I’ve been lucky. Opportunities don’t often come along. So, when they do, you have to grab them.
Audrey Hepburn
You may have heard about crowdfunding and peer to peer lending. These ideas sound fantastic or awesome and you gasp on the sheer innovativeness. Theres a borrower in need and a lender available – and a platform connects them.
And of course we are all familiar with renting and borrowing homes! and of course Badla finance- where millions were made in the late 20th century!
Despite all of this familiarity, we in India are still not fully conversant with one of the oldest Peer to Peer lending platforms available – fully secure and guaranteed to add extra pocket money each month to your bank account!
Introducing SLB
SLB was launched aeons ago in India (or so it seems) to prevent shortages in one segment of the market from impacting prices – and to create a safe, transparent platform for lending and borrowing of stocks.
Finally it looks like its taking off , of course partly with some prodding and pushing from SEBI as well as increased awareness.
The last few months have seen an increase in securities lending and borrowing activity with notional turnover having increased to almost Rs 150 crore on average daily versus about Rs 50 crore some months ago.
Physical settlement becoming mandatory for certain derivative contracts – and a long standing demand that this be allowed for non FNO stocks as well – implies that this segment of the market is likely to explode in the future!
We had earlier written about what this means and how it works (https://www.plindia.com/blog/what-is-securities-lending-and-borrowing/) – in this piece, we again summarise a few key aspects of why you should start looking at it seriously , whether you are an advisor or a client with a large number of dormant or semi dormant holdings.
Key Benefits
- SLB is a legally approved , secure medium (NSCCL is the guarantor) for lending and borrowing of securities.
- Investors who have ‘idle’ shares can earn good returns if they lend stocks to traders (via the market platform) who want to engage in reverse arbitrage or go plain short on stocks.
- SLB provides an incremental return on an idle portfolio. So, if one is holding 1000 shares of xyz, which is to be held for long term; they could be lent whenever there is a demand. The lender gets lending fees.
- Corporate actions such as Dividends/Bonus are transferred to Lender.
- A borrower is probably looking at one of these opportunities: arbitrage in stock price between 2 exchanges, reverse arbitrage when futures are at a discount to stock, to cover short position for avoiding settlement failure, mispricing in options, and other F&O arbitrage or hedging strategies which requires you to have stocks. Here, stocks could be borrowed from a lender for a fee using SLB.
- Lending does not incur short term capital gain tax.
- Lender is asked for a margin of 25% while Borrower is asked to bring in 125% of the stock value as margin, and also the lending fees over and above the margin.
- Daily MTM on the margin is levied to the borrower.
- At the end of contract, lender gets back the stock and borrower’s margin is released.
Download our product presentation HERE.
To hear our webinars recording, please visit www.plclients.com>products>SLB if you are a PL client
Download the NSE’s brochure at https://www.nseindia.com/invest/content/SLB_brochure.pdf
To see the current market rates on SLB securities, please visit https://nseindia.com/products/content/equities/slbs/slbs.htm