Fintech Dhan Launches Stock Lending & Borrowing Feature

Context:

Indian fintech platform Dhan has introduced a Stock Lending & Borrowing Mechanism (SLBM) on its platform, enabling investors to earn passive income from their idle stock and ETF holdings.

Key Highlights:

• Functionality:
  • Long-term investors can lend their unutilised shares or ETFs to borrowers.
  • They earn a fixed rental fee without selling their investments.
  • The mechanism is exchange-driven, ensuring transparency and regulatory compliance.
• Significance:
  • Marks the first time a discount broker in India has digitally introduced stock lending and borrowing for retail investors.
  • Provides an additional income stream and better capital utilisation for investors.

About Stock Lending & Borrowing Mechanism (SLBM)

The Stock Lending and Borrowing Mechanism (SLBM) is a framework introduced by the Securities and Exchange Board of India (SEBI) that allows investors to lend or borrow securities (stocks, ETFs, etc.) for a specified period through a recognised stock exchange platform.

It enables long-term investors to earn passive income from their idle shares, while allowing borrowers (like traders) to use these shares for short selling, arbitrage, or hedging purposes.

Key Features

• Participants:
  • Lender: An investor who owns shares and lends them for a fee.
  • Borrower: A trader or institution borrowing shares to sell or meet delivery obligations.
  • Intermediary: Exchange-approved clearing corporation (like NSE Clearing) acts as a guarantor to ensure settlement security.
• Tenure:
  • Contracts can range from 1 day to 12 months, depending on the exchange framework.
• Collateral & Guarantee:
  • Clearing corporations manage collateral, margins, and settlement, ensuring that both lender and borrower are protected from default risk.
• Returns:
  • Lenders earn a rental fee (interest-like income) from lending their securities.
  • The borrower pays the lending fee and returns the same number of shares after the contract period.