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Norms issued for NBFCs on lending against shares

With an aim to curb volatility in capital market, the Reserve Bank on Thursday asked NBFCs to maintain a loan-to-value (LTV) ratio of 50 per cent in case of lending against collateral of shares.

Also, they have been asked to accept only ‘Group 1’ securities as collateral for loans of value more than Rs 5 lakh, RBI said in a notification.

Non Banking Finance Companies lend either by way of pledge of shares in their favour, transfer of shares or by obtaining a power of attorney on the demat accounts of borrowers.

RBI said that irrespective of the manner and purpose for which money is lent against shares, default by borrowers can and has in the past lead to offloading of shares in the market by the Non Banking Finance Companies thereby creating avoidable volatility in market.
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