what is pledging of shares

#2
Remember the phrase 'girvi rakhna' from bollywood films of the 80's? Pledging is that. Banks and NBFCs give loans against shares.

If you want to take a loan from a bank, you can take it against the shares you hold. For this, you will have to keep the shares with the bank. This is called pledging shares with a bank. You will call your shares pledged. The bank will call it collateral.

During the period of pledge, you will continue to receive dividends, bonus etc. So you have all the benefits of holding the shares. Once you have paid the loan, the pledge will be closed and your demat account will reflect that status. However, if you are unable to pay back your loan, the shares will be sold by the bank to recover the amount of loan remaining unpaid.
 
#3
why does pledging hammper the price of the shares
Pledging of shares by individuals or retail investors is done for their personal reasons and has no relation with the share price.

Pledging of shares by a company or its promoters is another matter.

Recently, companies were short of cash and had fewer or no opportunities for raising finances. So, many companies or their promoters pledged their shareholding to banks to get loans for the company. Using pledging as a means of financing means that the company is so cash-strapped for even working capital and that they are finding it so difficult to raise money from the market that they can raise it only by pledging shares. This is a reflection of the companys financial health, its market perception and, these days, of the economy.

Also, in doing this, they surrender their voting rights. This is a risk factor and therefore diminishes a companys valuation. It also makes them vulnerable to a hostile takeover.

Again, as for retail investors, here also, if the companys share price goes down below a certain level, the company will have to make immediate payment in whole or part, or pledge more shares. If the compnay cannot do this, the bank will sell the shares and recover that much money.

This is why usually only 50-60% of share value is given as loan against securities.
 

AW10

Well-Known Member
#4
why does pledging hammper the price of the shares
Pledging by ordinary shareholder doesn't matter because ordinary retail shareholder can do anything with his holding.
When Pledging is done by promotors, then it has important. When shares are pledged, they pass the right to bank/broker to sell their shares at any time.
On the other hand, if promoters are selling their holding in the company via normal market route, then they need to disclose it to exchanes. But in case of pledged shares, exchange or market participants will not come to know if the bank has already sold promotors shares.

Why it impacts share price - like any other sharedealing by promotors has impact on share's price so is this.,


Happy Trading
 
#6
Remember the phrase 'girvi rakhna' from bollywood films of the 80's? Pledging is that. Banks and NBFCs give loans against shares.

If you want to take a loan from a bank, you can take it against the shares you hold. For this, you will have to keep the shares with the bank. This is called pledging shares with a bank. You will call your shares pledged. The bank will call it collateral.

During the period of pledge, you will continue to receive dividends, bonus etc. So you have all the benefits of holding the shares. Once you have paid the loan, the pledge will be closed and your demat account will reflect that status. However, if you are unable to pay back your loan, the shares will be sold by the bank to recover the amount of loan remaining unpaid.
So when you transfer your shares to your broker for margin against those shares ..your broker re-pledge to NBFC ? so we have to pay interest when we pledge our shares? like a personal loan?
 

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