What is Loan Against Securities (LAS) in Banking - Meaning & Benefits

Are you planning to sell or liquidate your long-term investments like Mutual Funds, Shares, Insurance Policies or Bonds to meet a financial emergency? Stop! There is a much better way to manage the situation, that does not require you to liquidate your investments. Simply opt for a Loan Against Securities (LAS) to meet your needs. Read this blog post to know more about LAS.

What is a Loan Against Securities (LAS)?

Loan Against Securities (LAS) is a type of loan that is granted against bonds, insurance policies, Mutual Fund units and shares as collateral. Such loans are provided as an overdraft facility. This means you can withdraw any amount you need within the sanctioned loan limit, which is typically based on the value of the pledged asset. The interest on a Loan Against Securities is charged on the amount withdrawn by you for that period.

One of the key benefits of LAS is that you continue receiving dividends and bonuses associated with your investments even when they are pledged to the Bank. You can avail a loan of up to ₹ 20 lakh against your equity investments; there is no maximum limit on the loan amount against your debt investments, subject to credit assessment. ICICI Bank also offers online loans against shares and Mutual Funds to select existing customers of the Bank.

How a Loan Against Securities (LAS) differs from other loans

Bonds, stocks (shares) and Mutual Funds are examples of assets that can serve as collateral for a Loan Against Securities (LAS). Due to the backing of this collateral, LAS provides lower interest rates than unsecured loans, which are based on your credit rating. LAS is a practical choice for people who own shares, Mutual Funds, bonds etc. because it is also disbursed faster.

How does Loan Against Securities (LAS) work?

You pledge your assets- like stocks, bonds or Mutual Funds- as security for the Loan. The market value of the securities determines the Loan amount. After evaluating and approving the securities, ICICI Bank will provide the Loan, which you then have to repay in accordance with the conditions that were agreed upon.

Benefits of Loan Against Securities (LAS)

Lower interest rates and faster loan approval are among the advantages of Loan Against Securities (LAS). This Loan gives you liquidity without requiring you to sell your investments, allowing you to keep control of your assets. It's a low-risk borrowing choice.

Eligibility criteria for Loan Against Securities (LAS)

• Demat Shares: Only individuals can apply

• Mutual Fund units: Individuals for Equity Funds; others for Debt Funds and Fixed Maturity Plans (FMPs)

• FMPs: Open to individuals, HUFs, companies, partnerships and sole proprietors

• Life Insurance: Individuals, companies, partnerships, sole proprietors and HUFs can apply

• GOI Bonds: Open to individuals, HUFs and Trusts.

How to apply for a Loan Against Securities with ICICI Bank?

You can apply for an online LAS with shares as collateral. Here are the steps:

Through Internet Banking

1.  Log into your Internet Banking account
2. Click on ‘Cards and Loans’ then go to ‘Loans’ and select ‘Loan Against Shares’
3. Follow the steps mentioned on the subsequent page to apply for the Loan.

Through iMobile App

1. Log into the iMobile app

2. Go to ‘Get Instant Loans / Offers’ and select ‘Loan Against Shares’

3. Follow the steps mentioned on the subsequent page to apply for the Loan.

When should you take a Loan Against Securities?

Before we delve deeper into LAS, let’s discuss the situations in which you should consider taking a LAS. For example, you can be the owner of a profitable business which is facing an unexpected financial emergency.  A business is prone to such emergencies, particularly during the initial stages. During such times, your prime focus is to address the short-term operational requirements so that you don’t face insolvency. For this reason, many businesses go for Working Capital Loans. If the business has a good credit score, getting an unsecured loan won’t be difficult but it’ll come at a high interest rate. LAS is a facility which can help you out of this financial crunch.

You might also face a requirement of funds as an individual, e.g. a medical emergency, overseas travel, children’s education / marriage or purchase of an asset. It is not prudent to liquidate or sell one’s long-term investments for short-term funding requirements. This is where a Loan Against Securities comes in handy.

What form of assets are allowed to be pledged?

Assets like Tax-Free Bonds, Mutual Funds, Shares, Insurance Policies and Demat Sovereign Gold Bonds are accepted as collateral by nearly all banks and financial institutions, including ICICI Bank. If you don’t own any asset, you are still allowed to pledge assets that belong to a blood relative who is 18 years of age, in certain cases. In such a case, your relative has to act as your co-applicant or Guarantor and also sign the overdraft agreement.

What are the documents required for a LAS?

Most lending institutions ask for basic documentation such as KYC documents (photocopies of PAN Card, address proof, identity proof), bank statements and income proof, along with certain other documents depending on the category you fall under. There are separate sets of documents required for Limited Companies, Partnership Firms, self-employed individuals and salaried individuals.

You can also check the documentation requirement and eligibility criteria on ICICI Bank’s website or visit any ICICI Bank Branch to know more.

Interest-related fees

Please note that you are charged a processing fee on the sanctioned Loan. Interest rates are not the same for every borrower. There is also a penal interest on the overdrawn amount that is charged every month, in case you have overdrawn your credit limit.

In addition to the above, there are renewal charges which are applicable on the renewal date.

Conclusion

You can opt for a LAS through ICICI Bank to secure funds for your business or personal needs, with flexible repayment and withdrawal options.

FAQs

1. What happens if the value of my pledged securities decreases?

If the value of the assets that you have put up as security drops, the lender might ask for more assets or a partial payment to keep the Loan-to-Value (LTV) ratio in check. Not meeting these conditions could result in the forced sale of your collateral.  

2. What happens if I fail to repay the LAS on time?

Failing to make repayments for your LAS on time may lead to charges and higher interest rates or even prompt the lender to sell off the securities you pledged to collect the outstanding amount owed. The latter can also have a negative impact on your credit score.  

3. Can I pre-pay my LAS?

Certainly, you are allowed to make pre-payments on your LAS.

T&C apply.