If you own shares of listed companies, you can use them as collateral to get a loan — without selling them. This is called a loan against shares (LAS).
It works similarly to a loan against mutual funds, but with some differences specific to how shares are held, valued, and pledged. This post covers everything you need to know.
How Does Loan Against Shares Work?
- You own shares of listed companies in your demat account
- You pledge those shares to a lender as collateral
- The lender marks a lien on your shares through the depository (NSDL or CDSL)
- You receive a loan — typically as an overdraft facility — based on the value of your pledged shares
- You repay the loan and the lien is removed; your shares are free again
During the entire process, your shares remain in your demat account. You continue to receive dividends and benefit from price appreciation. You just cannot sell or transfer the pledged shares until the lien is removed.
Eligibility
Who Can Apply?
- Individuals (salaried or self-employed)
- HUFs (Hindu Undivided Families)
- Proprietorship firms and Partnership firms in some cases
- NRIs may be eligible with some lenders (subject to FEMA regulations)
Which Shares Are Eligible?
Not every share can be pledged. Lenders typically maintain an approved list of shares based on:
- Listed on BSE/NSE — The share must be listed on a recognised stock exchange
- Market capitalisation — Large-cap and mid-cap stocks are generally accepted. Small-cap and micro-cap stocks may not be eligible or may have very low LTV
- Liquidity — The share should have sufficient daily trading volume
- Not in restricted category — Shares under trading restrictions, surveillance measures, or in the T2T (Trade-to-Trade) segment may be excluded
- Quality filters — Lenders may exclude shares with very high volatility, pending litigation, or corporate governance concerns
Typically, the top 200-500 stocks by market capitalisation are eligible. Each lender has its own approved list, so check with the specific lender.
Minimum Portfolio Value
Most lenders require a minimum portfolio value of ₹50,000 to ₹2,00,000 in eligible shares to process a loan. This threshold varies by lender.
LTV Ratios Explained
LTV stands for Loan-to-Value ratio. It determines how much you can borrow against the value of your pledged shares.
How LTV Works
If the LTV is 50% and your shares are worth ₹10,00,000, you can borrow up to ₹5,00,000.
Typical LTV Ratios for Shares
| Share Category | Typical LTV |
|---|---|
| Large-cap (Nifty 50) | 50% to 65% |
| Mid-cap (Nifty Midcap 150) | 40% to 55% |
| Small-cap | 30% to 40% (if eligible) |
LTV ratios are lower for shares than for debt mutual funds because shares are more volatile. A stock can drop 10-20% in a single day, while a debt fund rarely moves more than 1-2%.
Why LTV Matters
A higher LTV means you can borrow more from the same portfolio. But it also means less buffer before a margin call (more on this below). Conservative LTV ratios protect both the borrower and the lender.
Dynamic LTV
The LTV is calculated based on the current market price of your shares. Since share prices change daily:
- If your shares go up, your available loan amount increases
- If your shares go down, your available amount decreases — and may trigger a margin call
The Pledging Process
Here is how shares are pledged in India:
Step 1: Initiate Pledge Request
You or the lending platform initiates a pledge request through the depository (NSDL or CDSL). This is done electronically.
Step 2: Confirm via OTP/PIN
You receive a confirmation request through the depository system (such as CDSL’s e-Pledge or NSDL’s SPEED-e facility). You confirm the pledge using your CDSL TPIN or NSDL IDeAS PIN.
Step 3: Shares Are Pledged
Once confirmed, the shares are marked as pledged in your demat account. They remain in your account but with a “pledged” status. You can see this in your demat statement.
Step 4: Loan Disbursement
The lender verifies the pledge and disburses the loan — usually into your bank account.
Step 5: Unpledge on Repayment
When you repay the loan, the lender initiates an unpledge request. Once processed (typically 1-2 business days), your shares are free again.
What Happens to Dividends and Corporate Actions?
Dividends
You continue to receive dividends on pledged shares. Dividends are paid to the shareholder (you), not the pledge holder (lender).
Bonus Shares
If the company issues bonus shares, the new shares are typically credited to your demat account. However, they may also be automatically added to the pledge. Check with your lender.
Stock Splits
If the company splits its stock (e.g., face value from ₹10 to ₹2), you receive the additional shares. The pledge is adjusted accordingly.
Rights Issues
You can participate in rights issues, but the process may require coordination with the lender since the pledged shares are involved.
Margin Calls
A margin call happens when the value of your pledged shares drops below the lender’s required threshold.
How It Works
Suppose you pledged shares worth ₹10 lakh and borrowed ₹5 lakh (50% LTV). The lender’s margin requirement is that the loan should not exceed 65% of the collateral value.
If the market drops and your shares are now worth ₹7 lakh:
- Your loan (₹5 lakh) is now 71% of the collateral value (₹7 lakh)
- This exceeds the 65% threshold
- The lender issues a margin call
What You Must Do
You typically have 24-48 hours to respond. Your options:
- Pledge additional shares to bring the collateral value back up
- Deposit cash to reduce the loan outstanding
- Partially repay the loan to bring the LTV back within limits
If you do not respond, the lender may sell some of your pledged shares to bring the LTV within the acceptable range. This is the most important risk to understand with loan against shares.
How to Manage Margin Call Risk
- Do not borrow the maximum — If your LTV allows 50%, borrow only 30-35%. This gives you buffer
- Diversify your pledge — Do not pledge shares of a single company. A diversified set of large-cap stocks is less likely to trigger a margin call
- Monitor your portfolio — Keep an eye on the value of your pledged shares, especially during volatile market periods
- Keep additional securities ready — Have unpledged shares or mutual funds available to add as collateral if needed
Loan Against Shares vs Loan Against Mutual Funds
| Factor | Loan Against Shares | Loan Against Mutual Funds |
|---|---|---|
| Collateral | Listed shares in demat | Mutual fund units |
| Volatility | Higher (individual stock risk) | Lower (diversified portfolio) |
| LTV | 30-65% depending on stock | 50-80% depending on fund type |
| Pledge mechanism | Through CDSL/NSDL | Through RTA (CAMS/KFintech) |
| Dividends | Received by you | Depends on fund type |
| Margin call risk | Higher | Lower (funds are diversified) |
| Best for | Investors with large stock portfolios | Investors with mutual fund holdings |
Key Takeaways
- Loan against shares lets you borrow using your listed stocks as collateral
- Shares remain in your demat account with a “pledged” status
- LTV ranges from 30% to 65% depending on the stock’s category and the lender
- Only shares on the lender’s approved list are eligible — mostly large-cap and mid-cap stocks
- Pledging is done electronically through CDSL or NSDL
- Dividends and corporate action benefits continue to come to you
- Margin calls are the biggest risk — never borrow the maximum available and maintain a buffer
- Shares are more volatile than mutual funds, so margin call risk is higher with LAS compared to LAMF
Loan against shares is a useful liquidity tool for investors with significant stock portfolios. The key is to understand the LTV mechanics, keep a safety buffer, and be prepared to act if a margin call comes.
