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Zerodha's Flat Year Exposes India's ₹1.51 Lakh Crore Margin Habit

India's combined MTF book hit a record ₹1.51 lakh crore on the same day Zerodha disclosed a second flat year. The country's brokers have quietly swapped trading fees for interest income, and half the collateral behind that lending is illiquid.

By The Indian Markets Desk 13 min read

On Wednesday, 26 August 2026, two numbers landed within hours of each other. India's combined margin trading facility book across the NSE and BSE closed at a record ₹1.51 lakh crore. And Zerodha, the country's largest broker by customer assets, disclosed that its revenue had gone nowhere for a second year running, while the money it earns from lending to its own customers jumped from ₹22 crore to ₹448 crore.

Those two numbers are the same story. India's retail broking industry has spent two years losing the fee income that built it, and it has replaced that income with interest on loans. That is a different business with a different risk profile, and almost nobody outside the industry seems to have noticed the swap.

What Zerodha actually disclosed#

Nithin Kamath's sixteenth-anniversary update put hard numbers on a slow decline. Zerodha's FY26 revenue was ₹7,464 crore, with profit after tax of ₹4,283 crore. Both sit well below the FY24 peak of ₹9,973 crore and ₹5,495 crore. Profit rose 1.2 per cent year on year, which in an economy running mid-single-digit inflation means it shrank.

The composition matters more than the total. Brokerage revenue fell from ₹3,600 crore in FY24 to ₹3,066 crore in FY25 and ₹2,738 crore in FY26. Net transaction charges, the rebate brokers used to collect from exchanges on volume, went from ₹810 crore to ₹400 crore to zero. Annual maintenance charges, the one line that scales with client count rather than trading activity, contribute roughly 2 per cent of revenue.

Filling the hole: margin funding. Zerodha launched its MTF product in December 2024. Delayed-payment and MTF income rose from ₹22 crore in FY25 to ₹448 crore in FY26, about 10 per cent of the top line. The book stands at ₹9,000 crore, of which customers have borrowed roughly ₹6,000 crore, about a quarter of the firm's net worth. Kamath flagged the risk himself: customers are borrowing to invest, which is fine while prices rise and considerably less fine when they don't.

Zerodha's share of active NSE clients has slipped to 15.2 per cent. Its AUM, at roughly ₹9.05 lakh crore, is now the largest in the industry, ahead of ICICI Securities at ₹8.96 lakh crore and Groww at ₹3.58 lakh crore.

Margin trading facility, explained#

MTF is regulated leverage in the cash market. You want ₹1 lakh of a stock. You post ₹25,000 and your broker funds ₹75,000. The shares are pledged in your own demat account through the depository's margin-pledge system, and you pay daily interest on the funded portion, typically 9 to 24 per cent a year depending on the broker. If the price falls far enough you get a margin call. If you can't top up, the broker sells.

Two things separate it from futures and options. You own the shares. And the broker is lending its own balance sheet, so the credit risk sits with the intermediary rather than the clearing corporation. SEBI caps a broker's MTF exposure at 500 per cent of net worth. Zerodha is at roughly 25 per cent. Some competitors, according to CareEdge Ratings, are close to the ceiling.

One clarification on the headline figure. The MTF book reported by the exchanges is the amount financed: the total market value of shares held under the facility, client margin and broker funding combined. The brokers' own credit exposure is a fraction of ₹1.51 lakh crore, not the whole of it.

Why the fee income vanished#

Three policy decisions, in sequence, took apart the discount-broking revenue model.

SEBI's "true to label" circular, effective 1 October 2024, required exchanges to charge every member the same rate instead of slab rates that fell as volume rose. High-volume brokers had been billing clients at the headline rate and keeping the difference. NSE and BSE rewrote their fee schedules to comply, and CRISIL estimated the change would cost discount brokers around 25 per cent of profit before tax. Zerodha's transaction-charge line went to zero, exactly as advertised.

