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.
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
You can only avail a loan against securities from the approved list. This list is subject to change.
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/-
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
When you decide to repay the principal, the stocks pledged with the NBFC are unpledged.
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.
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.
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.
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 -
Overdraft type, like the one which you’ve described
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.
@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?
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.
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.
