LTV for Loan Against Shares: Meaning, Limit and Calculation

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.

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.

The Reserve Bank of India (RBI) prescribes prudential norms for loans against shares, including limits on the loan-to-value (LTV) ratio applicable to banks. For loans granted against eligible shares to individuals, banks generally maintain an LTV limit of 50%, meaning the loan amount should not exceed half the value of the pledged securities, subject to applicable regulations and lender policies.

The LTV requirement provides a cushion against fluctuations in share prices and helps limit the lender’s exposure to market-related risks. Since shares are market-linked securities, their value can change frequently, and lenders may monitor the collateral value throughout the loan tenure. If the value falls significantly, the borrower may need to provide additional security or repay part of the outstanding amount.

Borrowers should also note that eligible securities, loan limits, margin requirements and other conditions can vary based on the lender and prevailing RBI regulations.

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.

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.

Type of security

Maximum LTV ratio

Listed shares

Up to 50%

Mutual funds

Typically up to 50% depending on the fund type

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

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.

Trusted by 50 million+ customers in India, Bajaj Finance App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finance App to:

• Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
• Explore and apply for co-branded credit cards online.
• Invest in fixed deposits and mutual funds on the app.
• Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
• Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
• Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMI.
• Shop from over 100+ brand partners that offer a diverse range of products and services.
• Use specialised tools like EMI calculators, SIP Calculators
• Check your credit score, download loan statements, and even get quick customer support—all on the app.

Download the Bajaj Finance App today and experience the convenience of managing your finances on one app.