If you hold mutual funds, listed shares, government bonds, or other financial securities, you can borrow against them from a commercial bank. Borrowing against such assets has been permitted for a long time.
Recently, the Reserve Bank of India (RBI) issued the Commercial Banks-Credit Facilities Amendment Directions, 2026. This is an amendment to the Master Directions issued in November 2025. With these circulars, the RBI has provided clarity on multiple aspects of such loans against securities. The RBI has provided the list of ‘Eligible Securities’, Loan-to-Value (LTV) ceilings, loan limits, and certain compliance obligations for the banks.
In this post, we focus on the rules for individuals. Individuals also include Hindu undivided families (or HUFs), that are not operating as commercial entities.
What is a Loan against Securities (LAS)?
- You need funds. You own financial assets (securities).
- You pledge your assets (mutual funds, shares, bonds, etc.) and the bank offers you a secured loan.
- The bank marks a lien on such pledged assets.
- You retain ownership of the assets and continue to earn dividends/interest from such pledged assets. However, you cannot sell those assets until you repay the loan.
- In case you cannot repay the loan/interest, the bank can sell your pledged MFs/shares to recover its money.
What are Eligible Securities?
The circular defines “Eligible Securities” for loans against securities.
| Category | What Qualifies as Eligible Security |
| Equity / Preference Shares | Listed Group-1 equity shares and preference shares (as defined by SEBI) Group 1 securities are highly liquid and well-traded securities with impact cost (<1%) and must have traded on at least 80% of the days over the past 6 months. |
| Government Securities | G-Secs, Treasury Bills (T-Bills), and Sovereign Gold Bonds (SGBs) |
| Listed Debt Securities | Listed debt securities (including convertible debt securities) rated BBB or higher |
| Mutual Fund Units | Units of MF schemes that are listed, or where repurchase/redemption is available through the AMC — with underlying investments in equity, equity-related, or debt instruments |
| ETF Units | Units of Exchange Traded Funds — excluding gold, silver, and all other commodity ETFs |
| REITs / InvITs | Units of Real Estate Investment Trusts and Infrastructure Investment Trusts |
What can you NOT borrow against?
Gold and Silver ETFs (or FoFs) are not eligible securities. RBI does not permit lending against any financial asset that is backed by primary gold and silver. Therefore, as I understand, even multi-asset allocation funds where the minimum allocation to gold is 10% will not be allowed as collateral for loans. Sovereign gold bonds are backed by Government guarantee, not by physical gold. Hence, SGBs are eligible for loans.
Further, securities under lock-in (say ELSS before completion of 3 years), Indian depository receipts (IDRs), and commercial paper/non-convertible debentures with maturity of less than 1 year are also not eligible collateral.
How much can you borrow?
This is where these master directions add the maximum value. Earlier, you would have to refer to multiple circulars to find information for Loan-to-Value (LTV) for different types of financial assets. This circular consolidates the information at one place.
The RBI only specifies the maximum LTV for each type of asset. The banks have the discretion to choose a lower maximum LTV as per their policy.
| Eligible Security | Maximum LTV |
| Government Securities (including T-Bills) | As per bank’s own policy |
| Sovereign Gold Bonds (SGBs) | Same as loans against Gold and Silver Collateral
|
| Listed equity shares and listed convertible debt securities | 60% |
| Mutual Fund units (excl. Debt MFs), ETF units, REIT/InvIT units | 75% |
| Debt Mutual Fund units | 85% |
| Listed Debt Securities — AAA rated | 85% |
| Listed Debt Securities — AA to BBB rated | 75% |
For instance, if you pledge Rs 10 lacs worth of equity mutual funds, the bank can lend a maximum of Rs 7.5 lacs (75% LTV). If you pledge ₹10 lacs in a debt mutual fund, the bank can lend up to Rs 8.5 lacs (85% LTV).
The banks must monitor LTV ratios on a continuous basis. If a breach occurs due to a fall in the market value of pledged securities, the bank will reach out to you, and you must rectify the breach within 7 days. By pledging additional securities or by partly repaying the loan to bring the LTV within permissible limits.
Beyond the LTV ratio, the RBI also caps the absolute rupee amount of loans that individual borrowers can take against certain categories of securities.
| Purpose / Collateral Type | Per-Individual Limit |
| Loans against Govt. Securities, listed debt securities, debt MF units | No fixed RBI ceiling. As per bank’s Board-approved policy If the pledged debt security is downgraded below BBB, you must ensure that you provide alternate eligible security within 30 days OR repay the proportionate amount of loan. |
| Loans against listed shares, MF units (non-debt), ETFs, REITs/InvITs | Up to Rs 1 crore |
How are Pledged Securities valued?
Depends on the type of security.
Debt securities shall be valued as per the Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025.
Listed shares and the units of MFs/ETFs/REIT/InvITs shall be valued at lower of the following.
- Average daily closing prices/NAVs for the last 6 months OR
- The closing price/NAV of the previous trading day.
The two RBI circulars provide great clarity by formally defining eligible securities and specifying LTV ceiling and absolute loan limits. As a borrower, while this circular provides clarity, each loan has a cost and must be repaid. And before taking a loan, you must weigh the pros and cons of selling the asset or taking a loan against the asset for your funding needs.