NBFC Loan Against Shares-RBI Guidelines

1. NBFC Loan Against Shares-RBI Guidelines

2. NBFC Loan Against Shares-RBI Guidelines Banks and NBFC companies give loan against Share in the form of overdraft against the shares held by the customer of the said company. It is the best way to get instant liquidity without selling their shares or securities, and once the loan is repaid. The customer gets back the shares which were pledged, and there is no need of liquidation of stocks. The problem arises when the customer is unable to repay the debt, and the NBFC is forced to keep the stocks with themselves, and when share prices fall a certain level, in that case, NBFCs sells the shares against which they had provided the customer loan. Usually, with this, it results in severe fall in the company’s stock. Related: SARFAESI Act: Applicability, Powers to NBFC’s and Banks

3. RBI Guidelines for NBFC Loan Against Share • TheNBFC Companies which come under the ambit of the circular published by RBI are companies which have an asset size of Rs.100 crores. • The NBFC must maintain an LTV ratio of 50%. • They should only accept Group I securities as classified by SEBI in its circular of March 11. • Prior to circular mentioned above, NBFC was not regulated by any specific guidelines regarding loan against shares provided by them to their customers, the only regulation which was followed were prudential norms which were to be followed by all types of NBFC’s. Must Read: NBFC Incorporation in India under Companies Act

4. Prerequisite of Registration Process of NBFC • The minimum net owned funds of the company prior to registration should be 2 crores. • The company should have clean cibil records. • At least one of the directors appointed should have NBFC background or a senior banker should be appointed as a full-time director of the company. Read More: NBFC License Takeover Procedure

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