You can soon take bigger loans against shares in India
What's the story
The Reserve Bank of India (RBI) has proposed an increase in the loan-to-value (LTV) ceiling for loans taken against shares and debt mutual funds. The central bank also suggested a five-fold hike in the amount of loan an individual can avail from banks, up to ₹1 crore. The proposal was shared through a circular issued yesterday.
Increased limits
Proposed LTV limits for loans against shares, debt mutual funds
Along with shares and debt mutual funds, the RBI also proposed raising the LTV for debt securities and commercial papers. The central bank has suggested increasing the LTV for loans against shares to 60% from 50%. Similarly, it has proposed raising the LTV for debt mutual funds to 75% from its current limit of 50%.
Loan regulations
Guidelines for loans against government securities, sovereign gold bonds
The RBI's draft guidelines mention that loans against government securities and sovereign gold bonds (SGBs) will follow bank policy or gold loan rules. However, if the ratings for any of these securities are downgraded below investment grade, banks will have to replace them with other eligible ones within 30 working days or repay a proportionate portion of the exposure.
Loan caps
Loan limit set at ₹1cr
The RBI has capped the amount of loan that can be granted to individuals against these securities at ₹1 crore. For acquisition of securities in secondary markets, a loan of up to ₹25 lakh per individual will be granted. However, banks are barred from lending to their own employees or employee trusts for purchasing its own stocks under ESOPs/IPOs/FPOs or from the secondary market.