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written by | September 9, 2022

What is Loan Against Securities?

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People can avail themselves of two types of loans - secured loans and unsecured loans like unsecured business loans etc. A loan against security refers to a secured loan granted to a customer in advance against a promise of security. It can be a loan pledged against securities like mutual funds, insurance policies, National Savings Certificate etc. Loans against securities are granted against the securities like-

  • Non-convertible debentures
  • Insurance policies
  • UTI Bonds
  • NABARD Bonds
  • Demat shares
  • Mutual Fund Units
  • KVP or National Savings Certificate, which are accepted only in Demat format.

Do you know? 

Many lending institutions offer a loan against an insurance policy. You can, however, only borrow against selected life insurance policies. For instance, permanent or whole life insurance policies qualify for a loan.

How does Loan Against Securities Work?

You may be already familiar with using your gold, land and house property as collateral for taking loans. But did you know you could do the same with your insurance policies, shares, bonds, etc? You can take a loan against these securities as easily as other using other collateral. You can avail timely loan without selling the securities hastily. The extent of getting financial assistance is dependent upon the pledged security. The borrower has to open a current account, and the withdrawal amount during the utilisation period determines the interest rate. In the case of promising security, you can easily get timely cash in times of need. Therefore you won’t need to sell the shares and lose dividends and bonuses.

Also read: Understand Unsecured Business Loans and Its Types, Advantages & Features

Comparison of Loan Against Securities in Different Banks

Here is a chart of comparison that will help you choose the best-suited loan against securities offered by different banks, along with a loan against securities interest rate.

Lender’s Name

Interest Rate

Loan Amount

Tenure

State Bank of India (SBI)

Determined by the selected scheme

₹20,000 to ₹20 Lakh

Depends on the rate of interest and loan amount

HDFC Bank

As determined by bank

₹50,000 onwards

Depends on the amount of loan

Tata Capital

10.50% onwards

₹50,000- ₹20 Lakh

1 year along with auto-renewable option

Bajaj Finserv

9.50% to 12.00% per annum

Up to ₹10 Crore

Depends on the rate of interest and loan amount

Axis Bank

10.50% to 12.75% per annum

Up to 85% of the security value

Depends on the rate of interest and loan amount

Here are some features and benefits of loan against securities offered by different banks.

SBI Loan Against Securities:

  • Loan amount starts from ₹20,000 and amounts to ₹5 Crore
  • 24x7 support from a relationship manager
  • 5 different schemes available
  • Easy documentation
  • Some select schemes have no processing fee
  • Foreclosure charges or no part payment

Penal Charges:

The penal charge will vary from one scheme to another.

HDFC Bank Loan Against Securities:

  • Minimum loan starts from ₹50,000
  • Transparent loan processing
  • Easy repayment procedure
  • Interest rate is only charged on the used loan amount

Penal Charges:

Charge of 18% per annum in addition to taxes will be charged on the drawn amount within the applicable limit. A penal charge amounting to 6% plus other rates can be charged as well.

Also read: Need, Benefits and Importance of a Business Loan

Tata Capital Loan Against Securities:

  • Zero charges on foreclosure
  • Overdraft facility
  • Quick processing and acceptance of application 
  • Security swap facility

Penal Charges:

A charge of 3% penalty plus the outstanding monthly amount and GST will be charged on the drawn amount within the applicable limit.

Axis Bank Loan Against Securities:

  • Loan amount limits to 85% of the security value
  • Easy documentation
  • Processing fee is 0.15% of the loan amount
  • No foreclosure charges

Penal Charges:

Penal charges can be 2% per month.

Loan Against Securities Features:

  • It is a secured loan. Bonds, shares, mutual funds or debentures are offered as a form of collateral.
  • The loan against shares interest rate is between 12 to 15% variable in different banks.
  • The tenure is one year with an option of renewability.
  • The processing fee is 2% of the loan availed.
  • The borrower’s security offering determines the loan amount.
  • No charges for prepaying the loan.
  • The loan against shares eligibility criteria for borrower’s age for applying for this loan is 18-65 years.
  • Repayment of loan should be within the mentioned period. The lender can file a case if the borrower fails to pay back, and the balance amount should be cleared within 3 years from the sanction date of the loan.

