Loan-to-value(LTV) in Loan Against Securities

Applying for a loan against securities (LAS) can be an incredibly useful way to borrow funds without selling your investments. This not only helps investors stay invested but also provides access to credit in times of need. When applying for a loan against securities, there are several key factors to consider, such as the loan-to-value (LTV). In this article, we will take a closer look at what LTV for loan against shares is, how it is calculated, and other crucial details.

What is Loan-to-Value in LAS?

Loan-to-value is one of the key metrics in secured lending. The LTV is used by the lender to determine the maximum amount that can be lent against the security's market value.

In the case of a loan against securities, the lenders use the LTV to determine the maximum loan amount that a borrower can avail against the total market value of the securities. The LTV depends on several factors, such as the risk level, liquidity, and the type of securities pledged.

For example, if the LTV is 60% and the value of the securities is ₹10 lakh, the borrower can avail a maximum loan of ₹6 lakh.

RBI Guidelines vs. Lender Practice

The Reserve Bank of India (RBI) has laid down clear guidelines for the LTV for loans against securities. The maximum LTV depends on the type of securities.

Although these guidelines prescribe the maximum LTV, the lender may offer a lower LTV against the securities.

For example, as per RBI LTV rules for shares, the maximum LTV is 60%. However, depending on the shares and several other factors, a bank may offer a lower LTV.

Limit vs LTV

Along with knowing LTV LAS in India, one should know the difference between the loan limit and the LTV cap.

The LTV cap is the maximum LTV relative to a security's market value, while the loan limit is the maximum amount that can be disbursed as a loan. Similar to the LTV, the loan limit varies as per the pledged securities.

The RBI sets guidelines on the maximum amount that can be lent against securities. However, banks and financial institutions can apply their own loan limits.

In October 2025, the RBI revised the loan limit for shares and debt mutual funds from ₹20 lakh to ₹1 crore.

Understanding the LTV Calculation

As a borrower, it is important to know how LTV is calculated.

For example, an individual has shares of a company worth ₹50 lakh. The individual applies for a loan against security with a leading bank, secured by shares.

The bank will carefully research and analyse the securities. Factors such as risk, market conditions, liquidity, and company fundamentals are considered when determining LTV.

After carefully assessing the security, the bank decides on an LTV of 50%. This means the individual can avail of a loan equal to 50% of the market value of the shares.

Value of shares = ₹50 lakh

LTV = 50%

Loan amount = ₹25 lakh.

Let’s take another example to understand how loan limits come into the picture.

An individual wants to avail a loan against securities by pledging his debt mutual fund units. The debt mutual fund is valued at ₹2 crore.

Although the maximum LTV for debt mutual funds is 85%, the loan limit is ₹1 crore.

If the bank offers an LTV of 85%, the loan amount would be ₹1.7 crore, which exceeds the loan limit.

Due to loan limits, the LTV for debt mutual funds will be set at 50%, resulting in a loan amount of ₹1 crore.

Read more: Loan Against Securities Eligibility Criteria

Margin Calls, Top Ups, and Liquidations

When availing a loan against securities, one should understand how margin calls, top-ups, and liquidations affect the loan.

Margin call: When the value of your securities drops significantly, the borrower may issue a margin call, which requires you to either pledge additional securities or repay a portion of the loan.

Top-ups: If the value of your pledged securities increases, the borrower may be eligible for a top-up, which can help them access additional funds.

Liquidations: If the borrower fails to make the interest payments, the lender may sell the pledged assets to recover the outstanding amount. Lenders also have the right to liquidate your assets in volatile markets to prevent significant losses.

Pros and Cons of Lower LTV

Pros

• Lower interest and EMI burden
• Lenders are more likely to approve loans with lower LTV
• Reduces the impact of market fluctuations
• Easier repayment and flexibility

Cons

• The value of pledged securities is more than the loan amount
• Can lead to liquidity constraints as more securities are pledged
• A lower LTV prevents the additional pledged securities from being leveraged.

Read more: Loan Against Securities: Pros and Cons