Loans against stocks increase as credit growth slows


As the overall growth in the segment of bank loans faded away being at the lowest in two decades, the loans against stocks have kick started a new trend. The latter is climbing faster pointing out a growing hope in the equities by the borrower as well as lender.

The data from the Reserve Bank of India (RBI) indicates that the loans against the shares and bonds have increased by 52.2 percent in one year in July. The same was just 15.2 percent in the last year.

The total portfolio is quite insignificant at Rs 5,400 crore in the end of July. The loans granted against shares have also increased as there is a general faith among the stock holders that the stock prices will increase. The higher stock prices have made this possible as the individuals borrow a higher amount for the same number of shares.

The BSE Sensex has increased by 13 percent since the month of May last year as the new NDA government took cover the control at the Centre. This enabled rigging of more borrowing as individuals pledged their shares.

These loans are segmented as retail loans and these exclude the pledged shares by the promoters of the company. This is done with a 50 percent margin requirement that means that the stocks that are worth Rs 100 can be pledged to make Rs 50. The maximum that a bank can provide to a person against these shares is Rs 20 lakh. The bankers will distinguish this as a safe option with very less or not risk.

In the review period, the total loan growth stood at 8.2 percent this year while it was 12.6 percent in 2014. The credit to a majority of the segments includes loans to the small and large enterprises. The priority sector was sluggish and the loan against the securities is the lone segment that requires the banks’ loan books.

The rival to there is credit card payments overdue or outstanding that increase to 21.3 percent in the last year from 18 percent in the previous year.





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