Now a days people don’t look outwards instead they look inside their house for funding their personal needs or contingencies. By this we mean they look for good old shares lying with them in physical form( or in demat form for the smart investor). Banks have also taken note of this and providing advances against security of shares, debentures and bonds to individuals, share and stock brokers and market makers.
A loan against share(LAS) is a facility offered by banks against the security of shares owned by either or immediate relatives known as third party pledgers.
Advantage- Provides immediate credit to the borrower while remaining the owner of shares which are only blocked by lender bank.
Eligibility to avail this facility- Can be offered only against shares that feature in bank’s approved list.
These loans are granted to individuals to meet contingencies and personal needs or for subscribing to new or rights issues of shares / debentures / bonds or for purchase in the secondary market, against the security of shares / debentures / bonds held by the individual.
Credit Limit-The amount of loan generally does not exceed the limit of Rs. 10 lakhs per individual if the securities are held in physical form and Rs. 20 lakhs per individual if the securities are held in dematerialised form.
Margin kept by banks- Minimum margin of 50% of the market value of securities in case they are held in physical form and 25 % in case of dematerialized forms.
A current account is opened in the borrower's name with a set credit limit set. A personalised cheque book, ATM card, and mobile and phone banking are provided for transactions
Loan is normally given in the form of overdraft facility against the pledge of the securities. Interest has to be paid for the amount and period for which the overdraft facility is utilized. A declaration is obtained from the borrower indicating the details of the loans / advances availed against shares and other securities, from any other bank, in order to ensure compliance with the ceilings prescribed for the purpose.
Benefits of Loan Against Shares
Instant liquidity against shares without surrendering the ownership of shares
Caters to short term funding requirements for investment, contingencies as well as personal needs
Single scrip lending is also allowed but against higher rate of interest.
We have tried our best to keep the latest information updated as available from RBI, users are requested to confirm information with the respective bank before using the information provided. The author reserves the right not to be responsible for the topicality, correctness, completeness or quality of the information provided. Liability claims regarding damage caused by the use of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected.