Loan against shares rise, not eyebrows!

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As stock prices rose late last year and early this year, borrowings against shares rose. The recent fall in stock prices, however, could push lenders to seek more collateral from borrowers as the value of collateral (in the form of stocks) has fallen. Sectoral credit data released by the Reserve Bank of India (RBI) on Wednesday shows that loans against shares jumped 52% between 24 July 2014 and 25 July 2015. The increase is far steeper than the 15% jump between July 2013 and July 2014.

The surge though appears to have come in the second half of 2014 and early 2015, as the build-up of loans against shares in the current fiscal year remains moderate. Loans against shares fell 0.9% between April 2015 and July 2015, data showed. In August 2014, RBI had clamped down on loans against shares given by non-banking financial companies (NBFCs) to curb any potential volatility that may emerge from such lending. Large NBFCs had been told that they must maintain a loan-to-value ratio of 50%. This meant that financiers were allowed to lend an amount equivalent to only 50% of the value of shares pledged as security. RBI had also restricted the subset of stocks against which loans could be given.

Overall, personal loans grew 16.8% in the July 2014-July 2015 period, marginally higher than the 15.8% growth seen for the segment in the year-ago period. Within the personal loans category, loans against shares along with credit card loans, housing loans and auto loans were the fastest growing segments. Credit card loans rose 21.3% between July last year and this year, while housing and vehicle loans grew 17.8% and 16.6%, respectively, in the same period.

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