NBFC Loan Against Shares-RBI Guidelines

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NBFC Loan Against Shares-RBI Guidelines
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NBFC Loan Against Shares-RBI Guidelines
Banks and NBFC companies give loan against Share
in the form of overdraft against the shares held
by the customer of the said company. It is the
best way to get instant liquidity without selling
their shares or securities, and once the loan is
repaid. The customer gets back the shares which
were pledged, and there is no need of liquidation
of stocks. The problem arises when the customer
is unable to repay the debt, and the NBFC is
forced to keep the stocks with themselves, and
when share prices fall a certain level, in that
case, NBFCs sells the shares against which they
had provided the customer loan. Usually, with
this, it results in severe fall in the companys
stock.
Related SARFAESI Act Applicability, Powers to
NBFCs and Banks
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RBI Guidelines for NBFC Loan Against Share

• The  NBFC Companies which come under the ambit of
  the circular published by RBI are companies which
  have an asset size of Rs.100 crores.
• The NBFC must maintain an LTV ratio of 50.
• They should only accept Group I securities as
  classified by SEBI in its circular of March 11.
• Prior to circular mentioned above, NBFC was not
  regulated by any specific guidelines regarding
  loan against shares provided by them to their
  customers, the only regulation which was followed
  were prudential norms which were to be followed
  by all types of NBFCs.

Must Read NBFC Incorporation in India under
Companies Act
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Prerequisite of Registration Process of NBFC

• The minimum net owned funds of the company prior
  to registration should be 2 crores.
• The company should have clean cibil records.
• At least one of the directors appointed should
  have NBFC background or a senior banker should be
  appointed as a full-time director of the company.

Read More NBFC License Takeover Procedure
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