Risks of Stock Lending Through SLBM: What Investors Should Know

Last updated: October 2026.

Stock lending in the context of India’s Securities Lending and Borrowing Mechanism (SLBM) would enable a fee earning opportunity for eligible investors for lending shares held in a Demat account. However, it is important to note that this fee is not a guaranteed return, and it also alters the flexibility of an investor in using or selling the shares during the period of the contract. To understand the risks of stock lending through SLBM, one needs to look beyond the quoted fee and consider the terms, the settlement obligations, corporate actions, charges, as well as the own investor’s plans for the shareholding.

Understand the mechanism before participating. If you are evaluating whether SLBM fits your shareholding, review the process, eligible securities and contract features on Securities Lending and Borrowing Mechanism service page.

This article is educational and not an endorsement to lend or borrow any securities. Contract rules, eligible securities, charges and operational procedures can be changed; investors need to verify the latest rules with their broker and the relevant clearing corporation.

What happens when you lend shares through SLBM?

Through SLBM, a lender makes eligible securities available through a participating broker, and a borrower makes securities available for a defined period. Orders are matched on the exchange’s SLB platform at a lending fee quoted per share. The securities are transferred through the clearing and depository process. The borrower is obligated to return the securities on the settlement date of the reverse leg of the contract, as per the applicable scheme rules.

SLBM is not the same as selling shares in the cash market. The lender enters into a securities lending contract and has the right to recall the securities if the contract so stipulates. The lent shares do not, however, give the lender the right to sell the shares or otherwise use the shares as if they had not been lent. There are several things that impact the right of a lender to recall the shares including the securities lending contract, the settlement cycle and the early recall facility.

For the scheme’s operational description, check the official NSE SLBS features page. Only securities published as eligible under the scheme can be lent. Therefore, do not assume all the shares that are listed can be lent. Check the latest publication.

Key Risks of Stock Lending Through SLBM for Lenders

1. Liquidity risk: you may not be able to sell when you want

A long-term investor may lend shares and expect to hold those shares for a longer duration (e.g. months). They may need to sell shares due to a host of reasons, including: a company announcing results, sharp movement in share price, cash requirements, or a decision to sell shares for portfolio rebalancing. During the SLBM contract, those shares are not free to sell in the ordinary course.

There is a predetermined return date. An early-recall facility may be provided, but that does not mean there is instant and unrestricted access to those shares. The request will be subject to the platform’s procedures and the eligibility of the series and the contract, and the economic terms for the remaining period may be determined by market factors. An investor should be aware of the recall mechanism and its constraints and limitations prior to lending shares that may be required on short notice.

2. Recall risk: early return is a facility, not a guaranteed shortcut

NSE Clearing says that a lender may place a recall order (which may be partial) for the shares and settle through an early-recall facility. However, there are order and settlement requirements for a recall. A lender may need to quote the fee that they are willing to forgo for the remainder of the contract and an order may need to be matched.

This creates a trade-off between convenience and risk. If the market for recall orders is thin, or the conditions offered are poor, the lender may not be able to exercise the call for early return on the terms preferred. Shares that are on recall are not always recredited instantly. An early exit may not preserve the anticipated lending income. Review your broker’s current instructions on recall eligibility, order types, timing and settlement.

3. Settlement and close-out risk

SLBM employs clearing-corporation processes and prescribed settlement obligations. While this should manage counterparty and settlement risk, it does not eliminate all operational risk and an investor may not always get the same shares in a disruption.

If a borrower fails to return the securities, the clearing corporation’s rules provide for a buy-in, and where the securities cannot be procured, for a financial close-out.

A financial close-out means the obligation is settled by a cash payment instead of the shares. The closing price, methodology and time for calculation of a financial close-out are prescribed by the clearing corporation rules and depend on the circumstances of the shortage.

Lenders also have a similar obligation to deliver shares in the first leg. There may be a shortage in the lender’s own Demat account, a transfer may fail, or an instruction may be missed. Lenders should ensure that the required shares are available, follow brokers’ cut-off times and check transaction confirmations. Read the Official NSE Clearing SLBS settlement and shortage procedures for the scheme’s latest process.

4. Corporate-action risk: treatment depends on the event and contract

SLBM positions are affected by corporate actions. The treatment by the scheme is not identical for all events. NSE Clearing has published procedures for treatment of various corporate actions. Dividends, stock splits and others are covered in the procedures. Dividends are collected from the borrower and transferred to the lender under the applicable process. In the case of stock splits, the position is adjusted in the same manner. For other corporate actions, the lending position may be foreclosed on the ex-date and the position is adjusted on a pro-rata basis.

For shareholder meeting-related actions, treatment also depends on the contract series. Foreclosure, for example, may be allowed for the series covering an Annual General Meeting, but not for the series covering an Extraordinary General Meeting. It is, therefore, necessary for a lender to check the contract series and the corporate action calendar, before entering into or continuing a share loan.

