Pledging shares & the mirage of prosperity

Pledging of shares where promoters use their shares as collateral to raise money is not a new phenomenon but has become popular amongst promoters in recent years

Pledging shares has become an easy option to raise funds, even for many well-known business families. Unfortunately, they do not seem to visualise scenarios where the optimistic assumptions about future performance may not always materialise. As of May 2019, 62 per cent of all listed companies in India had pledged at least some (in a few cases all) of their promoters holding. As many as 193 companies’ promoters had pledged 75 per cent or more of their shares and 327 companies’ promoters had pledged at least 50 per cent of their stake. The scenario of lenders liquidating the pledged shares