Hero insight: Your investment portfolio can help you access liquidity. But what happens when the value supporting your loan declines?

For business owners, entrepreneurs and working professionals, access to liquidity can be important when managing financial commitments.

A business may require short-term working capital. A professional may need funds for a significant personal expense. An investor may prefer not to sell long-term investments to meet a temporary cash requirement.

A Loan Against Securities (LAS) can provide a borrowing option by allowing eligible investors to pledge approved shares, mutual fund units, bonds or other accepted securities as collateral.

However, unlike a loan secured by an asset with a relatively stable valuation, a loan backed by market-linked investments can be affected by market movements.

If the value of pledged securities declines, the amount of loan support available against them may also decrease.

This can create a margin shortfall and require the borrower to provide additional collateral or repay part of the outstanding loan.

Before borrowing against your investments, understand what happens if those investments lose value.

What Happened? Market Volatility Has Brought LAS Risks Into Focus

Loan Against Securities allows investors to access funds without immediately selling eligible investments.

However, the underlying securities remain exposed to market risk.

A September 2026 Moneycontrol analysis highlighted how a decline in pledged portfolio values can result in margin calls and, in some cases, forced sales of securities.

ICICI Bank states that it regularly monitors pledged security values and may require additional collateral or partial repayment when those values fall. HDFC Bank similarly explains that falling collateral values can affect a customer’s available loan limit or required security cover.

Having an approved borrowing facility does not mean the borrowing capacity will remain unchanged throughout the loan period.

What Is a Loan Against Securities?

A Loan Against Securities is a secured borrowing facility where eligible financial investments are pledged or marked under lien in favour of a lender.

Depending on the financial institution and the product, acceptable collateral may include listed equity shares, mutual fund units and certain debt securities.

The lender assesses the securities and determines how much credit may be provided against their eligible value.

Borrowers may be able to access liquidity while continuing to hold the underlying investments, subject to the applicable pledge, lien and loan conditions.

The securities remain subject to market-price movements, and the borrower remains responsible for complying with repayment and collateral requirements.

1. How Is the Loan Amount Calculated?

One of the most important concepts in LAS is the Loan-to-Value ratio (LTV).

LTV indicates the proportion of the recognised collateral value represented by the outstanding loan.

For example, assume an investor pledges eligible securities worth ₹20 lakh.

If the lender permits an illustrative LTV of 50%, the borrowing capacity may be ₹10 lakh, subject to all other conditions.

However, the permitted ratio is not identical across all securities or lenders.

It depends on the type of security, prevailing regulations, the institution’s credit policy and its valuation or risk-management framework.

An investor should therefore confirm the actual permitted LTV for the securities being pledged.

2. What Happens When Your Pledged Securities Fall in Value?

A decline in collateral value can cause the effective LTV to increase even when the outstanding loan remains unchanged.

Consider a hypothetical borrower with a ₹10 lakh loan secured by investments initially valued at ₹20 lakh.

This example demonstrates how market movements can affect borrowing capacity without the investor taking any additional loan.

3. What Is a Margin Call in LAS?

A margin call occurs when the value of pledged securities becomes insufficient under the lender’s required collateral or LTV conditions.

The lender may notify the borrower that corrective action is required.

Depending on the facility agreement and the circumstances, the borrower may be required to provide additional eligible securities, deposit funds or repay a portion of the loan.

For example, if the outstanding amount exceeds the permitted borrowing value by ₹2 lakh, the lender may require the borrower to reduce the outstanding balance or increase eligible security cover.

The exact amount and response period depend on the facility terms.

A margin call is not an investment recommendation. It is a contractual requirement to restore adequate collateral coverage.

4. How Can Borrowers Respond to a Margin Shortfall?

Borrowers may have several options, subject to the lender’s approval and product terms.

Pledge additional eligible securities

If the borrower has other investments accepted by the lender, additional eligible collateral may help restore the required LTV.

