Lenders Law

Loans against shares (LAS) to listed companies or their promoters are often perceived as low-risk, fully secured exposures —especially when the initial Loan-to-Value (LTV) appears comfortable (2x cover). In reality, equity-backed lending is one of the fastest deteriorating credit exposures if governance, monitoring, and documentation are weak . This blog sets out everything lenders should evaluate before and after sanction . Understand the Risk: Shares Are Not Static Collateral: Unlike real estate or fixed assets, listed shares: Are marked-to-market daily; Are exposed to price volatility, liquidity risk, and sentiment shocks; Can lose value before the lender is operationally ready to act. A “2x cover” at sanction is only a point-in-time comfort , not a risk mitigant by itself. Initial LTV Is Only the Entry Point — Stress Testing Is Critical: Before sanction, NBFC should stress-test: 30/60-day average; Fall in trading volumes during market stress; Impact of simultaneous i...

On July 29, 2025, RBI released "Investment in AIF Directions, 2025" —applicable to NBFCs and other Regulated Entities (REs). A closer legal look reveals a strong regulatory intent: curb indirect evergreening and tighten capital discipline. Key highlights: 1️⃣ 10% Cap per RE & 20% Collective Cap across all REs in an AIF scheme. 2️⃣ If an RE contributes >5% to an AIF that makes non-equity investments in RE’s own debtor company, RE must make 100% provision to the extent of its proportionate indirect exposure. 3️⃣ If an RE subscribes to subordinated units of an AIF, the investment must be entirely deducted from capital funds (Tier-1 & Tier-2). 🔍 Legal and compliance teams at NBFCs must now revisit: - Their AIF investment approval matrices; - Existing exposures vis-à-vis related-party/indirect lending; - Tier-1 capital impact under the revised approach. This is not just a compliance update — it’s a strategic recalibration of how structured exposure via AIFs is view...