Volatile Zee shares cast a shadow on MFs' loan-against-shares play

Experts say instances of lower share cover can backfire for fund houses as markets remain in a bearish phase

The meltdown in Essel group shares on Friday raised concerns over the loan-against-shares (LAS) model where initial estimates show mutual funds (MFs) have an exposure of at least Rs 23,000 crore.

According to industry sources, fund houses, in some cases, have taken exposure to entities with less than two times the share cover. 

This is lower than what the Reserve Bank of India (RBI) stipulates for non-banking financial companies (NBFCs) that lend against shares.

The RBI stipulates that all NBFCs with more than Rs 100 crore asset size need to maintain a loan-to-value (LTV) of 50 per cent where listed