Home / Business and Economy / Zerodha Warns: MTF Boom Risks Market Mayhem
Zerodha Warns: MTF Boom Risks Market Mayhem
22 Jan
Summary
- MTF loan book reached Rs 1.16 trillion, up 50% year-on-year.
- Risk management in MTF is more complex than derivatives trading.
- Regulatory safeguards protect the system, not brokers from defaults.
The outstanding Margin Trading Facility (MTF) loan book in India has surged to a record Rs 1.16 trillion as of January 19, 2026, marking a nearly 50% increase year-on-year. This significant growth is driven by stockbrokers seeking alternative revenue streams amid regulatory tightening on derivatives. Zerodha founder Nithin Kamath has highlighted the heightened risks associated with MTF, particularly its complexity compared to futures and options trading.
Kamath explained that clients can hold leveraged positions for extended periods in over 1,300 stocks, including illiquid ones. This contrasts with derivatives, where positions are typically shorter-term. He cautioned that a sharp market correction could trigger widespread, synchronized liquidations, especially in non-derivatives stocks where liquidity dries up during downturns. Layered leverage, where a small initial investment can control a much larger position, further amplifies potential losses.
While the Securities and Exchange Board of India (Sebi) has implemented measures like capping MTF exposure at 50% of a broker's net worth, Kamath suggests these safeguards are insufficient to protect brokers from client defaults. He anticipates that a major market event, similar to those in 2008, 2015, or the COVID-19 pandemic, could cause significant disruption due to forced selling in illiquid markets, even if brokers remain solvent.
