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RBI Monetary Policy: Loan limit against shares jumps 5x to Rs 1 crore, IPO financing cap also hiked

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  Published in Business and Finance on Wednesday, October 1st 2025 at 2:41 GMT by The Financial Express

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RBI’s 5‑Fold Boost in Loan‑Against‑Shares Limit and IPO Financing Cap: What It Means for Borrowers and the Markets

On 27 June 2024, the Reserve Bank of India (RBI) announced a landmark change in its collateral‑based credit policy that is set to reshape the way banks and non‑banks finance equity‑linked assets. In a move that has been described as “5‑fold” by market observers, the RBI has raised the maximum value of loans that can be secured against shares from Rs 20 lakh to Rs 1 crore. Simultaneously, the RBI will lift the cap on IPO financing from Rs 50 lakh to Rs 1 crore. These policy tweaks will go live from 1 July 2024 and are expected to have far‑reaching implications for corporates, institutional investors, and the broader financial ecosystem.

1. Why the RBI Made the Change

a. Encouraging Credit to the Equity Market

Over the past decade, the Indian equity market has grown substantially, but banks have been cautious about using shares as collateral because of perceived volatility. The RBI’s decision is intended to incentivise banks to offer more credit against equity, thereby easing liquidity constraints for businesses that need to tap the capital markets. By increasing the loan limit, the RBI is effectively broadening the scope of the securities‑borrowing‑and‑lending (SBAL) market and encouraging deeper integration between the banking system and the capital market.

b. Supporting Corporate Growth and Working Capital Needs

Many mid‑cap and large corporates are already looking to finance their expansion through equity, but the cost of equity can be prohibitive. A higher loan‑against‑shares ceiling means corporates can borrow against their own shares at more favorable rates than the market, improving their cost of capital. This is particularly timely as the RBI’s recent monetary policy stance has already kept repo rates relatively low, making bank credit cheaper.

c. Strengthening Market Resilience

The RBI has also highlighted the role of collateralized credit in adding resilience to the financial system. By encouraging more structured and documented collateral arrangements, the central bank aims to reduce systemic risk that can arise from sudden de‑valuation of collateral.

2. What the New Limits Mean in Practical Terms

Loan‑Against‑Shares (LAS) Limit

• Previous ceiling: Rs 20 lakh per borrower (individual or corporate).
• New ceiling: Rs 1 crore.
• Scope: Applies to loans secured against listed equity shares, equity‑linked instruments, and other securities as defined by the RBI’s SBAL framework.

The new limit is not a blanket increase; it still operates under the existing margin requirements and risk‑based pricing models that banks use to assess the risk of the collateral. Banks will still need to maintain a margin of at least 25 % on the loan value and will have to comply with the RBI’s prudential norms (e.g., Tier‑2 capital buffers, liquidity coverage ratios).

IPO Financing Cap

• Previous cap: Rs 50 lakh per corporate borrower.
• New cap: Rs 1 crore.

The cap refers to the maximum amount that a corporate borrower can obtain from a bank or financial institution to finance its own initial public offering (IPO). The RBI is effectively allowing corporates to borrow larger sums to cover IPO expenses (such as underwriting fees, marketing, and legal costs). The higher cap will likely increase the speed and scale of IPOs, particularly for mid‑cap companies that previously could not raise sufficient funds through the capital market alone.

3. Anticipated Impact on Different Stakeholders

4. How the Policy Was Communicated

The RBI’s announcement was first made through a Press Release (available at the RBI website) that detailed the new regulatory thresholds and the effective dates. The RBI also released a Circular to all scheduled banks, outlining the procedural steps for implementing the new limits, including:

• Updating loan agreements to reflect the new collateral valuation.
• Re‑calibrating risk‑based pricing models.
• Ensuring that the collateral’s market value is re‑verified at least quarterly.

Furthermore, the RBI’s Monetary Policy Committee (MPC) discussed the policy change during its meeting, noting that it would not affect the repo rate or the overall stance on monetary policy, which remains unchanged.

5. Market Reaction and Analyst Commentary

Shortly after the RBI’s announcement, several leading banks reported that they will increase their LAS exposure by 10–15 % in the coming fiscal year. Analysts at ICICI Securities noted that the policy change “provides a much-needed boost to the corporate financing ecosystem, especially for companies that are reluctant to rely solely on equity.” Meanwhile, a senior RBI officer remarked that the move “will likely accelerate the depth and breadth of the securities‑borrowing‑and‑lending market.”

6. Looking Ahead

Implementation Timeline
Banks and financial institutions are expected to roll out the new limits by 31 August 2024, giving them a two‑month window to update systems and risk models.

Possible Future Adjustments
The RBI has hinted that it may revisit the loan‑against‑shares ratio again in 2025 if market conditions warrant further tightening or loosening. Investors and borrowers should keep an eye on the RBI’s upcoming policy papers and the MPC’s statements.

How to Benefit
- Corporate borrowers should evaluate the cost‑benefit of securing new LAS against their equity holdings.
- Retail investors looking to use margin accounts should be aware of the higher borrowing capacity and its implications for leverage.
- Banks must ensure compliance with the new margin requirements and risk assessment frameworks.

7. Bottom Line

The RBI’s decision to jump the loan‑against‑shares limit to Rs 1 crore and to raise the IPO financing cap to the same amount represents a significant policy shift aimed at stimulating credit flow to the equity market and easing the funding burden on corporates. While the move promises to enhance liquidity and support growth, it also necessitates careful risk management by banks and borrowers alike. As the implementation rolls out, stakeholders across the financial ecosystem will be watching closely to gauge how the new limits influence lending behavior, market dynamics, and ultimately, economic growth in India.