The Reserve Bank of India (RBI) and financial regulators have raised the per-individual limit for Loans Against Shares (LAS) from ₹20 lakh to ₹1 crore, marking a significant move for investors looking to leverage their equity holdings. This development opens new avenues for individuals to access liquidity without selling their shares, providing greater flexibility in financial planning.
What Are Loans Against Shares (LAS)?
Loans Against Shares are secured loans where investors pledge their listed equity shares or mutual fund units as collateral. Key features include:
Collateral: Listed shares or equity mutual funds
Loan-to-Value (LTV) Ratio: Typically 50–70%, depending on the share’s market value
Interest Rates: Usually lower than unsecured personal loans due to security provided
Repayment: Can be short-term or flexible based on lender terms
By leveraging shares, investors can raise capital quickly without liquidating their equity positions, thus continuing to benefit from potential market gains.
What the ₹1 Crore Limit Means for Investors
The new limit increases the borrowing capacity by five times, allowing high-net-worth individuals and retail investors to:
Access Larger Capital Quickly
Ideal for business investments, real estate, or emergency needs without selling profitable shares.
Maintain Long-Term Investments
Investors can hold onto shares while using the loan for short-term liquidity needs, preventing capital gains tax events triggered by selling shares.
Enhance Portfolio Management
The flexibility allows investors to rebalance portfolios or fund new investment opportunities without disturbing existing holdings.
How Loans Against Shares Work: Step-by-Step
Pledge Shares: The investor submits demat account details and pledges shares as collateral.
Loan Assessment: The bank evaluates market value, volatility, and eligibility.
Loan Disbursal: Based on LTV ratio, the loan amount is credited to the borrower’s account.
Repayment or Release: Upon repayment, shares are released back to the demat account; failure to repay may lead to liquidation of pledged shares.
Benefits of Higher LAS Limits
High Liquidity: Borrow up to ₹1 crore without selling assets
Lower Interest Rates: Secured by shares, rates are typically 5–7% lower than unsecured loans
Tax Efficiency: No capital gains tax until shares are sold
Flexible Tenure: Usually 1–3 years, with options to extend
Risks and Considerations
While LAS offers great financial flexibility, borrowers should be cautious:
Market Volatility Risk
If share prices fall sharply, the bank may issue a margin call, requiring additional collateral.
Interest and Fees
Though cheaper than personal loans, interest and processing fees can accumulate, increasing repayment burden.
Collateral Liquidation Risk
Defaulting on the loan may force the bank to sell pledged shares at unfavorable prices.
Over-Leveraging
Borrowers should avoid taking maximum permissible limits if market conditions are uncertain.
Practical Use Cases for Investors
Business Expansion: Fund working capital or new projects without selling equities
Real Estate Purchase: Use LAS to cover part of home or property investments
Emergency Funds: Access liquidity during sudden financial needs
Portfolio Diversification: Invest in new assets while retaining existing profitable shares
FAQ
1. What is the new LAS limit per individual?
The per-individual limit has been increased to ₹1 crore, up from ₹20 lakh.
2. Which shares can be pledged?
Listed shares in a demat account and certain equity mutual funds approved by banks/NBFCs.
3. How much can I borrow against my shares?
Loan-to-Value (LTV) ratios usually range from 50% to 70% of the market value of pledged shares.
4. What happens if share prices fall?
Banks may ask for additional collateral or reduce the loan limit; failure to comply can lead to liquidation.
5. Are LAS loans cheaper than personal loans?
Yes, since LAS is secured by collateral, interest rates are generally lower than unsecured personal loans.
Published on : 7th October
Published by : SMITA
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