Overview
Account holders can use shares already held in their depository (BO) account as collateral for a loan. The securities stay in electronic form — there is no need to rematerialise them — provided the pledgee agrees to accept book-entry collateral.
Who can be a pledgee
The pledgee must be a CDBL participant or a depository account holder. Both the pledgor and the pledgee act through their respective participants (DPs).
How a pledge is created
The pledgor instructs their participant to pledge specified shares to the pledgee. The pledge is recorded in the Central Depository System only after the pledgee confirms acceptance.
Freeze of pledged shares
Once accepted, the shares are frozen in the pledgor’s BO account. They cannot be sold, transferred, or otherwise moved until an instruction is received from the pledgee.
Release or invocation
The pledgee may instruct a release of the pledge — for example after the loan is repaid — or, if the pledgor defaults, instruct that the shares be moved to the pledgee’s own account or to a third party.
Rights while pledged
While the shares remain frozen, they stay in the pledgor’s account. The pledgor continues to receive corporate benefits such as dividends and bonus issues, and retains voting rights.