If shares are pledged for margin, can they also be lended as per SLB?
Also if shares move in and out of demat(because of SLB), does that affect FIFO taxation?
As per my knowledge, No, shares that are pledged for margin cannot simultaneously be lent under the Securities Lending and Borrowing (SLB) mechanism in India.
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Stocks that are pledged for margin, taken under MTF, or marked for a loan can’t be lent out. You can lend only free holdings through SLB.
Also, lending shares through SLB doesn’t affect your FIFO or cost of acquisition. It’s treated as a temporary transfer, not a sale, so your original purchase date and holding period stay the same once the shares are returned. @BB789
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Thanks. Do you have any experience with SLB? What’s the expected interest you could get?
Thanks. Would you kindly explain the charges here, it says
Charges on security as collateral
What does this mean? My mind thinks I can borrow securities and pledge them as collateral. Can I do that? And that it would cost extra in addition to costs related to borrowing. Is that right? If not, what collateral is this talking about?
My understanding:
Zerodha charges for Securities Lending and Borrowing (SLB) include a processing fee of 20% of the lending/borrowing price plus 18% GST on the lending/borrowing fee. Additionally, Depository Participant (DP) charges of â‚ą13 + 18% GST apply when shares are moved from the demat account for settlement. The charges are debited from your account on the day you lend or borrow shares.
No, I never found any interested buyer. You can refer to SLB Stocks - Security Lending and Borrowing Scheme (SLBS)- NSE India for SLB opportunities.
I prefer pledging shares and using the margin from trading rather than going for SLB. Broker fee is high + very less opportunity + not such a smooth process.
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20% not on the borrowing price , but on the borrowing fee… on the profit/loss not on the turnover. Otherwise it’s unsustainable to even try.
That’s the main charges. But I’m curious about that 0.04% per day for collateral. Hence the original question.
It is mentioned 20% of the lending/borrowing price plus 18% GST on their website…
Example scenario
If you lend 100 shares of BAJAJ-AUTO at a lending price of â‚ą13 each:
- A: Processing fee of 20% on turnover (100 Ă— 13 = 1300) = 20% of 1300 = â‚ą260
- B: 18% GST on processing fee = 18% of 260 = â‚ą46.8
Total SLB fees: A + B = â‚ą306.8
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Ok. But it’s not the full turnover. I assumed “lending price”/“borrowing price” meant the full turnover. Like in your example, Bajaj Auto would be 9000 per share x100 shares = 900,000 would be the full worth of shares that would be moved from demat. But they are using the term “lending price”/“borrowing price”/“turnover” to only mean the premium/profit/loss. If Bajaj auto was trading at 9000, they’re saying you’d lend it at 13 lending price, i.e., at 9013.
If I’m wrong in my interpretation, 20% is unsustainable for anyone.
Yes, correct. Still, the fee is very high. ~16% on the profit + DP charges (â‚ą13 plus 18% GST ) + taxation as per your income slab.
How 16%? It should be 23.6%(20%+GST). Not just DP charges, but other regulatory charges as well - so maybe 25-30%.
At a premium of 13 for 3600(price at the time of screenshot in the article linked), the “gross” return over capital comes to around 0.35%(Net at 0.25%). If that was monthly, it seems way too low(less than FD at the time). Nevertheless, if you just had shares lying around in demat, it’s fixed income for something that will give 0 return(in exchange for credit risk).
For anyone interested in official wording on lending not treated as “transfer”, see
https://incometaxindia.gov.in/Communications/Circular/910110000000000997.htm
My bad I considered wrong profit number. Yes, correct it will be ~23.6%