Loan Against Securities (LAS)

Sometimes in times of emergency, we need money immediately. In such a time, instead of selling your investment, taking a loan against securities is a better option. Although the process of loan against securities is a bit slow, but still through this you can take a loan at affordable interest rates. Any type of securities can be pledged to raise funds, such as shares, equity or debt mutual funds, insurance policies and bonds. It is very useful in times when there is an urgent need of cash for any personal or business related needs. Loan against Securities (LAS) is a very popular method for short and long term loans.

                                                                                                                                     Subas Tiwari

How to get Loan against Securities?

Before taking a loan through this, you should check whether the lenders accept the securities held by you or not. Most lenders usually have a list of securities on their website. They are ready to accept only securities on this list. Also, in the case of equities, a lender can give 50 or 60 per cent of the value of the securities as debt, although it can be higher in the case of debt funds or bonds. Some lenders also ask for additional securities in case the value of the securities falls during the loan tenure.

Important things related to Loan against Securities

• A major advantage of this is that even when you pledge your securities with the lender, it keeps on growing over time and in the meantime, you can meet your needs by taking a loan without selling your investment.
• Industry experts believe that this is a better approach than liquidating your investments. In this, interest, bonus and dividend, etc. continue to be available on your investment even during the loan tenure.
• Loans against shares include stock exchange securities.
• If the borrower fails to pay, the lender can settle the securities and recover the loan.
• Loans against shares include stock exchange securities such as government securities, corporate securities and debentures.
• These LAS are short term loans. Usually the repayment period is up to 36 months.
• In some banks you also get the option of flexible repayment. You can choose to repay the loan interest every month and the principal amount at the end of the loan tenure under this option.
• Loan against Security also comes with different charges – for example, in addition to processing charges, stamp duty, pledge creation fee, etc. may be levied on the loan agreement to a borrower depending on the loan provider.
• In India you can apply for Loan against Shares in banks like Axis Bank, ICICI Bank, HDFC Bank, State Bank of India, etc.

How Loan against Securities Work?

Loan against property helps you to avail timely finance instead of selling off the securities in a haste. The limit of the financial assistance depends on the security that you have pledged. Usually a current account is opened in the borrower’s name and the rate of interest is calculated on the amount that is withdrawn by you during the period of utilisation.

When you pledge a security, you get steady cash easily at the time you need it the most and this also means that you won’t have to sell your shares and not benefit from the bonus and dividends.

Loan against security can be given against the following securities:

• Life Insurance Policies
• Mutual Funds
• Demat Shares
• Stocks
• Equity Shares
• Fixed Maturity Plans (FMPs)
• Employee Stock Ownership Plan (ESOP)
• Initial Public Offerings (IPOs)
• Exchange Traded Funds (ETF)
• Gold Deposit Certificates (GDC)
• National Savings Certificates (NSC)
• Kisan Vikas Patra (KVP)
• Non-Convertible Debentures (NCD)
• NABARD’s Bhavishya Nirman Bonds and many more

Features of Loan against Securities

• Loan against security is a secured Loan. Debentures, shares, bonds or mutual funds are offered as collateral.
• The tenure of the loan against security is one year, but it can be easily renewed.
• The rate of interest usually ranges from 12 – 15%. The rate varies from bank to bank.
• The processing fee is usually charged at the rate of 2% of the loan amount.
• The loan amount depends on the security the borrower is offering.
• The no charges for prepayment of the loan.
• The borrower is required to be within the age bracket of 18 – 65 years to apply for a loan against security.
• The loan has to be repaid within the fixed period. If the borrower fails to make the payment, the lender can file a case for recovery and the balance amount has to be repaid within 3 years from the date of sanction of the loan.
• Loan amount may vary from Rs. 25,000 and up to Rs. 20 lakh, may exceed too.
• High loan to value: Loan up to 85% of the asset value of your securities.

 Eligibility Criteria for Loan against Securities

Given below are some of the eligibility criteria you will be required to fulfil in order to be eligible to avail loan against securities from a bank:

• Should be a resident of India
• Should be at least 21 years of age
• You should either be a salaried or a self-employed individual
• The security against which you are availing the loan should be approved by the bank
• Documents required for loan against securities
• Borrower who is salaried must submit the following documents:
• PAN card
• Identity and address proof
• Photograph
• Last 6 months bank statement
• Cancelled cheque
• Demat account statement
• Income proof
• Borrower who is self- employed must submit the following documents:
• PAN card
• Identity and address proof
• Photograph
• Last 6 months bank statement
• Cancelled cheque
• Demat account statement
• Income proof
• Balance sheet and profit and loss account
• Office address proof and existence of business proof

Sourced from- https://www.bankbazaar.com

How to Apply for Loan against Securities?

Online

Today, almost every bank in India provides you with the option of availing loan against securities online. The whole process is fast and hassle-free. You can visit the official website of the bank from whom you wish to avail the loan and click on the ‘Apply Now’ button. You will have to enter the details required by the lender and upload the necessary documents. Once the bank has verified the details and documents submitted by you, the loan amount will be disbursed to your bank account.

Offline

You can visit the nearest branch of the lender from whom you wish to avail the loan along with the necessary documents. An official from the bank will then further assist you with the process of applying for a loan against securities scheme.

 FAQs on Loan against Securities

1. What are loan against securities?

Loan against securities is a loan that a customer can avail by pledging his or her investments in favour of the lender. This loan can be availed without selling your investments.

2. What is the purpose of loan against securities?

Loan against securities come as a quick funding respite for contingencies, personal needs and sometimes even for the undefined goals. They are also one of the most convenient and quick forms of loan one can avail at ease.

3. Is there any option to pledge securities of my family members to apply for a loan against securities?

The applicant can pledge securities of any blood relative who is minimum or above 18 years of age. The person whose securities will be pledged need to be signatory in the agreement and will be considered as a co-applicant towards the loan against securities.

4. Do you consider securities only in the Demat form?

Yes, all the securities that you pledge for loan against securities should be in the demat account. During the application process the account manager can confirm if any mutual fund units or any other physical securities can be accepted in the physical form.

5. How will the disbursement of loan against securities be done?

An overdraft account will be set up with customized drawing limits allowing you to utilize the funds as and when required. This drawing limit will be based on the quality and quantity of shares and other securities pledged by you.

6. Does the process involve revaluing my portfolio?

Your portfolio will be revaluated on a daily basis as per the market rates. However in case of high volatility and sharp falls in the market, an interim revaluation can also be done. For this, you will be informed by your accounts manager.

7. Is there an option to pledge more securities during the loan tenure?

Yes. You can pledge more securities for upgrading the drawing limit on your overdraft account. It usually takes up to 2 working days for the upgrade to reflect in your account.

8. Can we apply for a loan against securities as an organisation/HUF?

Yes you can apply for a loan against securities as an organisation, HUF or as a non-individual entity. Your business should be a registered business with an existence proof of at least 2 years.

9. Are loans against securities legal?

Yes. Loans against securities are legal. The regulations were originally formed by SEBI in May 1997 & last modified in Jan 2018. All market participants in Indian securities market have been permitted to lend/borrow subject to respective regulatory guidelines. All the settlements of loans against securities are guaranteed by the NSE Clearing Ltd.