RIILH plans to lend 60 lakh shares each of L&T and BSES Ltd in stock lending operations. As on March'98, the company held 1,31,63,772 shares of L&T (market value: Rs 134.15 crore) and 68,39,078 shares of BSES Ltd (Rs 112.88 crore) in its investment portfolio.

Market sources surmised that another Reliance group company, Reliance Capital, could probably be the intermediary with which RIILH had entered an agreement for stock lending.

As of date, only three intermediaries: Reliance Capital, the Stock Holding Corporation of India Ltd (SHCIL) and Deutsche Bank, have obtained a Securities & Exchange Board of India (SEBI) registration for stock lending activities. SHCIL and Deutsche Bank are, however, yet to launch their stock lending operations.

It may bementioned that the finance minister, Yashwant Sinha, in his budget speech announced capital gains exemption on stock lending. SEBI has, also, on its part trying to give a push to the stock lending activity, and had come out with its set of guidelines last year. The activity though has not really taken off, save for the Reliance initiative as of now.

Stock lending provides an opportunity to an entity to lend shares, which it otherwise could not have traded and earned revenue, save for dividend income and bonus share issuances, if any. The company engaged in stock lending receives a fee (variable in nature) for the same: by leveraging its long-term investments to generate an additional return, besides using the floats generated from the underlying lending transaction.

The lender profile in a stock lending transaction is typically that of a custodian as it has access to a large number of holdings. On the other hand, the borrower profile is of brokers, giving them an opportunity to take short-positionsknowing fully well that they can meet settlement commitments by borrowing shares and returning them at a later point in time.

The risk involved, however, is of getting back a clean title. Shares lent out are not the same that as those returned, and carry a different distinctive number, share certificate number etc. Hence, there is always the fear of getting back a share, which is a fake or forged one. For this reason, it is felt that stock lending can really take off only in a demat environment.