However, this also means more assets become pledged and exposed to potential enforcement.

Make a partial loan repayment

Reducing the outstanding amount can lower the LTV.

This may be suitable where the borrower has available cash without compromising essential operating liquidity.

Deposit additional funds or approved security

Certain facilities may permit cash margins or other approved forms of collateral support.

Eligibility and procedures should be confirmed with the lender.

These measures can help regularise a shortfall, but they are not guaranteed to be available in every facility.

5. What Happens If You Cannot Meet a Margin Call?

This is one of the most important risks of borrowing against investments.

If the borrower does not restore the required security coverage or meet outstanding obligations within the applicable period, the lender may have contractual rights to enforce or sell pledged securities.

The exact circumstances depend on the loan agreement, notice provisions and applicable requirements.

For example, Bank of Baroda’s published securities-backed lending terms specify differing time limits for regularising certain LTV breaches and describe circumstances in which the bank may sell pledged securities.

A sale of pledged investments can create additional financial consequences.

The borrower may lose exposure to investments intended for long-term holding. Selling during a market decline may also crystallise losses.

Where sale proceeds are insufficient to settle the outstanding obligations, additional amounts may remain payable according to the loan agreement.

Borrowers should not assume they can indefinitely wait for the market to recover while their loan remains undercollateralised.

6. Why LAS Can Create Additional Pressure During Market Volatility

Borrowing against shares or mutual funds creates a relationship between investment-market performance and personal or business borrowing capacity.

When financial markets decline, two problems can emerge simultaneously.

First, the value of pledged investments may fall.

Second, the lender may require additional collateral or repayment precisely when the borrower wishes to preserve cash.

This can be particularly challenging for business owners whose operating cash flows are also affected by economic uncertainty.

A borrower facing weaker business collections and declining collateral values may find the loan more difficult to manage.

Therefore, LAS should be assessed not only in terms of the amount that can be borrowed today, but also in terms of the borrower’s ability to respond under adverse conditions.

7. Does Pledging Securities Mean Losing Ownership?

Pledging eligible securities does not necessarily mean transferring their ownership at the time the loan is created.

Subject to the applicable structure, investors generally retain beneficial ownership and may continue to receive certain investment benefits.

However, pledged securities are encumbered.

Their sale, transfer or release may be restricted while the facility remains outstanding.

If the lender exercises enforcement rights under the relevant agreement and applicable procedures, the status of the securities may change.

Borrowers should understand what they can and cannot do with pledged investments throughout the loan period.

8. Can the Lender Change the Eligible Collateral Value?

Yes, recognised collateral value may change for reasons beyond market-price declines.

A lender may apply security-specific valuation haircuts, revise eligibility lists or change its internal risk parameters in accordance with applicable policy and contractual terms.

For example, a lender may alter its assessment of a particular share because of liquidity concerns, concentration risk or company-specific developments.

ICICI Bank’s LAS disclosures note that margin requirements may be revised under its risk-management policies.

This means borrowers should understand both the market risks of their investments and the lender’s security-valuation rules.

9. Why the Repayment Source Matters More Than the Available Loan Limit

For professionals and business owners, the maximum sanctioned credit amount may not be the most appropriate amount to borrow.

A better starting point is the expected repayment source.

Consider a business owner seeking short-term liquidity for supplier payments.

The owner expects to repay the loan using customer collections over the following months.

If those collections are predictable and supported by genuine business activity, the borrowing requirement may be easier to evaluate.

However, if repayment depends primarily on the pledged portfolio appreciating in value, the borrower is exposed to additional uncertainty.

The same applies to professionals who use LAS for major expenditure.

If repayment depends on uncertain bonuses, asset sales or market gains, the investor should assess how the obligation would be managed if those expectations are not met.

A borrowing plan should work even if the pledged portfolio does not generate the expected returns.