In general, do not expect that lending leaves every shareholder entitlement unchanged. For dividends, splits, bonus issues and mergers, there may be a change in holding-period economics or the contract may end.

5. Lending income is uncertain—and may be lower than the headline fee

The lending fee is quoted on a matched order basis and is displayed per share. Just because a particular fee is quoted and displayed, this does not mean the investor order will get executed at that fee. It may not be available tomorrow. Demand and supply for a security can change and this can affect order execution. Orders may not be executed at all.

Even when order execution happens, there are other costs which reduce the lending fee further. Brokerage, taxes, and various costs including the treatment of early recalls or corporate actions can affect the net lending income. Charges vary by broker. When comparing contracts, look at the net fee, not the quoted fee per share.

To learn which costs to check for your broker, see SLBM charges in India. Ask the broker for a recent, itemized schedule and worked example for the quantity and contract you wish to transact.

6. Opportunity cost: lending may conflict with your investment plan

While assessing the lending fee, consider what happens to the security after it has been lent. The lending fee may be low, but if the share price increases and becomes hard to sell, the lender will have to sell it at a discount through a special route if the shares are recalled. This may happen if the lender wants to exit the stock at a specific point in time. The lender may have to forego the benefit of selling the stock at a profit (when an increase in the share price is anticipated) as the shares may have been lent out.

An investor who wants to vote, tender shares, transfer holdings, pledge securities or respond to a time-sensitive event should verify if lending affects that event and what steps are required. The investor should weigh the potential fee against the flexibility lost. A small fee may not compensate for losing access at an important point in time.

7. Contract and operational risk: read the terms, not just the app screen

The important details may be in the broker’s SLBM agreement, risk disclosure, fee schedule, order confirmation or clearing corporation’s rules. Investors should confirm the security and quantity, contract series, scheduled reverse leg date, lending fee, recall eligibility, treatment for corporate actions, settlement, instruction and process for disputes, and ask for a written interpretation of any unclear terms before placing the order.

Also confirm how the broker communicates a recall, corporate action, settlement, or change in eligibility. Keep a copy of all transaction confirmations and review account statements regularly.

Lender risks versus borrower risks

Both sides participate in the same mechanism, but their exposures differ. A lender is principally concerned with access to the shares, the return process, the fee received and the treatment of entitlements. A borrower is concerned with obtaining the shares, meeting margin and payment obligations, returning securities on time and the market exposure of the position for which the shares were borrowed.

Borrowers should not treat SLBM as a low-cost or open-ended way to obtain securities. They need to understand the lending fee, collateral and margin requirements, return date, and what happens if the position cannot be closed or the shares cannot be returned. The official NSE SLBS margins page explains margin categories; the applicable requirements should be verified before trading. Readers comparing both sides can also review the SLBM participation details.

Questions to ask before lending shares

• Is the security currently eligible, and is the exact contract series available?

• What is the scheduled return date, and what are the broker’s instruction and settlement cut-offs?

• Can I recall all or part of the position? How is the recall order matched, priced and settled?

• What happens if the borrower does not return the shares and how are auction and close-out proceeds determined?

• How will dividends and other corporate actions be treated for this contract?

• What will be all the brokerage, platform, and tax related costs, and what will be the net cost to me?

• Could I need the shares for a decision before the contract expires (e.g. sale, pledge, transfer, voting)?

• Where can I get the contract agreement, order confirmation, contract note and support contact?

Investors who want a process walkthrough can also review how to lend shares through SLBM. Use the guide along the broker’s current documentation; a step-by-step guide will not replace reading the terms of the contract for the transaction.

When the trade-off deserves extra attention

Pay extra attention if the security is concentrated, the share is volatile, a significant corporate action is in the future, the investor may need liquidity, or the lending fee is low relative to the value and flexibility of the shares. These will not necessarily mean you should not use SLBM; they will mean you should consider the timing and economics of the contract in relation to your situation.

We invite investors to research their broader equity holdings with our stocks and equity-market data. Make an informed decision on lending versus making an investment. Each has its own set of risks and constraints.

Conclusion: evaluate the contract as well as the fee

Where conditions are met, SLBM can charge a market lending fee for eligible securities, but the amount is uncertain and the lender can accept limits and procedures that will affect liquidity, recall and corporate actions, as well as access to the shares. Clearing and settlement arrangements give effect to obligations; they do not eliminate all the risks associated with timing, operations and the market. Interested parties can look at the SLBM service and scheme information for details.

Prior to participation, interested parties can look at current scheme rules and the eligible series, assess fees and charges, understand the process for early recall and close-out, and consider the likelihood they may need the shares during the loan.

For share market related educational and market information, see share market advisory resources. This information is general educational; it is not investment, legal or tax advice. Confirm scheme rules and tax treatment, where relevant, with authorized and qualified persons.