The Hindu Business Line : Pledge of shares

I thought of pointing out one small issue with regard to the stories that are appearing on pledge of shares. Traditionally Indian banks have been asking for both personal guarantees as well as pledge of shares for any loans including working capital/term loan for the company. Promoters also pledge shares for raising finance for their personal needs/investments. Hence we must treat these two separately. Often, shares are pledged as collateral for loans taken by a company towards raising working capital.

Such pledging should not be given negative publicity, unlike the pledge of shares to raise finance for other activities of the promoters. At the rate at which negative publicity is given for pledge of shares, promoters may not be willing to pledge shares to take loans for their company. The more horrifying story could be on personal guarantees given by promoters to take loans for their private companies and for the company itself. Legally speaking, if there is a default, personal guarantee will be invoked by the bank and all properties, including the shares, could be attached by the banks.

C. J. George Geojit Securities

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