Features of Good Security:

  • The loan should be dependent upon the security submitted by the borrower rather than the creditworthiness. Liquid assets such as goods, silver, gold etc., are given preference.
  • The security value must be stable and should not fluctuate much.
  • It should be marketable.
  • The security, unlike immovable property, should be transferable.
  • It should be free from any disabilities.

Eligibility Criteria for Loan Against Securities

The loan against shares eligibility criteria to avail of this loan from a bank are as follows-

  • Should be an Indian resident
  • Minimum age should be 21 years
  • Has to be a self-employed or salaried individual
  • The pledged security of the borrower should be approved by the specific bank. 

Required Documents

The salaried borrower needs to submit these documents-

  • Identity card and address proof
  • PAN card
  • Photograph
  • Bank Statement of the last 6 months
  • Income proof
  • Cancelled cheque
  • Demat account statement

Also read: Understand Unsecured Business Loans and Its Types, Advantages & Features

The self-employed borrower will have to submit these documents-

  • PAN card
  • Address and identity proof
  • Photograph
  • Cancelled cheque
  • Bank statement of last 6 months
  • Income proof
  • Demat account statement
  • Existence of business and office address proof
  • Profit and loss account and balance sheet

Banks That Offer Loan Against Security

  • HDFC Bank
  • ING Vysya Bank
  • Axis Bank
  • IDBI Bank
  • Standard Chartered Bank of India

Steps Before Availing the Loan Against Securities:

  • Check the Criteria:

Ensure that you meet the eligibility criteria to apply for a loan against securities from preferred banks. The minimum criteria of most lenders are that the applicants must be 21 years old to avail of the loan.

  • Choose a Bank with Varied Investments Acceptance:

Choose a lender that will accept different forms of investments like IPO, Mutual fund, retail shares, insurance policies from other companies etc.

  • Choose a Bank with a Low-Interest Rate and High Amount Sanction Rate:

You should avail loans from banks that offer high amount sanction in attractively low-interest rate against your securities and collateral. Many lenders in India offer a high loan amount at low-interest rates considering the securities provided by the borrower.

  • Repayment Tenure:

Avail loan against security from a bank that offers a flexible repayment structure and tenure. Generally, the tenure is between 1 to 3 years. The tenure also depends upon the loan amount sanctioned to you.

How to Apply for Loan Against Securities?

Online

Nowadays, most banks provide digital loans against securities. This is a hassle-free and fast process. You need to visit the official website of the required bank where you wish to avail of the loan and select the Apply Now option. Then you will need to enter the required personal details as asked by the lender and upload mandatory documents. Once the bank verifies your documents and details, you will receive the disbursed loan amount in your bank account.

Offline 

You can choose to visit the bank's nearest branch where you wish to avail of the loan against security. Submit the necessary documents, and a bank official will further assist you with the detailed process of applying for the scheme.

Also read: IIFL Finance is offering business loans over WhatsApp to MSMEs

Conclusion:

Hopefully, this article has cleared your doubts regarding loans against securities. Remember, you can check loans from different bank and financial institutions especially those targeted at small businesses to find the ideal one. That could perhaps be the lifeline your business needs. So research first and then decide. 
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: If I have the securities in physical form, will I be granted a loan against security?

Ans:

You can open a depository account with your bank to convert your physical security to a dematerialised format and can avail of the loan against security.

Q: How often will the bank review my portfolio?

Ans:

Most lenders in India will review your portfolio daily. Yet, they might require an interim revaluation

Q: Will I receive an email regarding my latest limit?

Ans:

Yes, you will receive an e-mail containing the latest limit e-statement of your account from your lender bank.

Q: Is Demat form safe for my securities?

Ans:

Your securities should always be in Demat form. Suppose you can not mortgage your securities in this format. In that case, some Indian banks provide you with the option to pledge your securities held with different Depository Participants in CDSL or NSDL.

Q: Am I allowed to foreclose the loan against the securities account?

Ans:

Most Indian banks give you an option to foreclose your account after you have paid the loan amount and the charged interest. You will have to pay a foreclosure charge. However, the foreclosing option for the loan against security might differ in various banks.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.