RBI Guidelines for Loan Against Securities (LAS) in 2026
If you have taken or are considering a Loan Against Securities (LAS), your lender must follow guidelines set by the Reserve Bank of India (RBI). These rules govern which securities can be pledged, how much lenders can lend against them, how lenders manage risk, and how borrowers can use the loan proceeds.
Understanding these guidelines helps borrowers know what to expect from the lender and what responsibilities they have during the loan tenure. In this article, we explain the key RBI guidelines on LAS, including LTV limits, eligible securities, end-use restrictions, and borrower obligations.
Who Regulates Loan Against Securities (LAS) in India?
LAS is a product offered by two types of lenders in India: scheduled commercial banks (excluding Regional Rural Banks) and Non-Banking Financial Companies (NBFCs) registered with the RBI. Both are subject to RBI oversight, though the specific circulars and master directions that apply differ slightly between the two.
The key regulatory documents governing LAS include RBI’s Master Circular on Loans and Advances (for banks) and the NBFC-specific directions on prudential norms. SEBI also plays a role where pledged securities are exchange-listed instruments. SEBI governs the pledge creation and invocation process through depositories such as NSDL and CDSL.
For most individual borrowers, the lender-facing aspects of these guidelines manifest as: what you can pledge, how much you can borrow against it, what happens when the value falls, and what you cannot do with the money.
Eligible Collateral for Loan Against Securities as Per RBI
RBI allows banks and NBFCs to offer loans against securities using specific financial instruments as collateral. The main categories are:
Mutual Funds
Lenders accept units of open-ended mutual fund schemes across equity, debt, and hybrid categories, provided the schemes are SEBI-registered and appear on the lender’s approved list. The lien is created by the Registrar and Transfer Agent for non-demat units, or by depositories such as NSDL or CDSL for demat-held units.
ELSS units under the 3-year lock-in period are ineligible for pledging or transfer during this period. Closed-ended mutual fund schemes are also not accepted, as they cannot be redeemed on demand.
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Shares
Lenders accept listed equity shares held in demat form with NSDL or CDSL. For loans above ₹5 lakh against shares, RBI requires NBFCs to accept only Group I securities as collateral. These are shares that trade regularly and remain highly liquid.
A stock qualifies as a Group I security if it has traded on at least 80% of trading days in the past six months and has a mean impact cost of 1% or less. This ensures that the lender can sell the pledged shares quickly in case of default without significantly affecting the market price.
Other Instruments
In addition to mutual funds and shares, the following instruments are accepted as collateral under RBI guidelines at various lenders:
- Government securities and treasury bills
- Listed debentures and bonds held in demat form
- Units of Exchange Traded Funds (ETFs) listed on recognised exchanges
- Life insurance policies (at the surrender value, subject to lender policy)
What Is Not Eligible for a Loan Against Securities?
RBI guidelines restrict or discourage the use of the following as LAS collateral:
- Unlisted shares cannot be easily valued or sold, creating a higher recovery risk for the lender
- Penny stock shares with very low liquidity or market cap that may not be available on the lender’s approved list
- Physical (non-dematerialised) shares must be dematerialised before pledging
- Speculative or highly volatile instruments that do not meet lender risk criteria
- Mutual fund units already pledged with another lender, no double-pledging
Loan-to-Value (LTV) Ratio
The LTV ratio is the maximum percentage of a pledged security’s current market value that a lender can advance as a loan. RBI sets LTV caps to protect lenders from collateral value erosion and to prevent excessive leverage in the financial system. The credit limit is not fixed at the time of sanction. Lenders are required to monitor the market value of pledged securities daily and recalculate the eligible credit limit based on current valuations. If the market value falls, the eligible limit falls proportionally. Under current RBI directions for banks, loans to individuals can go up to 60% of the value of pledged shares, 75% for equity mutual funds and ETFs, and 85% for debt mutual funds. NBFCs must maintain an LTV of 50% on loans against shares.
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Margin Maintenance and Margin Calls as Per RBI
Margin refers to the buffer between the value of the pledged security and the outstanding loan amount. If the value of the collateral falls and the outstanding loan exceeds the permitted LTV, a margin shortfall arises.
Under RBI guidelines, lenders are required to:
- Monitor the value of pledged securities daily using current market prices or NAV.
- Issue a margin call to the borrower when a shortfall is detected, notifying them that the LTV ratio has been breached.
- Give the borrower a stipulated timeframe to restore the required margin, either by repaying part of the loan or by pledging additional approved securities.
- Proceed to liquidate a portion of the pledged securities if the borrower does not resolve the shortfall within the stipulated period.
The timeframe for responding to a margin call is specified in the loan agreement, so check it before signing. For bank loans, RBI requires an LTV breach to be fixed immediately, and within seven working days at most.
RBI’s End-Use Restrictions for Loan Against Securities
RBI guidelines impose explicit restrictions on how LAS funds can be used. Loan proceeds must not be used for speculative purposes, and lending for capital market investments is allowed only within capped limits. The restrictions cover:
- Buying shares, debentures, or securities in the secondary market beyond the RBI limit (banks can lend up to ₹25 lakh per individual for this)
- Financing IPO, FPO or ESOP subscriptions beyond the RBI limit (banks can lend up to ₹25 lakh per individual, and the loan cannot exceed 75% of the subscription value)
- Margin trading or any other form of leveraged securities investment
In simple terms, money borrowed against securities cannot be used freely to buy more securities. Any such use must stay within the limits RBI prescribes.
