Loan Against Shares in India: RBI Rules, LTV 50% and Interest Rate Trends

Investors can raise cash without selling equity holdings by using a Loan Against Shares (LAS). The facility lets an investor borrow against a portfolio and still keep ownership. It is used for business expansion, personal spending, or short-term liquidity needs. The pledged assets act as security, so approval is often faster than unsecured credit.

A Loan Against Shares, also called a loan against securities, is a secured loan. Lenders may accept shares, mutual funds, bonds, ETFs, or insurance policies as collateral. Instead of exiting investments and losing potential future gains, borrowers receive liquidity while keeping the investments. The lender sets a limit using a loan-to-value, or LTV, ratio.

Under current RBI guidelines, lenders generally allow up to a 50% LTV for shares. The same cap typically applies to equity mutual funds. So, shares worth Rs. 10 lakh may support a loan of up to Rs. 5 lakh. The final limit also depends on the lender and accepted security list.

Unlike many term loans, the credit limit can move with market prices. The lender checks the value of pledged securities on an ongoing basis. If share prices fall, the eligible borrowing amount also drops. Securities are pledged through a demat account, which helps the lender place and track the pledge.

Loan against shares interest rates are often lower than unsecured borrowing. Rates currently range between 8% and 24% per annum. Pricing depends on the lender, borrower profile, and security quality. Prime borrowers pledging blue-chip stocks can access 6.75% to 9%. Many borrowers fall in the 10% to 15% band.

The contrast with personal loans is often notable. Personal loans may carry interest rates above 14% to 24%. LAS pricing varies, but the secured nature can reduce cost. The table below summarises the rate bands and common borrower categories mentioned by lenders.

Loan type	Indicative interest rate range	Common context
Loan Against Shares (LAS)	8% to 24% per annum	Depends on lender, profile, and pledged securities
LAS for prime borrowers with blue-chip collateral	6.75% to 9% per annum	Better pricing for strong profiles and liquid stocks
Personal loan	Above 14% to 24% per annum	Unsecured borrowing, usually higher pricing

Loan Against Shares: RBI and SEBI rules and permitted use

The RBI prescribes a maximum 50% LTV for loans against shares and equity mutual funds. Larger loans usually require highly liquid securities. Pledged shares must be held through authorised depositories for tracking and transparency. RBI guidelines also bar using LAS funds for speculation, including margin trading or leveraged stock market bets.

The key risk rises during sharp market corrections. When prices drop, collateral value falls and the LTV can breach the limit. That creates a margin shortfall and may lead to a margin call. The lender may ask for more securities or partial repayment. If unmet on time, the lender can sell pledged shares to recover dues.