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Share on Pledge for Loan

Naveen Chand Khulve (CA) (1521 Points)

08 March 2009

If we will take loan from Bank by Pledging our Share say worth Rs 1Crore.

What will be the Consequences if

1 Market Value of Shares Become Down or Vice Versa

2 Who will Be Entilted for Dividend.

Can Bank Sell These shares without our Consent?

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4 Replies

Pratik K (Student) (3406 Points)
Replied 08 March 2009

it depends on the contractthat you sign for loan.

In normal cases the loan is available agaisnt Blue chips shares.So if market value goes down the preclause written in agrrement will be applicable for it.

in one loan agreement I found that person taking loan should submit another securities of the same worth by which the value of the Shares that pledge earlier down.

Normally 20% to 50% of the share value are allowed as loan.

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Pratik K (Student) (3406 Points)
Replied 08 March 2009

And dividend is paid to the real owner that menas the registered share holder.

Pratik K (Student) (3406 Points)
Replied 08 March 2009

and bank can sell shares as per agrreemnet

koolleo87 (1268 Points)
Replied 08 March 2009

1) If market value of shares decreases, then the bank may ask for more collateral securities.... 2) The borrower is entitled for Dividend, voting rights, Bonus, right, etc etc.... 3) The bank cannot sell our shares without our consent but normally there is a clause in the Pledge agreement that if the market value of the shares go below a certain percentage of loan outstanding, the bank is authorised to sell the shares....... 4) Loan is generally available not only against blue chip shares but liquid shares...those which are frequently traded in the stock exchange..... 5) Generally, banks may give upto 50 to 75 % of value of shares as loan... If you negotiate for a higher %, the interest rate may increase as risk increases for the bank...