Then came the derivatives clampdown. SEBI raised minimum contract sizes, cut weekly expiries to one benchmark index per exchange, collected option premiums upfront and tightened expiry-day margining. The regulator's FY26 study found unique active derivatives traders fell 18 per cent to 8.75 million from 10.62 million, with first-time entrants down 40 per cent. In a written reply to the Rajya Sabha on 11 August, the finance ministry put aggregate individual net losses at ₹91,685 crore in FY26 against ₹1,11,788 crore in FY25, with the average loss per trader rising to ₹1,16,654 from ₹1,13,913. Fewer people, losing slightly more each.

Finally, the Union Budget 2026-27 raised securities transaction tax on derivatives from 1 April 2026: futures from 0.02 to 0.05 per cent, options premium from 0.10 to 0.15 per cent, options exercise from 0.125 to 0.15 per cent. Overall equity derivatives turnover fell to ₹202 lakh crore in FY26 from ₹213 lakh crore.

Cheap leverage got expensive in the derivatives segment. It stayed available in the cash segment. Traders moved.

Where the risk actually sits#

The MTF book grew from ₹24,920 crore in FY23 to ₹1.27 lakh crore by May 2026, up 65.4 per cent year on year, and on to ₹1.51 lakh crore by 26 August. Over the twelve months to mid-2026 the Nifty 50 returned minus 4.38 per cent. Leverage grew at roughly sixteen times the rate of the index it was buying.

Composition is the part worth watching. As of 26 August the book split into ₹69,575 crore of F&O-eligible stocks, ₹76,904 crore of non-F&O stocks and ₹3,727 crore of ETFs. Non-F&O now exceeds F&O. Those are mid-cap and small-cap names without a liquid derivatives market, the ones that hit lower circuits quickly and stay there.

The failure mode is mechanical. Price falls, margin call goes out, client can't pay, broker liquidates pledged collateral. In a liquid large cap that works fine. In an illiquid mid cap sitting in a lower circuit there is no bid, so the loss migrates from the client's account onto the broker's balance sheet. If several brokers are forced to sell the same crowded names at once, the selling itself deepens the fall.

The RBI has already moved on the funding side. The Reserve Bank of India (Commercial Banks, Credit Facilities) Amendment Directions, 2026, dated 13 February 2026 and effective from 1 April, insert a new chapter on credit to capital market intermediaries. Banks may no longer finance a broker's own proprietary trading, all such credit must be 100 per cent collateralised, and equity collateral carries a minimum 40 per cent haircut. Bank financing for a broker's MTF book must be fully secured by cash, cash equivalents or government securities, at least half of it in cash. Pledge ₹100 of shares, borrow against ₹60. Funding costs rise, and they reach the retail borrower as higher MTF interest rates.

Two brokers, two verdicts#

Zerodha's flat year is not an industry-wide story. Groww's parent, Billionbrains Garage Ventures, reported Q1 FY27 revenue of ₹1,501 crore, up 66 per cent, with profit after tax of ₹735 crore, up 94 per cent. Same regulatory regime, very different outcomes, largely because Groww is taking share from a shrinking pool while Zerodha defends the largest position in it.

Some early backers appear to be taking the other side. On 26 August Ribbit Capital sold about 11.31 crore Groww shares worth ₹2,217 crore at around ₹196 apiece, part of roughly ₹2,500 crore of bulk and block trades that day. The stock fell more than 3 per cent to close at ₹196.24, valuing the company at ₹1,23,238 crore. It was Ribbit's second sell-down of 2026, and Y Combinator has been trimming too. Selling by early investors after a lock-in expiry is routine and is not in itself a verdict on the business. Worth noting alongside the growth numbers rather than instead of them.

Kamath's own framing was blunter than most sell-side commentary. With broking, he said, you have to keep running just to stand still. He also disclosed that fewer than 100 people across technology, product, business and operations run the whole firm, and that Zerodha needs around ₹11,000 crore of capital simply to operate at its current size, a barrier he treats as a competitive moat.

Is this new, or just the cycle?#

India has watched retail leverage build before. What differs now is the direction of causation. In 2007-08 and again in 2021, margin books swelled because markets were rising. This time the index has fallen while the margin book has grown 65 per cent, and it has grown partly because regulation made the cheaper form of leverage, derivatives, more expensive.

