Regulation 29 deals with the lender`s disclosure obligations. The regulation provides that in the event of the acquisition or sale of shares or voting rights by the purchaser or a concerted person of the target company, which amounts to 5% or more, his right to vote and/or his total interest in that target company are disclosed within 10 working days of the acquisition of those shares or voting rights. Disclosure is made: the shares are traded on the stock exchange and their prices fluctuate very often. As share prices continue to fluctuate, the value of collateral is constantly changing. If stock prices fall, the value of collateral will also decrease. To repair the eroded value, the developer must either mortgage more shares, provide additional money, or put more assets as collateral. If the promoters are unable to recover the eroded value of the security, the lender may sell the shares on the open market in order to recover its money. The minimum value of the guarantee is agreed between the lender and the borrower. If the value of the shares is less than the minimum value, the lender can also sell the mortgaged shares and get the money back. In the worst case scenario, the promoter could also lose all of its stake in the business. The regulatory amendment introduced by the RBI in Circular 57 recently allows non-resident shareholders of Indian companies to use loans from Indian and foreign banks that use their stakes in Indian companies as collateral, subject to obtaining the No-Objection (NOC) certificate from the relevant dealers (AD). As a result, the RBI`s prior authorization requirement for the collateral of Indian shares held by non-residents is waived, provided the conditions are met.
All major public and private banks, as well as multinational banks, which act as DL for DL transactions, can play the role of AD in the area of equity collateral. (i) the underlying ECB maturity is for the duration of the AD class shares collateral – I Banks may insure their “non-objections” to the ECB`s resident borrower for the collateral of the shares of the project promoters` lending company and the borrower`s resident associated companies, to insure the ECB under the following conditions: Unlike a normal agreement, Share Pledge agreement between three parties: the main agreement is between the borrower (usually the company) and the lender (bank). There is a security contract between the credit company and the project promoter. It is only when the borrower accepts the share guarantee contract and sets the terms of issuance that the guarantee agreement enters into force. In principle, when the promoter negotiates a loan from the lender, he does so on behalf of the lender as a representative of the lender, but in his personal quality. When lenders sell under-listed shares on the open market, the share price continues to fall.