10. Is a Loan Against Securities Suitable for Business Funding?

LAS can be considered for eligible financing needs, including certain permitted business-related requirements, depending on the lender and borrower category.

However, permitted end uses vary.

Some lenders offer facilities that may support business liquidity, while others restrict the use of proceeds for speculative transactions, capital-market activities or other prohibited purposes.

Business borrowers should confirm the applicable end-use conditions before drawing funds.

A business owner should also examine whether the loan duration aligns with the expected cash-conversion cycle.

A short-term funding gap and a long-term capital investment do not necessarily require the same financing structure.

LAS should therefore be compared with other available financing arrangements based on cost, collateral risk, flexibility and repayment requirements.

An LAS Risk Checklist Before Borrowing

These checks can help a borrower understand the risks before funds are drawn.

Should Borrowers Use Their Entire Available LAS Limit?

Not automatically.

A borrower may qualify for a particular sanctioned amount, but drawing the entire available limit can reduce the cushion against falling collateral values.

Maintaining a buffer between the outstanding loan and the maximum permitted LTV may provide greater flexibility during market declines.

The appropriate buffer depends on the type of securities pledged, their volatility, lender requirements and the borrower’s liquidity.

A prudent borrowing decision should consider the consequences of a significant portfolio decline alongside the expected repayment schedule.

What Should Borrowers Do If Collateral Values Start Falling?

The first step is to review the outstanding loan, recognised security value and applicable margin requirement.

Borrowers should also monitor communications from their lender and confirm whether a shortfall has already occurred.

If the facility is approaching its collateral threshold, they may need to assess available cash, other eligible collateral and repayment options.

Early discussion with the lender may clarify the available actions, but it does not guarantee an extension or prevent enforcement.

The objective is to respond according to the facility’s actual terms rather than relying on an anticipated market recovery.

The Bigger Picture: Borrowing Against Investments Requires Two Risk Assessments

A Loan Against Securities creates two connected financial exposures.

One is the investment risk associated with the pledged securities.

The other is the borrowing obligation associated with the loan.

A fall in investment value can affect the second exposure, even when the borrower has continued making required interest payments.

For this reason, LAS should be considered within the broader financial position of the borrower.

Business obligations, emergency reserves, income stability and existing liabilities all matter.

Access to liquidity is useful. Maintaining the capacity to repay is essential.

Ranjit Jha’s Perspective — Draft for Approval

Proposed editorial perspective for Ranjit M. Jha, Founder, Rurash Financials. Approval required before attribution.

A Loan Against Securities can help eligible borrowers access liquidity while retaining market exposure through their investments.

However, borrowers should understand that the value of the pledged portfolio can change throughout the loan period.

A decline in collateral value may create additional margin requirements and put pressure on cash flows.

Before using LAS, investors and business owners should evaluate repayment sources, available liquidity and the potential consequences of a significant market correction.

A borrowing decision should be guided by the ability to manage the obligation under different market conditions—not simply by the maximum available loan amount.

Explore More with Rurash

At Rurash Financials, we believe liquidity planning should be supported by an understanding of collateral, borrowing costs and repayment capacity.

For business owners, entrepreneurs and professionals considering a Loan Against Securities, the right financing decision begins with understanding the purpose of borrowing and the associated risks.

Through Rurash’s LAS and financing solutions, eligible clients can explore lending options based on their collateral holdings, funding requirements and financial circumstances.

Your portfolio may support a loan. Make sure your repayment plan can support the borrowing.

Discuss your Loan Against Securities requirements with Rurash Financials.

Disclaimer: This article is intended for general educational purposes and does not constitute a loan offer, approval assurance or personalised financial advice. Loan eligibility, interest rates, LTV requirements, permitted uses, margin calls and collateral enforcement depend on prevailing regulations, lender policies and contractual terms. Market-linked investments may decline in value, and borrowers may face losses or additional repayment obligations. Review the loan agreement carefully before borrowing.