Pledging family silver

The last four quarters have seen the index correcting by 25 per cent, resulting in an erosion of value of shares pledged for securing loans. In such a scenario, companies that have taken loans against shares have to provide further margin in cash or pledge more securities to maintain the margin requirement. The risks associated with pledging of shares are quite significant, particularly from the promoter’s perspective. In case of default, a lender can sell the shares in the open market to recover dues, which could result in a fall in the stock price and erosion of market capitalisation. Besides, promoters run the risk of losing management control if a significant portion of their holding is pledged, says ICICIdirect.com Research in a February 29 report. (Click on graphic)