RBI Guidelines on Loans Against Shares, Debentures & Bonds — LTV, Margin & Key Rules (2026)
Banks in India may grant loans against the security of shares, debentures, and bonds — but only within the limits and conditions prescribed by the Reserve Bank of India (RBI). These guidelines are contained in the Master Circular on Loans and Advances — Statutory and Other Restrictions and were significantly updated in October 2025, with revised limits effective July 1, 2026. This article covers the current rules, the upcoming changes, and key exam notes for JAIIB candidates.
Key Changes from October 2025 — Effective July 1, 2026
On October 1, 2025, RBI Governor Sanjay Malhotra announced major revisions to loans against securities after the MPC meeting. The formal RBI (Commercial Banks — Credit Facilities) Amendment Directions, 2026 were issued in February 2026. After industry pushback on the original April 1, 2026 effective date, implementation was deferred to July 1, 2026.
| Parameter | Old Limit (pre-Oct 2025) | New Limit (w.e.f. Jul 2026) |
|---|---|---|
| Individual loan limit (demat securities) | Rs.20 lakh per individual | Rs.1 crore across banking system |
| Individual loan limit (physical securities) | Rs.10 lakh per individual | Rs.1 crore (system-wide) |
| LTV — listed equity shares | 50% (demat), 50% (physical) | 60% (margin = 40%) |
| LTV — debt mutual funds | 50% | 75% (margin = 25%) |
| IPO / FPO financing limit | Rs.10 lakh per individual | Rs.25 lakh per individual |
| Secondary market purchase cap | Not separately specified | Rs.25 lakh per individual |
| Lending against listed debt securities | Restricted | Restriction removed |
Note for JAIIB candidates: Exam questions set before July 2026 may still test the old limits (Rs.10 lakh / Rs.20 lakh). Know both sets of numbers and be able to apply whichever the question refers to.
Loans to Individuals Against Shares / Debentures / Bonds
1. Purpose
Loans against shares, debentures and bonds may be granted to individuals for:
- Meeting contingencies and personal needs
- Subscribing to new or rights issues of shares / debentures / bonds
- Purchase of shares / debentures / bonds in the secondary market
2. Loan Limits
Under the existing Master Circular (pre-July 2026 effective date of amendment):
- Physical securities: Maximum Rs.10 lakh per individual
- Dematerialised (demat) securities: Maximum Rs.20 lakh per individual
From July 1, 2026: The system-wide limit becomes Rs.1 crore per individual — this cap applies across all banks combined, not per bank. A borrower cannot split borrowings across multiple banks to exceed this ceiling.
3. Margin / LTV Requirements
Under the existing rules:
- Equity shares / convertible debentures (physical form): Minimum margin of 50%
- Equity shares / convertible debentures (demat form): Minimum margin of 25%
- Preference shares / non-convertible debentures / bonds: Banks determine their own margin
From July 1, 2026:
- Listed equity shares: LTV capped at 60% → minimum margin (haircut) = 40%
- Debt mutual funds: LTV capped at 75% → minimum margin = 25%
These are minimum margin stipulations. Banks may apply higher margins based on their internal credit policy.
4. Declaration by Borrower
Banks must obtain a declaration from the borrower indicating the extent of loans availed from other banks against shares and specified securities. This ensures the system-wide cap is not breached.
IPO / FPO Financing
| Parameter | Existing Rule | w.e.f. July 2026 |
|---|---|---|
| Max loan per individual for IPO / FPO subscription | Rs.10 lakh | Rs.25 lakh |
| Securities eligible as collateral | Shares, convertible bonds, convertible debentures, equity MF units, PSU bonds | Eligible securities as per revised directions |
| Corporate borrowing for another company’s IPO | Not permitted | Not permitted |
| NBFC borrowing to further lend for IPOs | Not permitted | Not permitted |
FPOs (Follow-on Public Offers) are treated on par with IPOs for the purpose of these limits.
