Hey all, you now have to pledge a minimum of 3 scrips/stocks when pledging shares for a loan. Previously, you could pledge even a single scrip to avail a loan.
Context: Why this change? Why add a restriction to the number of scrips?
Okay, here’s a simple explanation. Imagine you hold shares of Stock A in your portfolio. This means that us as an NBFC business, have an exposure of 100% to a single scrip. This is highly risky for obvious reasons. Imagine Stock A breaching the lower circuit every day; we’ll have to write off this loan.
A very good recent example of this was PayTM. PayTM’s shares kept breaching the lower circuit for a couple of days, and the Loan-To-Value (LTV) of clients holding just PayTM shot up. As you all know, the haircut for all loans at Capital is 55%, which means that the loan value is 45% of the actual value of the stocks.
Although this rule of 3 scrips minimum was in the pipeline for quite some time, we hadn’t really gotten it implemented, given that our business had been in capacity-building mode of sorts until very recently.
Do we allow any random scrip to be pledged on Zerodha Capital?
No, we only allow scrips from Group 1 stocks from NSE’s list. Even here, we don’t allow all the stocks. Similar to the pledge list on Zerodha, Zerodha Capital also has an approved list of securities, which is based on a few parameters. We also allow equity mutual funds to be pledged and do not allow any debt instruments.
How the rule works
As many of you might know, there are 2 types of loans: fresh loans and top-up loans.
- Fresh loans are when you don’t have any outstanding loan with us and avail new loan.
- Top-ups are when there is a running/outstanding loan already, and you take a loan by pledging more securities.
For fresh loans
The system throws a simple error when you only select one scrip out of the lot, or doesn’t allow you to pledge if you have a single scrip in your portfolio (or upto 2 scrips).
We all know that mutual funds are relatively safer as collateral for us as a business when you compare them with stocks. Therefore, you can pledge even one mutual fund and avail a loan on it. What happens if there is a mix of stocks and mutual funds?
We have come up with a logic for this:
| Condition | Rule |
|---|---|
| All stocks | At least 3 stocks must be pledged, with no stock individually exceeding 50% of the total value. |
| Stocks & Mutual funds: If the MF percentage is less than 50% of the total loan value. | No stock value should be more than 50% of the loan value. |
For top-up loans:
Top-up loans are a little more difficult to handle, and we’re currently trying to solve for this.
These changes are now live for fresh loans, and the FAQs page is being updated as well.