These days pledging shares in India has grown significantly. Recently I heard many people talking about "Pledging shares", even 5 to 6 members asked me also. So this time I would like to give basic gyan on this.

Basically pledging is just like you going to banks/financial institutions, keeping the gold and borrowing money from them. You can get ur gold back when you return the money/loan back with interest. I think many people are aware of this.

Just like that “Pledging shares” means giving your shares as collateral to the Institutions/Banks that lend money to you. In simple, you can call it as collateral loan.

Once you pledge ur shares, as and when the stock falls down, you will have to pay the marginal money to the institutions from which u borrowed the money. In case you dont pay the amount, the institutions have the authority to sell your stocks. That implies, in the falling market pledging shares will be high risk.

If promoters are pledging shares, then there may be chances where they will go for manipulating company's balance sheet to keep the stock price high, so that they can escape from paying marginal amount.

Will pledging shares by promoters have an impact on the market ??

Yes,Usually promoters will have some _ % stocks (bole tho some crores together shares); in the falling market paying marginal amount on that will be very difficult. If the promoter failed to keep that amount, then selling a huge chunk of those stocks by institutions, will lead to a big fall in that stock price. This will have a huge impact on the small investors.

Recently SEBI has made it ‘ mandatory for all the companies to disclose the shares pledged by the promoters’ till last year it was not there…!. May be that’s the reason sometimes we never come to know why some XXX company stocks fall all of a sudden without any news.

Not only promoters, even we can pledge our shares by submitting the written pledge statement to our bank (where you have ur DP account). Pledged quantity of shares will be blocked in your DP account and you will get a loan amount on that.

Loan amount will depend on the current stock price, it doesnt mean that they will give loan on full amount. For example, suppose XXX company is trading at 300Rs currently,and if it wants to pledge 100 shares then they may get around Rs 15000(100 * 150)as loan. pledge amount will be decided by Institutions/Banks.

Upon the closure of your loan, the pledge is closed on your DP account and bank will return back your shares to your DB :) .

Dr Reddy's Lab, Aban Offshore, Asian Paints, Godrej Consumer Products, Great Offshore and JB Chemicals ,Mytas Infra, UTV software , Lanco Infratech , TV-18, PVR, Balaji Telefilms, Radaan Media, Shree Ashtavinayak Cine Vision, UTV Software and Crest Ganesh Housing, J Kumar Infraprojects and Peninsula Land and many more....are names of some of the prominent indian companies whose promoters have pledged shares against loan.

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