Rs 60,000 crore losses, Sebi crackdown, and a hope for banks
As India shifts its investing habits, the allure of high-risk, high-return options is strong. However, this isn’t for everyone, as Indian households are losing about Rs 60,000 crore in derivatives trades in a year.
Sebi chief Madhabi Puri Buch noted, “If Rs 50-60,000 crore annually is lost in F&O (futures & options) trades, that money could be better utilized in IPOs, mutual funds, or other productive areas.” The capital markets regulator reported that retail investors alone lost Rs 52,000 crore in FY24, highlighting the need for stricter controls.
RBI Governor Shaktikanta Das observed a trend where capital markets are increasingly favored over traditional bank savings. This shift concerns banks, as their deposit base is shrinking while more individuals turn to stocks, mutual funds, and other instruments. Das stressed that banks must find new ways to address the gap between credit and deposits.
The market regulator noted that in FY24, 92.5 lakh retail investors and proprietorship firms have suffered losses in F&O trading. There are worries that household savings are being squandered on speculation rather than being invested productively. In response, the market regulator has introduced a seven-point plan to curb such trades, and the Union Budget has included measures to discourage them.
This situation offers a glimmer of hope for banks. SBI Chairman Dinesh Kumar Khara suggested that as retail investors move away from derivatives, they might return to the banking system.
“F&O (future and options) kind of things are being discouraged for the retail (investor) by the regulator. Those who are resorting to such kind of an instrument, they might come back to the banking system,” Khara told PTI.
Despite a recent lag in deposit growth compared to credit expansion, Khara pointed out that deposits remain crucial for savings, and historically, banks have managed similar gaps before.
Currently, concerns about the disparity between deposit and credit growth are affecting loan issuance, which could impact overall economic growth. SBI, holding over 20% of the market share, aims for a 15% credit growth and an 8% deposit growth in FY25.
Inside Sebi’s plan to change the F&O game
Here are the main points from SEBI’s proposed changes for derivative trading;
SEBI proposed raising the minimum contract size for F&O trading from Rs 5-10 lakh to Rs 15-20 lakh in the first phase, and Rs 20-30 lakh in the second phase, to deter retail investors.
The proposal also included mandating the upfront collection of options premiums to avoid undue intraday leverage and ensure positions are backed by sufficient collateral.
SEBI suggested that clearing corporations and stock exchanges monitor position limits for index derivative contracts on an intraday basis and adjust strike intervals based on proximity to the prevailing index price.
The introduction of weekly options contracts on a single benchmark index is also proposed to enhance investor protection and market stability.
The Extreme Loss Margin (ELM) is proposed to be increased from 3% to 5% to address high implicit leverage and notional risk in options contracts near expiry.
