A Loan Against Shares (LAS) scheme operates as a structured, secured credit facility that allows investors to leverage their listed equity portfolios for immediate liquidity without disrupting their long-term investment core and beneficiary rights.
The borrower maintains absolute ownership of the underlying securities, ensuring that all dividends, voting rights, and corporate action benefits are accrued and received. Furthermore, because interest is calculated solely on the actual amount drawn down rather than the total sanctioned limit, it serves as a highly cost-efficient alternative.
LAS is designed to cater to a diverse spectrum of market participants. It addresses the transient liquidity requirements of investors and enables promoters to raise substantial capital without diluting their equity control.
By using your equity portfolio as collateral, LAS enables investors to satisfy urgent financial needs.
How is the loan-to-value (LTV) ratio determined for shares?
The Loan-to-Value (LTV) ratio determines the loan amount that can be sanctioned against the value of pledged shares. The Reserve Bank of India has established a strict regulatory ceiling of 50% LTV for loans against shares extended by banks and regulated NBFCs.
This mandate ensures a level playing field, and the cap borrowing limit remains prudently capped at half the total value of the holding.
A lender’s final LTV calculation is guided by multiple risk parameters: daily average volume of the specific stock, impact cost of buying/selling securities, market capitalisation, and daily price circuit level.
“Highly liquid, large-cap stocks are part of the future and options segment, and comfortably attract LTVs close to the 50% regulatory limit. Conversely, mid-cap and small-cap stocks typically receive a conservative 25–35% LTV, factoring in their sharper volatility and lower realisability during forced liquidation scenarios,” said Jugal Mantri, Executive Director and CEO, Anand Rathi Global Finance.
Concentration risk remains another vital pillar of sound underwriting. Even when dealing with high-quality large-cap equities, a portfolio that is heavily skewed toward a single company or sector will automatically face a lower LTV grid.
At what point can a lender issue a margin call to the borrower?
A margin call is triggered when the market value of pledged securities drops below the minimum collateral cover required to sustain the outstanding loan. As a secured credit facility, the lender actively monitors the value of the pledged assets against the loan balance in the live market as well as at the end of each trading day.
The moment this ratio breaches the approved LTV threshold, the lender formally communicates with the borrower to restore the necessary margin.
How much decline in the value of pledged shares can trigger additional collateral requirements?
The quantum of decline required to trigger a margin call depends directly on the initial LTV and the structural buffer built in at the time of borrowing.
At the maximum permitted LTV of 50%, the margin for decline is limited, and borrowers must understand this clearly before availing the facility.
“At 50% LTV, if a borrower pledges Rs 20 lakh worth of shares and takes a Rs 10 lakh loan, a decline of just 10% in the portfolio value — from Rs 20 lakh to Rs 18 lakh — is sufficient to push the effective LTV to approximately 55%, which is typically the level at which lenders issue a margin call notice,” stated Jugal Mantri.
What precautions should investors take before pledging shares for a loan?
Pledging shares for a loan is an effective leverage strategy, but it requires strict financial discipline. The first and most critical safeguard is to be selective with your collateral. Rather than pledging concentrated or illiquid positions, you should utilise liquid, large-cap equities from the lender’s approved list, which are far easier to manage during market fluctuations.
Equally important is avoiding the temptation to pledge your entire portfolio; always retain a portion of unencumbered shares as a strategic reserve to easily address unexpected margin calls.
Second, clear visibility on your margin trigger levels is essential before entering into an agreement. You must know the exact portfolio valuation that will prompt a margin call from your lender, allowing you to realistically stress-test that scenario against prevailing market conditions.
Finally, treat LAS as a planned financial decision — not an impulse one. The prudent approach is to borrow well below the maximum permissible limit, say around 25-33% LTV, keep liquid reserves ready, and set personal alerts to always monitor portfolio value against the margin trigger level.
Suppose an investor pledges shares worth Rs 20 lakh and takes a Rs 10 lakh loan. What happens if the portfolio falls by 25%, 40%, or 50%?
This specific scenario highlights exactly why a thorough understanding of LTV dynamics and margin thresholds is critical before leveraging an LAS facility.
At the inception of this loan, the LTV is positioned precisely at 50%—representing a Rs 10 lakh draw against Rs 20 lakh of pledged equities. Because the Reserve Bank of India mandates a maximum LTV ceiling of 50%, borrowing up to the absolute limit leaves zero initial cushion for market volatility.
It can be explained in this table as under –
| Value ofShares | LoanAvailed | Permissible LTV @50% of (A) | Shortfall | |
| (A) | (B) | (C) | (C)-(B) | |
| At the time of availing of LAS | 20 | 10 | 10 | 0 |
| Portfolio fell by 25% | 15 | 10 | 7.5 | -2.5 |
| Portfolio fell by 40% | 12 | 10 | 6 | -4 |
| Portfolio fell by 50% | 10 | 10 | 5 | -5 |
Lender to Sell Scrips to maintain LTV of 50%
“If the portfolio experiences a 25% decline, the market value of the pledged shares drops from Rs 20 lakh to Rs 15 lakh. With the outstanding loan remaining at Rs 10 lakh, the operational LTV climbs sharply to 66.7%, breaching the permissible threshold,” said Jugal Mantri.
At this stage, the lender initiates a formal margin call, requiring the borrower to immediately infuse cash or pledge additional approved equities to realign the LTV. Given that a 25% correction is a standard occurrence during broader market cycles, this represents a highly realistic risk scenario for anyone operating at maximum leverage.
“Should the portfolio drop by 40%, the asset value contracts to Rs 12 lakh against the Rs 10 lakh liability, pushing the effective LTV to a critical 83.3%. At this juncture, the account enters active risk-mitigation territory, where the lender retains the contractual authority to invoke the pledge and liquidate shares in the open market to safeguard the principal amount. At a 50% liquidation event, the portfolio value collapses to exactly Rs 10 lakh,” stated Jugal Mantri.
With the collateral value directly matching the outstanding debt, the lender’s recovery buffer is completely eroded, and the borrower’s residual equity in those specific holdings is entirely wiped out.
The core takeaway here is structural prudence: always borrow at a conservative, self-imposed LTV, maintain a robust unencumbered portfolio buffer, and ensure liquid reserves are continuously accessible. An LAS facility is a highly effective financial optimization tool, but it yields the best results only when managed with absolute operational responsibility.
Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as financial, investment, legal, tax, or lending advice. Loan Against Shares (LAS) facilities are subject to lender-specific terms, regulatory requirements, eligibility criteria, and market risks. The examples and calculations used in this article are illustrative in nature and may not reflect actual lending practices or market conditions. Investors should carefully assess their financial situation, understand the risks associated with pledging securities, and consult qualified financial advisors before making any borrowing or investment decisions.
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