Margin Call

A margin call occurs in Loan Against Securities when the market value of pledged securities declines, causing the LTV ratio to exceed the lender’s comfort level. The lender then demands the borrower either pledge additional securities, deposit cash, or make a partial repayment to restore the required margin.

For example, if shares worth ₹10 lakhs were pledged at 50% LTV (₹5 lakh loan), and the share value drops to ₹8 lakhs, the effective LTV becomes 62.5%. The lender may require additional collateral to bring LTV back to 50%.

If the borrower fails to meet the margin call within the stipulated time (usually 1-3 days), the lender has the right to sell some or all of the pledged securities to recover the outstanding amount.

Margin calls are a critical risk in securities-backed lending. Understanding this risk helps borrowers maintain adequate margin and avoid forced liquidation of investments at unfavorable prices.

Nihal Fintech advises LAS clients on maintaining adequate margins, diversifying pledged portfolios, and responds promptly to margin call situations with strategies to minimize impact.