Last updated 12 Nov 2026
A loan against shares is lawful in India when it is given by a lender that is allowed to lend, against securities the lender is allowed to accept, under a written agreement that shows every charge. The rules cover who can lend, how much of the value can be lent, what the money may be used for, how the pledge is created and invoked, and what you can do if you are treated unfairly. This guide explains each in plain words.
It does not replace legal advice. Limits and conditions are set by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) and are revised from time to time. Read it with the practical guide, Loan against shares: how it works.
Who can lend against shares
Banks regulated by RBI and certain non-banking financial companies (NBFCs) lend against securities. Stockbrokers may also offer a margin or pledge-based facility against the securities in your account, but that is a different product with its own rules from the exchange and SEBI. Before you accept any offer, check that the lender is a regulated bank or NBFC and read its agreement.
Types of lender and what to check
| Lender type | Regulator | What to check |
|---|---|---|
| Bank | RBI | The loan is sanctioned by the bank; the limit and margin follow RBI directions |
| NBFC | RBI | Ask for the NBFC's category and that securities-backed lending is within its business |
| Stockbroker margin facility | SEBI and the exchanges | This is a separate product; check how the facility is documented and what happens on a fall |
| Informal lender or app that asks you to transfer shares to its account | None | Do not proceed; a genuine pledge never moves the shares to the lender's name for an ordinary loan |
RBI lets borrowers check a lender through the lists published on the RBI website. A listing is a fact about registration, not an endorsement. Whether the product suits you is for you to judge.
How the pledge is created in law
Shares held in demat form are pledged through the depository system. You give an instruction in your own demat account, the depository marks the securities as pledged in favour of the lender, and you can still see them in your account. You remain the owner. The lender gets the right to invoke the pledge, which means to sell the pledged securities, if you default as the agreement defines.
- Only you can create the pledge, by your own authorisation. You should never share your demat login or one-time codes with anyone.
- The pledge applies to named securities and a stated number of units, not to your whole account.
- The lender releases the pledge when you repay in full. Ask how long that takes and whether there is a charge.
- If the lender sells under an invoked pledge, it should apply the proceeds to what you owe and give you any surplus.
Limits on how much can be lent
The amount you can borrow depends on two things: the market value of the securities and the margin the lender must keep. Regulators set a floor for the margin, and lenders add their own on top, depending on how volatile each security is. RBI also sets caps on what banks can lend against securities to an individual, and these caps have been revised over time. Because they change, this guide does not print them. Ask the lender what cap applies to you and ask to see it in the sanction terms.
What sets the limit
| Factor | Who decides | Effect on you |
|---|---|---|
| Minimum margin | Regulator | The lender cannot lend more than the regulation allows against a given security |
| Lender's own margin | Lender | A volatile or thinly traded share gets a larger margin |
| Approved list | Lender | Shares outside the list are not counted |
| Overall cap for an individual | Regulator and lender policy | Even a large portfolio cannot lift the loan past the cap |
| Your income and credit history | Lender | Some lenders also check repayment capacity, not only the value of the shares |
What the money may be used for
Lenders are expected to know the end use of a loan, and rules for lending against securities limit certain uses, especially the purchase of more securities. The agreement usually has an end-use clause. If you use the money for something the agreement forbids, the lender may call the loan back. Ask what uses are allowed before you sign. If you plan to invest, read the clause twice.
Margin calls and sale: what a fair process looks like
Your agreement must say when the lender can ask for more cover, how it will tell you, how long you have to respond, and when it can sell. A sale without the notice that the agreement promises is a matter to raise with the lender and, if needed, with the regulator. Keep every message.
- Written notice by the channels in the agreement, such as email, SMS or the lender's app.
- A clear deadline to restore cover.
- A statement of the amount you owe, the value of the pledged shares and the shortfall.
- Sale limited to what is needed to clear the shortfall or the debt, as the agreement says.
- A statement after sale showing the shares sold, the price and how the proceeds were applied.
Your rights as a borrower
The Key Fact Statement must show the loan amount, the all-in cost as an APR, every charge, the repayment schedule and the contact details of the grievance officer, before you accept. You have a cooling-off period set by the lender within which you can exit by repaying the principal and the interest for the days you used it, as the RBI Digital Lending Directions provide for loans given through digital channels. See Key Fact Statement and APR and Borrower rights and how to raise a complaint.
Where to complain
| Step | What to do | Typical timing |
|---|---|---|
| 1 | Write to the lender's customer care and ask for a complaint number | Keep the reference |
| 2 | If unresolved, write to the lender's grievance officer or nodal officer | Lender states its timeline in the KFS |
| 3 | If still unresolved, file at the RBI Integrated Ombudsman portal for regulated lenders | After the lender's reply period has passed or the reply does not satisfy you |
| 4 | For stockbroker and depository issues, use the exchange or SEBI complaint route | Depends on the body |
Costs that rules require to be disclosed
Interest, processing fee, pledge and release charges, renewal fees and penal charges are set by the lender. They must appear in the Key Fact Statement in rupees. Penal charges are meant to be reasonable and are not meant to be added to the principal and charged interest on interest. If a charge is not in the agreement or the KFS, ask the lender to point to the clause.
Questions to ask before you sign
- Is the lender a bank or an NBFC, and under which regulator is this facility offered?
- What is my drawing power today, and how will it change with market prices?
- What margin does each of my shares carry?
- What is the end-use clause, and what happens if I breach it?
- How and when will you contact me about a margin call, and what is my deadline?
- How do you value my shares, and on which price and time?
- What are all charges in rupees, and what is the APR?
- How do I close the loan, and how fast is the pledge released?
Tax points in general terms
Income tax rules treat interest on a loan differently depending on how you use the money. The Income-tax Act, 2025 renumbered many sections. Confirm with the Income Tax Department or a tax adviser before you rely on a deduction. A sale of pledged shares by the lender is still a sale in your name for tax, and may produce a capital gain or loss.
Frequently asked questions
Is a loan against shares legal in India?
Yes, when a regulated bank or NBFC lends against securities it is allowed to accept, under a written agreement. The limits and conditions are set by RBI and SEBI and change from time to time, so ask the lender for the rules that apply to your loan.
Can a lender sell my shares without telling me?
The agreement must set out when and how the lender can sell and how it will notify you. A sale without the notice the agreement promises is a ground for a complaint. Keep records of every message and raise it with the lender first.
Can I use the loan to buy more shares?
Many agreements restrict this, and rules limit lending against securities for buying securities. Read the end-use clause. If you breach it, the lender may demand early repayment.
Do I need a good credit score for a loan against shares?
Some lenders look mainly at the shares and some also check your credit history and income. Check what the lender asks. Either way, the loan is reported to the bureaus.
What if the lender asks me to transfer my shares to its own account?
Be careful. A genuine pledge keeps the shares in your demat account with a lien marked. A request to move them to the lender's or a third party's account is a warning sign. Stop and verify the lender.
Where can I complain about a bank or NBFC?
First to the lender, then if you are not satisfied, to the RBI Integrated Ombudsman through its online portal. For broker or depository problems there are separate complaint routes through SEBI and the exchanges.
Related reading: Loan against shares: how it works, Borrower rights and how to raise a complaint, Key Fact Statement and APR, Co-applicant vs guarantor, Loan documents and KYC, Credit score and credit report, Digital lending safety, Cooling-off period, Lien, Grievance.