So this looks like a structural change wearing the costume of a cyclical one. SEBI set out to reduce speculative retail activity in F&O and succeeded: fewer traders, smaller aggregate losses. But the appetite for leverage did not go away. It moved into a product where the broker rather than the clearing house carries the credit, and where half the collateral is illiquid.

Regulators are not blind to this. The RBI's collateral framework tightens the funding chain and SEBI's 500 per cent cap is a real constraint. Whether those two instruments are calibrated for a sharp mid-cap correction is an open question, and it will be answered by events rather than by analysis.

Key takeaways#

  1. Zerodha's FY26 revenue of ₹7,464 crore and profit of ₹4,283 crore were roughly flat, with brokerage income down to ₹2,738 crore and exchange transaction-charge income at zero.
  2. Margin funding now supplies about 10 per cent of Zerodha's revenue, up from almost nothing in FY25. That is the clearest sign yet that broking economics have shifted from fees to interest.
  3. India's combined MTF book hit a record ₹1.51 lakh crore on 26 August 2026, roughly six times its FY23 level, while the Nifty 50 fell over the past year.
  4. More than half the book, ₹76,904 crore, now sits in non-F&O stocks, which are harder to liquidate in a falling market than the large caps that dominated earlier margin cycles.
  5. The RBI's 2026 collateral directions raise brokers' cost of funding that book, and those costs reach retail borrowers through MTF interest rates.

Frequently asked questions#

Is margin trading facility the same as F&O leverage? No. MTF is a funded delivery position. You own the pledged shares and pay daily interest. Futures and options leverage comes from exchange margins, involves no delivery, and is centrally cleared.

Why did Zerodha's transaction-charge income fall to zero? SEBI's true-to-label circular, effective October 2024, forced exchanges to charge all members a uniform rate instead of volume slabs. The rebate that high-volume brokers used to earn no longer exists.

Does a record MTF book mean brokers have lent ₹1.51 lakh crore? No. The exchange-reported figure is the total value of shares held under the facility, including the client's own margin. Broker credit exposure is a fraction of it.

Has SEBI's derivatives crackdown worked? On its stated objectives, largely yes. Active traders fell 18 per cent to 8.75 million and aggregate losses fell 18 per cent to ₹91,685 crore in FY26. Whether displacing leverage into the cash market counts as success depends on what you were measuring.

Why is Groww growing while Zerodha is flat? Groww is gaining share within a shrinking market; Zerodha holds the largest position and absorbs the contraction. Both face identical regulation.

What would a stress event actually look like? A sharp fall in crowded mid caps triggers margin calls. Clients who can't meet them have their pledged shares sold. If the stocks are in lower circuits there are no buyers, so unmet losses land on broker balance sheets and the forced selling amplifies the move.

Should the Ribbit Capital sale be read as a signal? Early-stage investors routinely exit after listing and lock-in expiry. It tells you about the seller's portfolio timeline, not necessarily about Groww's fundamentals. This article does not offer investment advice.

Glossary#

Margin trading facility (MTF). A SEBI-regulated arrangement in which a broker funds part of a client's cash-market share purchase, holds the shares as pledged collateral and charges daily interest.

Amount financed. The exchange-reported MTF figure. It is the total market value of shares held under the facility, combining client margin and broker funding.

Margin call. A demand for additional funds when a leveraged position's value falls below the required maintenance level. Unmet calls trigger forced liquidation.

True to label. SEBI's requirement that charges passed to clients match what the intermediary actually pays, and that exchange fees be uniform across members rather than tiered by volume.

Securities transaction tax (STT). A levy on the value of securities trades, payable whether the trade makes money or loses it. Raised on derivatives from 1 April 2026.

Haircut. The discount a lender applies to pledged collateral. A 40 per cent haircut means ₹100 of shares supports ₹60 of borrowing.

Non-F&O stock. A listed share with no exchange-traded derivatives, generally less liquid and more prone to hitting circuit limits.

Net worth ceiling. SEBI's limit on a broker's MTF exposure, set at 500 per cent of the broker's net worth.

References#

This article is journalism, not investment advice. Figures described as estimates or projections are not certainties. Nothing here is a recommendation to buy, sell or hold any security.

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