The Reserve Bank of India (RBI) has proposed raising the loan-to-value (LTV) ceiling for loans against shares and debt mutual funds.

The central bank also proposes raising the loan amount to individuals to purchase shares through initial public offerings (IPOs) and follow-on public offers (FPOs).

For loans against shares, the LTV is to be increased to 60% from existing 50%. As against debt mutual funds, the LTV is proposed to be increased to 75% from existing 50%.

Loans against government securities and sovereign gold bonds (SGBs) will follow bank policy or gold loan rules, the RBI's draft guidelines said.

This policy does not apply in case the ratings for any of the securities are downgraded below investment grade during the term of the loan.

"If the credit rating of a debt security is downgraded below BBB (-) during the tenor of the loan, banks will have to replace it with any other eligible security within a period of thirty working days, or a proportionate portion of the exposure will have to be repaid," the RBI said.

The amount of loan that can be granted to individuals against eligible securities is capped at Rs 1 crore. 

Eligible securities include G-secs, mutual funds, sovereign bonds, listed shares and listed convertible debt securities, and commercial papers with ratings.

As per the draft norms, banks can grant loans of up to Rs 25 lakh per individual for subscribing to shares under an IPO, FPO or under an employee stock option plan (ESOP). The current limit is Rs 10 lakh.

"...the loan amount shall not exceed 75 per cent of the subscription value, i.e., borrowers shall contribute a minimum cash margin of 25 per cent," the draft said.

A lien should be created on the shares to be allotted under the IPO/FPO/ESOP, and such shares should be pledged to the lender upon allotment.

Banks, however, cannot lend to their own employees or employee trusts to buy the bank's own shares, and loans against locked-in securities will not be allowed.

"No loan - secured or unsecured - shall be granted by a bank to its own employees or employees' trust set up by the bank for purchasing its own securities under ESOPs/IPOs/FPOs or from the secondary market," said the draft guidelines.