The National Securities Depository Ltd (NSDL) will start providing pledging facility for dematerialised stocks from May 12. NSDL will download the pledging/hypothication module to the depository-participant end this Saturday, according to depository officials.

An investor who wants to take loan against his dematerialised shares requires to instruct the depository participant to create a pledge on his security. The depository participant would block the pledged securities from being traded. The pledgee, i.e., the bank, would then confirm the pledge to the depository participant. The pledge is then matched and confirmed in the NSDL system. After the creation of the pledge by an agreement between the pledgee and the pledger, both these parties will also need to enter into separate agreements with their respective depository participants.

Since the new arrangement as an off-market transfer, corporate benefits like dividends, rights, bonus, etc, during the period of pledge will be credited to the account of the pledger.

Once the period of pledge is over and repayment of money is made, the depository participant will remove the trading block on pledged shares. However, in case of default, the pledgee can invoke the pledge and get the securities transferred into his account. All the scrips in the dematerialised form will be available for pledging at the depository.

Banks are expected to give preference to pledge in the form of dematerialised shares as the problem of fake shares can be avoided.

Transaction and retrieval cost will also be less in a depository mode. The banks, lending against dematerialised shares, will just need to give an application to transfer the pledged shares to its account in case of default.

There will not be any fee charged for pledging in the depository mode and the only cost involved will be of 0.01 percent fee for off-market transfers when the shares are transfered to the DP account of the` pledgee.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.