Lending against shares is very common in India & generally done by NBFCs & Banks & is not subject to specific instructions apart from the general prudential regulation applicable to all NBFCs.
Lending against shares could be in the normal course where shares are accepted as collateral or as part of their capital market operations.
NBFCs lend either by way of pledge of shares in their favour, transfer of shares or by obtaining a power of attorney on the demat accounts of borrowers.
Irrespective of the manner and purpose for which money is lent against shares, default by borrowers can and has in the past lead to offloading of shares in the market by the NBFCs thereby creating avoidable volatility in the capital market.
It is, therefore, found necessary by RBI to introduce a minimum set of guidelines on lending against shares while at the same time ensuring that these do not result in unnecessary constraints to the requirements of genuine borrowers.
Henceforth NBFCs lending against collateral of shares shall, with effect from the date of circular:
Lending against shares could be in the normal course where shares are accepted as collateral or as part of their capital market operations.
NBFCs lend either by way of pledge of shares in their favour, transfer of shares or by obtaining a power of attorney on the demat accounts of borrowers.
Irrespective of the manner and purpose for which money is lent against shares, default by borrowers can and has in the past lead to offloading of shares in the market by the NBFCs thereby creating avoidable volatility in the capital market.
It is, therefore, found necessary by RBI to introduce a minimum set of guidelines on lending against shares while at the same time ensuring that these do not result in unnecessary constraints to the requirements of genuine borrowers.
Henceforth NBFCs lending against collateral of shares shall, with effect from the date of circular:
- Maintain an LTV ratio of 50%; and
- accept only Group 1 securities (specified in SMD/ Policy/ Cir - 9/ 2003 dated March 11, 2003 as amended from time to time, issued by SEBI) as collateral for loans of value more than`. 5 lakh, subject to review by the Bank.
- All NBFCs with asset size of `.100 crore and above shall report on-line to stock exchanges, information on the shares pledged in their favour, by borrowers for availing loans. The infrastructure for on-line reporting to the stock exchanges has been put in place. The exchanges may be approached for creation of user IDs. The web links for
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