India's RBI caps loans against shares at Rs 1 crore system-wide
Change
India's Reserve Bank of India capped loans to individuals for purchase of shares and other eligible securities at Rs 1 crore per borrower system‑wide and limited borrowing for initial public offerings, follow‑on offers and employee stock option plans (ESOPs) to Rs 25 lakh per individual.
Why it matters
Lenders must now prevent individual borrowers from accumulating leveraged positions above the systemwide caps, requiring verification of aggregate exposure across multiple banks. Banks extending acquisition finance must secure a corporate guarantee from the acquiring company and restrict such loans to deals that result in control of the non‑financial target.
Implications
- • Banks' retail lending and margin‑finance desks must verify and block new share‑backed loans that would push any individual borrower's total exposure above the systemwide caps or risk breaching RBI limits.
- • Capital market intermediaries' IPO and employee stock option plans (ESOPs) financing desks must redesign retail financing offers so individual borrower financing does not exceed Rs 25 lakh.
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