Pledging
Q. Which of the following is/are true?
1) Pledging is pledging shares or keeping a part of shares as mortgage.
2) Pledging is done with banks only. NBFCs are not allowed in it.- Published on 18 Mar 16a. Only 1
b. Only 2
c. Both 1 and 2
d. Neither 1 nor 2
ANSWER: Only 1
- The worrisome state of financials of most listed companies has led to promoters increasingly pledging their shares.
- Promoters of listed companies often pledge their shares to raise short-term capital to fund working capital requirements.
- The shares are typically pledged with NBFCs or even banks, which lend up to a certain percentage of the value of shares that are offered to be pledged.
- Pledging cannot be generalized. Promoters could be pledging more due to increasing debts. The borrowing could be going up without any corresponding rise in profitability.
- It could also be for raising funds for other ventures. The promoter could be facing a default scenario and might have to furnish additional securities to avoid default. Investors should carefully look at the purpose of pledging and then take an informed decision
