IPO financing to loan against shares, REITs, InvITs and debt: What’s changing for borrowers?

The Reserve Bank of India (RBI) has proposed major measures to help retail investors access higher loans against listed securities, including equity shares, REITS, InvITs, and debt instruments.

The RBI has proposed to remove the regulatory ceiling on lending against listed debt securities and enhance limits for lending by banks against shares from ₹20 lakh to ₹1 crore and for IPO financing from ₹10 lakh to ₹25 lakh per person.

RBI Governor Sanjay Malhotra said, "...it is proposed to (a) remove the regulatory ceiling on lending against listed debt securities and (b) enhance limits for lending by banks against shares from ₹20 lakh to ₹1 crore and for IPO financing from ₹10 lakh to ₹25 lakh per person."

What are the proposed loan limits

• Loan against shares: ₹1 crore
• Loan for IPO financing: ₹25 lakh per person
• Loan against debt securities: No ceiling

What the RBI said

In its 'Statement on Developmental and Regulatory Policies', the central bank said that the capital market exposures of the regulated entities (REs), which include lending against securities to individuals and lending to capital market intermediaries, have been subject to "prudential regulations relating to sectoral exposure limits, single borrower limits, margin requirements, etc."

Further, bank finance for the acquisition of shares has been generally disallowed.

However, the RBI noted there has been significant growth and development in the capital market structure, along with the strengthening of the banking system in recent years.

To rationalise the extant guidelines and broaden the scope for capital market lending by banks and other regulated entities, the RBI has proposed the following:

• Provide an enabling framework for banks to finance acquisitions by Indian corporates;

• Enhance the limit for lending by banks against shares, units of REITs, units of InvITs, while removing the regulatory ceiling altogether on lending against listed debt securities; and

• Put in place a more principle-based framework for lending to capital market intermediaries.

The RBI will soon issue draft guidelines for the proposed changes in lending rules.

How will higher loan against securities help?

According to SBI Research, the above proposals are expected to unlock value both for financial institutions/lenders and participating individuals.

"With capital markets witnessing significant participation from retail investors, and an equity cult gaining traction for sustainable wealth creation for younger generations, the move promises to unlock value for both FIs as also participating holders of equities," SBI Research said.