State Bank of India is the largest Bank in India with maximum reach into all nooks and corners of our vast country. This government owned corporation has made a significant contribution to the economy and development of our country for over a century. State Bank of India was founded in 1806 as imperial Bank of India which later became the present SBI. This bank accounts for 20% of the total deposits in banks in India and has an asset base of a whopping $300 billion! This makes SBI one of the most stable, safe and reliable name in the banking sector of India. Following are the services rendered by State Bank of India:
- Personal Banking
- Agricultural and rural services
- NRI Services
- International banking services
- Small and Medium enterprises products
- Corporate Banking
- Other services
SBI also enjoys a humongous 20% share in loan dispersal which indicates the trust it enjoys amongst the general public and corporate sector of India. Various category of loans that SBI offers are as follows:
- Home Loans
- Auto Loans
- Education loans
- Personal loans
- Loans against securities which includes shares, debentures, SBI debt fund series and time deposits.
- Gold loans
- Loans against property
Of these different and varied kinds of loans that are offered by SBI, we are going to discuss loans against share in detail.
Eligibility for the Loan
Eligibility features of loan against shares with SBI are as follows:
- Applicant should be of minimum 18 years of age as on the date of making application;
- Applicant should be citizen of India, however Non-resident Indians are not allowed this loan from SBI as of now.
- Individual customer should have had a track record of relationship with SBI.
- Applicant should hold DEMAT account with SBI Cap sec.
The eligibility criteria for applying to SBI for loans against shares denies loan to anyone who is not their client or has been a client only in the recent past giving rise to a situation where his/her track record is difficult to establish by the bank. This relationship can be through deposits or by holding a DEMAT account, latter being compulsory as on the date for application of loan.
Purpose of Loan Against Shares
Now that we have discussed the eligibility for the loan, let us discuss the purposes for which SBI extends this type of loan to its clients:
- Personal expenditure arising out of emergencies and contingencies;
- Subscription of rights or purchasing new issue of shares (IPO);
- Loan would not be sanctioned for speculative purposes, inter-corporate investments or for acquiring controlling interests in any companies.
The purpose therefore clearly excludes trading of shares in the secondary market and even commodity markets as those are speculative in nature. The only security related purpose this loan can be put to use is IPOs.
Features of the Loan Against Shares
After defining the purpose for which this loan can be availed, let us look into the main features of this loan:
- Minimum loan under this scheme is Rs. 50,000 which is not to exceed 20 lacs. Loan to subscribe for IPOs shall be limited to 10 lacs.
- There are two types of facilities for disbursal of loan- One, Demand loan and two, overdraft. Demand loan does not have a fixed tenure and has to be repaid to the lender whenever the demand is raised. Overdraft is withdrawing from your account over and above the balance. Int his kind of a loan, bank decides and assigns an upper limit until which the client can continue to withdraw over the balance. Interest is charged on the amount overdrawn.
- The margin is at 50% of the present market price of the shares when the application is made. For example, if you want to avail a loan of Rs. 5 lacs then you have to pledge shares worth Rs. 10 lacs. These 10 lacs is the prevailing market price of the shares.
- There is no processing fee on this loan and in case of overdraft facility, Rs. 1000 plus service tax is charged for review.
- Interest rate for loan against share is 12.05% which is 3.15% above 1 year MCLR.
SBI loans against share help you unlock the complete potential of your shares lying in your Demat account. Whenever opting for this type of loan, check with your lender the procedure if the market price of the shares pledged fall. In such a case, you can be called up to pay the balance amount within a particular period of time. SBI has some stringent guidelines as far as this loan is concerned, which reflects its commitment to safety of funds and financial credibility. If you are an SBI client and want to avail this loan then open a DEMAT account asap and enjoy the perks of this loan!