The Reserve Bank of India (RBI) and financial regulators have approved a significant increase in the Loans Against Shares (LAS) limit, allowing investors to borrow up to ₹1 crore against their equity holdings. Previously, the limit was set at ₹20 lakh per individual.
This move is expected to enhance liquidity for investors, allowing them to leverage their stock portfolios more effectively without selling their holdings.
What Are Loans Against Shares (LAS)?
Loans Against Shares (LAS) are collateralized loans provided by banks and financial institutions where investors can pledge their listed equity shares to borrow money.
Key features of LAS include:
Collateralized Lending: Shares serve as security for the loan.
Lower Interest Rates: Compared to unsecured personal loans.
Flexibility: Borrowers can use funds for various purposes without liquidating equity.
Margin Requirements: Banks require maintaining a minimum margin, depending on share volatility.
New Limit and Its Implications
The increase from ₹20 lakh to ₹1 crore allows high-net-worth investors to:
Unlock larger amounts of capital tied in equity portfolios.
Fund business investments, real estate, or other financial opportunities without selling shares.
Reduce the need for liquidating stocks, allowing continued participation in potential equity market gains.
Financial analysts believe this change could boost investor confidence and improve liquidity in both retail and institutional segments.
Eligibility Criteria for LAS
Share Ownership: Borrowers must hold listed equity shares acceptable to the lender.
Loan-to-Value (LTV) Ratio: Banks typically allow 50–75% of the share value as a loan.
Creditworthiness: Borrowers should meet standard bank eligibility norms and credit assessments.
Margin Maintenance: Investors must maintain the required margin to avoid margin calls.
Risks to Consider
While LAS offers opportunities, investors should be aware of potential risks:
Market Volatility: A sharp decline in share prices may trigger margin calls.
Interest Payments: Loan interest adds financial liability, which must be serviced regularly.
Liquidity Risk: If share prices drop significantly, investors may need to deposit additional funds.
Prudent investors are advised to borrow within comfortable limits and consider market volatility before leveraging equity holdings.
How to Apply for LAS
Approach banks or financial institutions offering LAS.
Submit demat account details, shareholding proof, and personal KYC documents.
Banks assess the value of pledged shares and applicable LTV ratio.
Upon approval, the loan amount is disbursed directly into the borrower’s account.
Frequently Asked Questions (FAQ)
1. What is the new per-individual limit for Loans Against Shares?
The limit has been increased to ₹1 crore from the earlier ₹20 lakh.
2. Can any listed shares be pledged for LAS?
Banks typically accept liquid, high-cap shares listed on recognized exchanges; acceptance depends on the lender’s policy.
3. What is the Loan-to-Value (LTV) ratio?
The LTV ratio usually ranges from 50–75% of the pledged share value, depending on share quality and volatility.
4. Are there risks involved in LAS?
Yes, including market volatility, margin calls, and interest obligations, so borrowing should be done prudently.
5. How quickly is the LAS amount disbursed?
Once the shares are pledged and verified, the loan is usually disbursed within 1–3 business days, depending on the bank.
Published on : 6th October
Published by : SMITA
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