Loan Against Securities (Beta)

People,

We are happy to do a beta release of our latest offering — Loan against Securities (LAS). LAS is offered by Zerodha Capital, an RBI approved NBFC.

When you avail a loan against securities held in your demat account, you basically pledge the securities you hold to the NBFC and the NBFC offers you a loan against the pledged securities.

Here is a quick summary of the process for you:

  1. Select the eligible securities and quantity from your Zerodha demat account against which you wish to avail the loan.
  2. Review and digitally sign the loan application.
  3. Wait for approval (this takes up to 24 hours).
  4. Receive cash in your bank account.

You can read the FAQs listed here to understand this better.

The entire process is online and shouldn’t take you more than 10 minutes to complete. We will need about 24 hours to complete the backend process and disburse funds to your bank account. Of course, we will work towards shrinking the 24-hour timeline in the future.

Few things to keep in mind

  1. You can only avail a loan against securities from the approved list. This list is subject to change.

  2. We apply a haircut of 55% on your holdings and give a loan against the remaining value.
    For example, if you have 1 Lakh worth of Infy shares, the haircut is 55% i.e. Rs.55,000/-. The loan amount is equal to the holding value - haircut. In this case, you get a loan of Rs.45,000/-

  3. The interest rate is 10.5% per annum. Unlike an EMI repayment, in LAS you only need to service the interest. For example, in the above case, the monthly interest for Rs.45,000/- works out to Rs.388.35/- per month

  4. When you decide to repay the principal, the stocks pledged with the NBFC are unpledged.

  5. When you pledge the securities, you still continue to remain the beneficial owner of the shares. So you will continue to enjoy the benefits of corporate actions like dividends, splits, bonuses, etc.

  6. RBI mandates that the loan-to-collateral value remains 50% throughout the tenure of the loan. In case the 50% ratio is not satisfied (as stock price tends to fluctuate) you’d be required to either repay part of the loan or pledge more securities. If you don’t do either, then the NBFC can invoke the pledge and make good the difference by selling the securities. Do read the FAQs to understand this better.

  7. To avail LAS, the minimum number of stocks to pledge is 3. The maximum loan is capped to Rs.25L, and the minimum loan amount is Rs.25,000. The processing fee, including GST, is Rs.436.

I think we have a great product here, LAS was always a premium offering by banks and NBFCs and has remained out of reach to retail participants. We hope to break that status quo.

Lastly, availing a loan against securities is literally a few clicks away and you may be tempted to avail the loan even if you don’t need the funds. So please exercise common sense and evaluate your situation before availing the loan.

Do let us know if you have any queries.

41 Likes

Unable to open list of "approved securities "

This is working, can you check again, please? Thanks.

Will it be possible to make OD facilities for loan ,for example i pledge some of my shares and get limit of 1 lakh , and utilise/withdraw the amount as per requirements , similar to how we get from banks. I understand that this maybe not very simple though.

There are two approaches to setting up a LAS facility -

  1. Overdraft type, like the one which you’ve described
  2. As per availability, where you pledge to the extent of loan required

We have opted for the latter since it is not just operationally easier to manage but also better for the client. Better in the sense that the shares are in client’s demat and client pledges only when required. Whereas in the OD facility, the shares are marked pledged to the NBFC (or bank) for a much longer period than required.

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Does this impact the existing pledge mechanism for those not wanting cash in bank account and only want to use the pledge as collateral for trading?

Not yet

@Karthik is it possible to take a loan for 3 days and then repay? E.g. last week of a month, when you may need funds and your salary is just 3 days away. You can take a loan for 3 days. Once you get your salary, you can pay it back. Will it then only charge interest for the 3-day period? This is how the HDFC securities LAS account work. HDFC creates an overdraft account and you can debit and credit from that account and based on the number of days you are utilizing the approved loan amount, you are charged an interest amount. Is it the same with Zerodha Capital LAS?

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Yes, it is possible (as long you pledged the necessary collateral) and Zerodha capital will levy 3 days interest against this loan.

The existing pledge mechanism and LAS are two different offerings, one doesn’t have any effect on the other. If you want collateral margin for trading you can pledge the securities like you normally do.

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These are two different reasons to pledge. One does not interfere with the other.

How will it affect credit.Will the periodic reporting of loan will be done to CIBIL in a similar way as bank/nbfc does.

Yes, all NBFCs and banks are mandated to upload repayment details to the credit bureaus. Irregular repayments will have a -ve impact on your credit score.

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Can we pledge futures and options?

No, you cant.

How about commodities futures?

No, you cant pledge any derivative instrument - EQ, CDS, Commodities.

ETFs?

Not for now, but we may include this going forward. Here is the list of what you can pledge for LAS now - https://docs.google.com/spreadsheets/d/13yoTvKNpiYxN_ZIxaykgkpqrSFLud76s7Ifs7o6q-cA/edit#gid=1942191090