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To reduce volatility in the capital market arising from non-banking finance companies (NBFCs) offloading shares pledged by borrowers who have defaulted on loans, the Reserve Bank of India on Thursday introduced a minimum set of guidelines on lending against shares.
According to the guidelines applicable to NBFCs with asset size of Rs 100 crore and above, the NBFCs have to maintain a loan-to-value (of shares pledged) of 50 per cent and accept only Group 1 securities as collateral for loans of a value more than Rs 5 lakh.
RBI said the NBFCs also have to ensure that these do not in any way come in the way of meeting the requirements of genuine borrowers. The guidelines come into effect immediately.
All NBFCs with asset size of Rs 100 crore and above should report online to stock exchanges information on the shares pledged in their favour by borrowers to avail themselves of loans.
Click here to read the text of the RBI guidelines for NBFCs on lending against shares (PDF).
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