stocks, securities that are not part of the futures and options segment and therefore have no hedging mechanism. These stocks are also more vulnerable to lower circuits, the automatic trading halts that kick in when a stock falls past a threshold in a single session. According to the latest data shared by Kamath, the outstanding MTF book on the NSE has climbed sharply since 2020 and stood at ₹1,22,151 crore as of 15 May 2026. In a sharp market fall, lower circuits mean a broker cannot sell the pledged stock to recover the loan, with the loss sitting on the broker's books.
According to Business Standard, Kamath disclosed that while Zerodha's MTF book has grown over the past 16 months, it remains at roughly 25% of the firm's net worth, a level he considers manageable. However, he revealed that some brokers may have MTF exposure approaching 500% of net worth, which is the maximum limit permitted by regulators. As reported by Business Standard, at that level, a concentrated selloff in the wrong stocks wouldn't just hurt investors but could threaten the broker's own financial stability. Kamath emphasized that brokers face the risk of bad debit if stock prices fall beyond the margin provided by clients, with the risk rising significantly when customers pledge shares as collateral and take leveraged positions in the same stock.
As reported by Business Standard, Kamath's warning comes at a moment when retail participation in Indian equity markets remains high and many investors have only experienced markets in a broadly upward cycle. According to the report, MTF books are growing across brokers despite the broader markets going nowhere, which isn't like the Korean markets where markets are up 150% in the last year alone. Kamath acknowledged that Zerodha currently does not allow clients to use stock collateral for MTF trades, which limits the risk amplification he described, but acknowledged that competitive pressure may eventually force a change. The biggest risk emerges during sharp market corrections, particularly in illiquid stocks where brokers may face difficulty recovering dues if leveraged positions become illiquid.
According to Business Standard, what makes Kamath's warning particularly pointed is the systemic framing, emphasizing that this isn't just a story about retail investors losing money on leveraged bets. The newer concern is the knock-on effect on brokers themselves. As reported by Business Standard, Kamath warned that if markets crash, brokers could end up holding losses from MTF positions they can't exit, which puts the entire ecosystem at risk. His message to risk management teams across the industry was blunt: 'MTF seems like easy money for the brokers. But the Risk Management team at brokers has to make sure that on one bad day, you don't give it all back.'
