Loan against shares from zerodha

Zerodha
1

As zerodha had got nbfc license has it started to lend money on pledging of shares. I mean not for margin for trading F&O but for any personal use.

2

If not zerodha , most of the private banks and nowadays even some cooperative banks do provide LAS facility…the rate of interest range from 9.5 to 11% but kindly note that it is overdraft account and bank do insist on using minimum 50 % of your sanctioned limit.

3

Not yet, but we will in the next few weeks.

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4

I have done extensive market research in the loan against security (LAS) product, finding out their underlying terms and conditions, interest rates, comparing them with peers and in my experience it would be better to keep your long term investment with a DP like HDFC Securities and pledge it there for LAS overdraft account, instead of going ahead with a NBFC.

Reasons as under:-

  1. Banks would give you a lower interest rate for the LAS overdraft account. For e.g. HDFC bank gives you at 10.75% p.a while NBFC would be in the range of 13-15%. NBFC will never be able to match such low interest rate.

  2. These banks open a LAS overdraft account. It is a current account linked with your savings account which has the approved loan amount as balance. So this money is always ready for dispersal 24x7. At one click you can transfer money needed to your savings a/c. Not sure about NBFCs.

  3. Overdraft Bank a/c to savings bank a/c transfer between your a/c has no charge. Not sure about dealing with NBFCs.

  4. Some LAS accounts have fixed term for repayment. Say you have a LAS account with limit of 5 lakhs (which means you have pledged shares of value 10 lakhs), now say, you needed 50,000 urgently, so you took a loan. But some LAS facilities have a mandatory 6-12 months repayment term. Which means even if after 10 days you have money, you can’t pay back your loan. Which means you pay more interest amount.

While some LAS accounts like HDFC allow you to pay back loan without forcing you to repay in 6-12 months. Which means, if you take a loan today from the overdraft a/c of Rs 50,000 and say after 5 days you are in a position to pay it back, just transfer that 50,000 from your savings a/c to LAS account and you will have to pay interest for only those 5 days which is minimal. Not sure if NBFC allow this.

So, I would suggest you do this which I have done:-

Keep your long term large cap equity shares (Nifty50 ETF or any script that you want to hold on for say 5 years regardless of the market fluctuations) with a DP which has low interest rate and that allows flexi repayment structure. For example, if you have large cap scripts worth Rs 4 lakh, you keep them with HDFC Securities and pledge them to get a LAS overdraft account of Rs 2 lakh (50% of worth of market price of shares). Now the large caps would grow with 10-15% annually on an average, and the dividend you get (tax free) would easily take care of the annual maintenance charges of the HDFC Securities DP account and the LAS overdraft account.

@nithin let us know if you have a better solution.

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5

@rupeshmandal : Appreciated the writing by you.(A) i did have a LAS account with a mnc bank and at one time with hdfc bank too , though my demat account was and is with a cooperative bank.so in my view you do not need to shift /change your DP but simply pledge the share to hdfc bank (B)please explain me the 4th point because in my understanding once O/D is sanctioned say for rs 5 lakh the whole 5 lakh you can use any time so where is the question of loan of 50 ,000 or you mean total use of 5 lakh 50000 funds .© Never had such interaction with hdfc bank (a decade back)but the mnc bank (in recent time)insisted on using minimum 50% of sanctioned O/D .

6

Hi,

So I was told by the HDFC bank staff that I have to keep the Demat account with HDFC Securities in order to get the LAS overdraft account facility. Now that you told me a that your Demat a/c can be elsewhere, say on Zerodha but you can open the LAS account in HDFC bank, I will confirm the same with the bank again. If it is possible, it is even better as Zerodha AMC charges are low and you can pledge them with HDFC bank to get the LAS overdraft a/c which would have a lower interest rate than what Zerodha would provide at. Let me confirm this as it sounds too good to be true.

Regarding this, let say you have shares worth Rs 10 lakh. When you pledge for LAS, they sanction an OD a/c account with limit of 50% of current market value of your shares. So 50% of 10 lakh = 5 lakh becomes your LAS OD a/c limit.
Now, say you need 50,000 for an emergency. You can transfer 50k from your OD a/c to savings a/c and utilise that money. This acts as a loan from the OD a/c. After debiting 50,000 available balance in the OD a/c = 4,50,000.

Now, comes the interest part. So on the Rs 50,000 amount that you have used, bank would charge you interest @10.75% p.a. credited on a daily basis. So (50,000 * (10.75/100))/365 would be day 1 credit interest which would be deducted from the available balance in OD a/c and so on and so forth for the days until you repay. You transfer back the Rs 50,000 + the credit interest accumulated from your savings a/c to the OD a/c in order to close the loan.

So if you took loan from the OD a/c on 25th on a month and on 30th when you get your salary you paid it back, you just paid interest for those 5 days. How cool is that. No strings attached.

I have not faced this in case of HDFC LAS account, I have used a lesser amount than 50% of sanctioned value, from the LAS OD a/c and in fact, paid it the same day itself and I wasn’t charged any interest. So HDFC was quite flexible for me.

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7

@rupeshmandal : i used to avail LAS facility to participate as hni in IPO’s and always had my demat account with a local cooperative bank but pledged the shares to hdfc bank (9 -10 years back ) and a mnc bank ( in 2014-15) . about a year was ok but later closed the mnc bank account after receiving phone call and circulars from bank that minimum of 50% of sanctioned limit must be used . it means it is on the discretion of manager or else why no objection was raised for over a year . anyways i am not having LAS account since April 2016…

8

@NithinKamath I will appreciate if ZERODHA , offer interest on LAS product midway between 10 % pvt.(Indian / MNC) banks , and 13.5% of NBFC

9

He meant taking 50,000 loan for urgent use out of 5lakh credit limit… overdraft is just like credit card but secured and u can take amount upto limit

10

@nithin any updates.

11

Regarding this any development.

12

We have started giving this out to a very small group of clients, testing out the product.

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