By BillCut
Last updated: 24 October 2026
If you have a loan against shares and the market falls, the value of your pledged shares drops, so the amount you can borrow drops too. You may be asked to pay cash or pledge more shares within a few days, and your loan agreement sets what the lender can do if you cannot.
The same risk applies if you borrowed through a personal loan, a credit card or a broker’s margin facility to buy shares or IPOs. The loan stays the same size while your investment shrinks.
How does a loan against shares work?
You pledge shares from your demat account to a bank or NBFC, and it lends you a part of their value. The shares stay in your name, but you cannot sell them freely until the pledge is released.
Three terms matter most:
- Loan to value (LTV): the most a lender can lend as a share of the pledged value.
- Drawing power: the current value of your shares multiplied by the LTV. It moves every day with prices.
- Shortfall or margin call: the gap when your outstanding loan becomes bigger than your drawing power.
What are the Reserve Bank of India rules on loans against shares?
The RBI sets different limits for banks and NBFCs, and your lender can be stricter.
| Rule | Banks, lending to individuals | NBFCs with assets of Rs 100 crore or more |
|---|---|---|
| Maximum LTV on listed shares | 60% | 50%, maintained at all times |
| Time to fix a shortfall | Immediately, and no later than 7 working days | Within 7 working days if caused by share price movements |
| Overall cap | Rs 1 crore per individual, of which up to Rs 25 lakh can be used to buy shares in the secondary market | Set by the lender |
| IPO financing | Up to Rs 25 lakh per individual, with at least a 25% cash margin | Ceiling of Rs 1 crore per borrower |
The bank limits come from the RBI’s Credit Facilities Amendment Directions, 2026, effective from 1 April 2026. They also say banks value listed shares at the lower of the six month average closing price or the previous day’s close, so your drawing power can lag a recovery. The NBFC limits come from the RBI’s NBFC Credit Facilities Directions, 2025.
What happens to a loan against shares in a market fall?
When prices fall, your drawing power falls with them. If your loan is now above the limit, the lender will usually ask you to close the gap. You can typically do one of these:
- Pay cash to reduce the loan.
- Pledge more shares or approved securities.
- Sell some pledged shares, with the lender’s consent, and use the money to repay.
If you do not act in time, your loan agreement sets what happens next, and that can include the lender selling pledged shares to recover the shortfall, possibly at a low point in the market. Read the margin call and sale clauses before you need them.
Loan against shares market fall: a worked example
The figures below are illustrative. Say you pledge shares worth Rs 2,00,000 at a 50% LTV and borrow the full Rs 1,00,000.
| Market move | Value of shares | Drawing power at 50% | Shortfall to fix | Or extra shares to pledge |
|---|---|---|---|---|
| No fall | Rs 2,00,000 | Rs 1,00,000 | Nil | Nil |
| Prices fall 20% | Rs 1,60,000 | Rs 80,000 | Rs 20,000 | Rs 40,000 |
| Prices fall 30% | Rs 1,40,000 | Rs 70,000 | Rs 30,000 | Rs 60,000 |
Because new shares also count at only 50%, you need to pledge twice the shortfall in shares.
Is borrowing to invest riskier than a loan against shares?
It can be. A personal loan or credit card has no margin call, but nothing protects you from the loss either. Say you take an illustrative Rs 1,00,000 personal loan at 16% for 12 months and invest it. The EMI is about Rs 9,073 and you repay about Rs 1,08,877 in total. If the shares fall 30% to Rs 70,000, you still owe the full EMIs, leaving a gap of about Rs 38,877.
A margin trading facility (MTF) is a third route. SEBI’s FAQs for investors on stock brokers describe it as borrowing part of the price of shares from your broker, a leveraging mechanism. Under SEBI’s margin pledge circular, shares bought through margin funding are held only by pledge in a separately tagged account, and securities given as margin must be pledged, not transferred to the broker.
| Feature | Loan against shares | Margin trading facility | Personal loan or credit card to invest |
|---|---|---|---|
| Who lends | Bank or NBFC | Stock broker | Bank, NBFC or card issuer |
| Security | Shares you already own, pledged | The shares you buy, pledged | None |
| Margin call in a fall | Yes | Yes, under broker terms | No, but EMIs continue |
| Main risk | Shares sold at a low price | Pledged shares sold under broker terms | Losses plus high interest |
Card debt is the costliest version. Under the RBI’s credit card Master Direction, the interest-free period is lost if the previous balance is not fully paid, so interest builds quickly. See BillCut’s explainer on how card interest grows.
If a market loss has left you repaying high interest card dues or personal loan EMIs, moving them into one structured EMI may cost less in total, if the rate and fees add up. Check your options with BillCut.
What should you do if you have a loan against shares in a falling market?
- Check your drawing power and outstanding loan. If you are unsure where pledged holdings sit, see BillCut’s guide to demat account basics.
- Read the margin call clause: how you are told, how many days you get, and when the lender can sell.
- Keep cash aside and avoid drawing your full limit, so a normal fall does not force a sale.
- Do not sell in a panic. BillCut’s note on panic selling covers why.
- Avoid using a new personal loan or card to meet a margin call.
- If you are new to investing, start with BillCut’s basics of the stock market in India before borrowing to invest.
How BillCut can help
BillCut is a balance transfer and debt reduction platform. It works with lending partners to help eligible borrowers move high interest dues, such as credit card balances and personal loan EMIs, into one structured EMI. BillCut earns from helping borrowers refinance, so it has an interest in this option. Approval and terms depend on the partner lender, and a switch only makes sense if the total cost after fees is lower.
Frequently asked questions
This article is for general information only and is not financial or investment advice. Rules and lender terms change, and the figures above are illustrative. Check your loan agreement and speak to your lender or a qualified professional before making decisions.
Are you still struggling with higher rate of interests on your credit card debts? Cut your bills with BillCut Today!