LTV for Loan Against Shares: Meaning, Limit and Calculation

Learn how Loan-to-Value (LTV) ratios impact loans against shares. Discover optimal LTV ratios, benefits, and factors influencing loan eligibility for better financial planning.
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3 mins read
01-August-2025

The Loan-to-Value (LTV) ratio in loans against shares is a crucial financial metric used by lenders to determine the maximum loan amount that can be provided against the market value of the shares pledged as collateral. The LTV ratio expresses the loan amount as a percentage of the current market value of the shares. For example, if a lender offers a 50% LTV ratio, you can borrow up to 50% of the value of your pledged shares. This ratio helps lenders manage risk and ensures that they have adequate collateral to cover the loan in case of market fluctuations.

What is Loan-to-Value (LTV) ratio?

Loan-to-Value (LTV) ratio is a key metric used by lenders to determine how much loan amount you can avail against the market value of your pledged asset, in this case, securities such as shares, mutual funds, or insurance policies.

For example, if your shareholding is worth Rs. 10 lakh and the lender offer a 50% LTV; you can borrow up to Rs. 5 lakhs.

In the context of securities lending, the LTV ratio for shares and other instruments is set based on the risk profile, liquidity, and price volatility of the pledged assets. This helps lenders maintain adequate collateral coverage while offering flexible liquidity solutions to investors. The LTV in securities lending typically ranges between 50% to 90%, depending on the asset type, lower for equities due to higher risk, and higher for debt or hybrid funds.

Loan Against Shares
Loan Against Mutual Funds

How does LTV affect loan amounts in Loan Against Shares?

  • Determines loan capacity: Higher LTV ratios allow borrowers to access a larger loan amount relative to the value of their shares.

  • Risk management: Lenders use LTV ratios to assess and mitigate the risk of market volatility affecting the value of the collateral.

  • Interest rates: Loans with higher LTV ratios may attract higher interest rates due to increased risk.

  • Loan approval: A suitable LTV ratio can influence the lender's decision to approve the loan application.

For more details, explore our comprehensive guide on Loan Against Shares.

RBI guidelines on LTV for Loan Against Shares

Parameter

RBI guideline

Maximum LTV ratio

50% of the market value of shares

Eligible securities

Shares listed on recognized stock exchanges

Loan tenure

Typically up to 12 months, can vary by lender

Margin maintenance

Lenders may require additional margin if share prices fall

Factors impacting LTV for Loan Against Shares

  • Market volatility: Fluctuations in share prices can affect the LTV ratio.

  • Type of shares: Blue-chip stocks often have higher LTV ratios compared to lesser-known or volatile stocks.

  • Lender's policies: Different lenders have varying criteria for determining LTV ratios.

  • Creditworthiness: Borrower's credit score and repayment history can impact the LTV ratio offered.

How to calculate LTV for Loan Against Shares

To calculate the LTV ratio, use the formula:

LTV Ratio=(Loan AmountMarket Value of Shares)×100

Example: If you wish to borrow ₹1,00,000 and the market value of your pledged shares is ₹2,00,000, the LTV ratio would be:

LTV Ratio=(₹1,00,000₹2,00,000)×100=50%

To determine the Loan-to-Value (LTV) ratio, you can use the following formula:

LTV ratio = (Loan amount ÷ Market value of shares) × 100

Example: Suppose you plan to borrow Rs. 1,00,000 by pledging shares worth Rs. 2,00,000. Using the formula:

LTV ratio = (1,00,000 ÷ 2,00,000) × 100 = 50%

This indicates that the loan amount is 50% of the total market value of the pledged shares, which is typically the maximum you can borrow in such a case.

Maximum LTV ratios permitted for different securities

Type of security

Maximum LTV ratio

Listed shares

Up to 50%

Mutual funds

Typically up to 50% depending on the fund type

Bonds

Up to 50% depending on the credit rating

For more detailed insights, visit our section on Loan against Securities

Conclusion

In conclusion, understanding the Loan-to-Value (LTV) ratio is essential for anyone considering a loan against shares. The LTV ratio determines the amount you can borrow relative to the market value of your shares, impacting loan amounts, interest rates, and overall loan terms. Factors such as market volatility, the type of shares, and lender policies all influence the LTV ratio. By calculating the LTV ratio accurately and considering these factors, borrowers can make informed decisions.

Frequently asked questions

What is the maximum LTV ratio for loan against shares?
The ideal Loan-to-Value (LTV) ratio for a loan against securities is typically upto 50%. This ensures a balance between the lender’s risk and the borrower’s access to credit while maintaining a reasonable margin for market fluctuations

How does LTV ratio impact the interest rate on loans against shares?
A lower LTV ratio often results in lower interest rates, as it reduces the lender’s risk. Conversely, a higher LTV ratio may lead to increased interest rates due to the higher risk of insufficient collateral

Can LTV ratios change after loan approval?
Yes, you can improve your LTV ratio by providing additional or higher-value collateral. This increases the loan’s security for the lender, potentially lowering interest rates or increasing loan approval chances

What are the risks associated with high LTV loans?
Yes, LTV ratios vary depending on the type of security. Fixed deposits typically have higher LTV ratios due to lower risk, while stocks and mutual funds have lower ratios because of market volatility

What happens if the value of my pledged shares drops?

If your pledged shares lose value, your LTV ratio increases. If it exceeds the allowed limit, the lender may issue a margin call asking you to either pledge more shares or repay part of the loan. Failing to act may lead to partial liquidation of your securities.

How can I maintain a safe LTV ratio on my loan?

To keep your LTV ratio within safe limits, monitor your portfolio regularly. Opt for less volatile securities, maintain a buffer above the minimum margin, and respond quickly to market fluctuations. You can also prepay a portion of your loan or pledge additional assets when needed.

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