One of the common transactions we come across in today’s market is Loan against Shares. In this kind of a product a lender (typically a Bank or an NBFC) lends against adequate collateral. The collateral is normally the pledge of listed shares (in most cases). In some cases one may have to deal with be partial collateral of liquid listed shares along with unlisted shares as collateral. The lenders decide a mechanism to monitor these on a daily basis. The Trustee here plays the role of monitoring these shares for the lenders so that adequate margin is maintained against the market value of shares offered under the pledge. The margin calculation is as advised by the lender(s) which adequacy depends upon the volatility of pledged shares and/or market conditions.
- Pledge of shares are held by us for the benefit of the lender for the entire tenor of the transaction.
- Valuation of shares is continuously conducted by us for the listed shares pledged with us on a daily, weekly & monthly basis. Daily reports are generated & sent to the relevant lenders along with the requirement of the margins
- Event of Default trigger is issued in cases & we as a Trustee invoke the pledge on the instructions received from the lender(s)
- In cases where defaults are triggered, shares may be sold by us on behalf of the lender(s) through various broking entities that we may choose to appoint.
- There have been cases of shares pledged through the consortium lending method for which we play a crucial role of monitoring on behalf of the lender(s). Here too like any other collateral, we behave like our role in case of a Security Trustee on behalf of multiple lenders. It’s convenient for the borrower company as well as the entire group of lenders
- Benefits to Borrower & Lender
Benefits to Borrower & Lender
- Hassle free pledge of securities in physical & demat form.
- Pledge done in favour of an independent non-partisan third party.
- Daily / Periodic valuation of listed securities.
- Expeditious operations enable timely disbursement of sanctioned facilities.
- Monitoring of:
- Asset Cover maintained
- Trigger Events
- Compliance with terms of sanction
- Diligent retention & release of securities pledged.
- Proactive post-default action for invocation of pledge in adherence with Lender instructions & extant laws, regulations & guidelines.