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Board-Approved Lending Policy
RBI requires every bank and NBFC offering LAS to follow a board-approved lending policy for this product. This policy covers:
- The types of securities lenders can accept as collateral
- The LTV ratio for each type of security
- The margin maintenance process, including how lenders track shortfalls and inform borrowers
- The steps lenders can take to sell pledged securities if borrowers default or do not respond to margin calls
- Concentration limits to avoid too much exposure to one borrower, one company’s shares, or one sector
Lenders may also ask borrowers for details of their existing borrowings from other financial institutions. This helps prevent borrowers from pledging the same assets with more than one lender or taking on more debt than their asset base can support.
RBI’s Transparency and Disclosure Requirements for Loan Against Securities
RBI’s Fair Practices Code requires lenders to provide clear and complete disclosures to borrowers before the loan is executed. For LAS, lenders must disclose:
| What Must Be Disclosed | Why It Matters |
|---|---|
| Interest rate and how it is calculated (flat or reducing balance; daily or monthly accrual) | Borrowers need to know the exact cost before committing |
| All fees and charges, such as processing fees, demat pledge charges, bounce charges, penal interest, and foreclosure terms | Enables borrowers to assess the total cost of borrowing |
| LTV ratio for each category of pledged security | Determines how much can be borrowed |
| Margin maintenance requirements, how much buffer is required, and what triggers a margin call | Borrowers need to understand their ongoing obligation |
| Lender’s rights over pledged securities in case of default or LTV breach | Informed consent before pledging |
| Valuation methodology and how the lender values pledged securities (NAV for MFs, market price for shares) | Borrowers should understand how the credit limit is calculated and updated |
This disclosure must happen before the loan agreement is signed and not after. If a lender does not provide this information up front, the borrower can request it.
Reporting Requirements
NBFCs with an asset size of ₹100 crore and above that lend against shares must report details of pledged shares to the stock exchanges.
This reporting requirement is a systemic safeguard. It allows the stock exchange and regulators to monitor whether an NBFC’s LAS portfolio has significant concentration in any single company’s shares, which, if sold in a forced liquidation, could move the stock price and affect other investors.
For individual borrowers, this requirement operates in the background. It does not directly affect how the loan is processed, but it reflects the broader risk management framework within which LAS lenders operate.
To Wrap It Up…
The RBI’s guidelines for Loan Against Securities protect both lenders and borrowers. Lenders use these rules to limit the risk they take against market-linked collateral. Borrowers get more clarity on what they can pledge, how much they can borrow, and what happens if the value of pledged securities falls. Borrowers should understand these rules, review lender-specific terms, and check their repayment responsibilities before pledging securities.
Disclaimer: This article is for educational and informational purposes only and should not be considered financial, investment or lending advice. Loan eligibility, approval, interest rates, credit limits, charges and other terms are subject to the lender’s policies, applicable regulations and the value of the securities pledged. Please review the applicable loan agreement, terms and conditions, and associated risks carefully before borrowing. If you are considering a Loan Against Mutual Funds, you can learn more about our LAS and LAMF offerings in detail at the help centre.
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Frequently Asked Questions on RBI Guidelines for Loan Against Mutual Funds
RBI guidelines for LAS cover eligible collateral, LTV limits, margin monitoring, end-use restrictions, lender policies, details of existing borrowings, and fee disclosures. Eligible collateral can include listed shares, mutual funds, bonds, and ETFs. Unlisted shares and speculative instruments are not allowed.
Under RBI guidelines for scheduled commercial banks, loans to individuals against listed shares can have an LTV of up to 60%. Equity mutual funds and ETFs can go up to 75%, and debt mutual funds up to 85%. For NBFCs, the LTV on loans against shares must be maintained at 50%.
Only within limits. RBI does not allow LAS funds to be used for speculative purposes. Banks can lend up to ₹25 lakh per individual for buying securities in the secondary market and up to ₹25 lakh for IPO, FPO or ESOP subscriptions, with the loan capped at 75% of the subscription value. Lenders may ask how you plan to use the funds.
Group I securities are listed equity shares that meet two conditions. They must have traded on at least 80% of trading days in the six months before pledging. They must also have a mean impact cost of 1% or less. RBI requires NBFCs to accept only Group I securities as collateral for loans above ₹5 lakh against shares.
Lenders monitor the market value of pledged securities daily. If the value falls and the outstanding loan crosses the permitted LTV ratio, a margin shortfall arises. The lender then issues a margin call. You must either repay the excess amount or pledge additional approved securities within the given timeframe. If you do not act within that period, the lender can sell the pledged securities to recover the shortfall.
Yes, for banks. RBI caps total bank loans to an individual against eligible securities at ₹1 crore across the banking system, up from the earlier ₹20 lakh. Banks can set their own limits for loans against government securities, listed debt and debt mutual funds. NBFC-offered LAS can go much higher, depending on the lender’s internal policy.
Under the RBI’s Fair Practices Code, the lender must disclose the interest rate and how it is calculated. The lender must also disclose all fees and charges, the LTV ratio for pledged securities, the margin maintenance requirement, what triggers a margin call, the lender’s rights over pledged securities in case of default, and the valuation method used.