ESOP Financing — Employees Buying Own Company Shares
Banks may extend finance to employees for purchasing shares of their own company under an Employees Stock Option Plan (ESOP) or under the employees’ quota in an IPO:
- Finance limited to 90% of the purchase price or Rs.20 lakh, whichever is lower
- Banks cannot extend advances (including to their own employees or Employee Trusts) for purchasing the bank’s own shares from ESOPs, IPOs, or secondary market — whether secured or unsecured
- Borrower must declare all loans availed against shares from any bank to ensure compliance
Loans to Corporate and Other Borrowers
Granting advances against the primary security of shares / debentures to industrial, corporate, or other borrowers should not normally arise. However:
- Shares and debentures may be accepted as collateral for working capital or productive-purpose loans from borrowers other than NBFCs
- In such cases, shares must be in demat form only
- Where demat facility is available, promoters’ shares must also be in demat form
- When collateral consists of shares pending long-term fund mobilisation for a new project, the arrangement is temporary and must not continue beyond one year
General RBI Rules — Key Restrictions
The following rules apply to all loans against shares, debentures, and bonds:
- No advance against partly paid shares — this is an absolute bar
- No loans to partnership / proprietorship concerns against the primary security of shares or debentures
- Uniform margin of 50% applies on all capital market advances (existing rule) including advances against shares, IPO financing, and bank guarantees for capital market operations
- Minimum cash margin of 25% (within the 50%) for guarantees issued for capital market operations
- Advances against the primary security of shares must be kept distinct and separate from other advances
- Where advance limit exceeds Rs.10 lakh, shares must be transferred in the bank’s name (not required for demat — use pledge mechanism in depository system instead)
- Banks must ensure scrips are not stolen / duplicate / fake / benami; any irregularities must be reported to RBI immediately
- Banks must not assist borrowers in acquiring or retaining controlling interest in any company through share-backed advances
- Indian banks must not be party to overseas branch back-up guarantees enabling Indian nationals to invest in Indian shares/debentures
Statutory Provisions — Banking Regulation Act 1949
Banks must strictly observe the following statutory restrictions under the Banking Regulation Act, 1949:
| Section | Restriction |
|---|---|
| Section 19(2) | A banking company shall not hold shares in any company (as pledgee, mortgagee, or absolute owner) exceeding 30% of its own paid-up capital + reserves or 30% of the paid-up capital of that company, whichever is less |
| Section 19(3) | No banking company shall hold shares in any company in the management or control of which its directors have a dominant voice |
| Section 20(1)(a) | No banking company shall grant any loans or advances on the security of its own shares |
Shares held in dematerialised form must also be included when computing limits under Sections 19(2) and 19(3).
JAIIB Exam Notes — Loans Against Shares
⚠️ Frequently tested in JAIIB Principles & Practices of Banking (PPB)
- Individual limit (physical): Rs.10 lakh | (demat): Rs.20 lakh — old rule, tested in current syllabi
- New system-wide limit from July 2026: Rs.1 crore
- Margin (physical equity / convertible debentures): 50% minimum
- Margin (demat equity / convertible debentures): 25% minimum
- New LTV for shares from July 2026: 60% (i.e., margin = 40%)
- IPO financing limit: Rs.10 lakh (current) → Rs.25 lakh (from July 2026)
- ESOP: lower of 90% of purchase price or Rs.20 lakh
- Uniform capital market margin: 50% | Cash margin for guarantees: 25%
- Partly paid shares: No advance permitted (absolute bar)
- Partnership/proprietorship: No advance against primary security of shares/debentures
- Transfer in bank’s name required if limit exceeds Rs.10 lakh (not for demat — use pledge mechanism)
- Advance against bank’s own shares: Prohibited under Section 20(1)(a) BR Act
Conclusion
RBI’s October 2025 revision to loans against shares represents the most significant update to these guidelines in decades — the individual limit has increased fivefold (from Rs.20 lakh to Rs.1 crore) and the LTV for equity has moved from 50% to 60%. The restriction on lending against listed debt securities has been removed. All changes take effect from July 1, 2026. For JAIIB candidates: know both the old and new limits, as exam papers may test either depending on their date of preparation.
What is the RBI limit for loan against shares for individuals?
Under the existing Master Circular, the limit is Rs.10 lakh per individual for securities held in physical form and Rs.20 lakh per individual for securities held in dematerialised (demat) form. From July 1, 2026, the new system-wide limit is Rs.1 crore per individual across the entire banking system. A borrower cannot split loans across multiple banks to exceed this ceiling.
What is the LTV (Loan-to-Value) ratio for loans against shares under RBI guidelines?
Under the existing rules, a minimum margin of 50% must be maintained for equity shares and convertible debentures held in physical form, and 25% for those held in demat form. From July 1, 2026, the LTV for listed equity shares is capped at 60% (meaning a minimum haircut/margin of 40%). For debt mutual funds, the LTV ceiling rises to 75% (margin = 25%).
What is the RBI limit for IPO financing by banks?
Under existing rules, loans against security of shares, convertible bonds, convertible debentures, equity-oriented mutual fund units and PSU bonds for IPO subscription should not exceed Rs.10 lakh per individual from the banking system. From July 1, 2026, this limit is raised to Rs.25 lakh per individual. FPOs (Follow-on Public Offers) are treated on par with IPOs. Banks cannot extend credit to corporates for subscribing to other companies’ IPOs, and cannot lend to NBFCs for further on-lending to individuals for IPOs.
Can partnership or proprietorship firms get loans against shares as primary security?
No. As per RBI guidelines, no loans can be granted to partnership or proprietorship concerns against the primary security of shares and debentures. This is an absolute restriction. However, such entities may have shares/debentures accepted as collateral security for secured loans granted for working capital or other productive purposes u2014 but not as primary security.
Can a bank grant a loan against its own shares?
No. Section 20(1)(a) of the Banking Regulation Act, 1949 expressly prohibits any banking company from granting loans or advances on the security of its own shares. This applies to all forms of security u2014 pledge, mortgage, or otherwise. Banks are also not permitted to extend advances to their own employees or Employee Trusts for purchasing the bank’s own shares under ESOPs, IPOs, or from the secondary market.