HDFC Bank Ltd is offering loans against shares in about two-three minutes by completely digitising the loan mechanism.
For this, the bank has tied up with National Securities Depository Ltd (NSDL). Shares dematerialised by NSDL and executed through HDFC Bank demat account could be used for pledging. This is a first-of-its-kind initiative in India and probably the first in the world as well. HDFC Bank and NSDL had consulted the Reserve Bank of India (RBI) before developing the product.
"There would probably be no second lender who has managed to put this (product) on the table. We are probably the first to do it and therefore, it is a great day for the country as well," said Arvind Kapil, country head of unsecured, home and mortgage loans of the bank.
An HDFC Bank customer can now login to the bank website and pledge her shares, dematerialised by NSDL, and can get instant loans, deposited in a freshly opened current account. The customer doesn't have to fill any form or visit any branch of HDFC Bank. The bank, on its part, has identified more than 400 widely traded shares that are acceptable for pledging. The loan can be roughly 50 per cent of the value of shares pledged or more, depending on the credibility and float of the underlying company. The maximum regulatory ceiling for the loan is Rs 20 lakh.
Earlier, the process was a lengthy one that required the customer to visit the bank branch and fill up forms, which would then take days to process.
The rate of interest charged would be 10.5 per cent, but the bank is open to reducing the interest as scale builds up, said Kapil.
As per RBI data, private banks control about Rs 5,000-6,000 crore of the market for loans against shares. Half of this is contributed by HDFC Bank, Kapil said.
The portfolio of public sector banks is not readily available, but it could be another Rs 5,000-6,000 crore.
HDFC Bank is growing the loan against share portfolio at 40 per cent per year, and expects the digital initiative to boost the growth by another 30-40 per cent, Kapil said.