The promoter pledge: Regulators must join hands to check misuse

Tighter oversight and regulation, along with better disclosure norms, will help improve a method of raising funds that often leads to over-leverage and increases the risk of contagion across sectors

India’s financial and equity-market regulators are reportedly working in concert to review and tighten the framework for pledging shares. Tighter oversight and regulation of this common practice, along with better disclosure norms, would help improve a method of raising funds, which often leads to over-leverage and increases the risk of contagion across sectors because of linkages between financial entities.

The practice of promoters pledging equity as collateral to raise money has many downsides. It can cause steep losses in market value in the company concerned, which means loss of wealth for minority shareholders. If there is a default on the