This refers to the editorial “Protect ordinary investors” (December 5). Notwithstanding the rise in loan-related frauds, many lenders are in the habit of disregarding the guidelines of the RBI, thus benefiting the unruly borrowers causing losses to the banks and eventually, adversely affecting the financial system. It is imperative to conduct a thorough probe into the granting of loan against third party shares belonging to the retail investors. In this case, the brokers pledging the shares must have an irrevocable authority to pledge the shares. If it is in the negative, it denotes that the broker firm that created the pledge has transferred a defective title to the lender and hence, the lender must recall the credit facility.
The market regulator must bolster its oversight on the activities of the share brokers to ensure that the retail investors’ interest is protected; else they too will flee from the market thereby negatively impacting market stability. Loans against shares are riskier vis-a-vis other types of loans. Though the RBI has stipulated tight norms for lending against shares, the lending in this category is not fair, and therefore it must tighten its oversight to secure the loans and advances against shares.
VSK Pillai, Kottayam
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