Quick Summary
- What is SLBM? Securities Lending and Borrowing Mechanism (or Stock Lending and Borrowing Mechanism) enables investors to temporarily lend idle demat shares for a fee while retaining economic ownership and corporate benefits.
- Exchange-Guaranteed: Operates on the NSE platform and is settled and guaranteed by NSE Clearing, eliminating bilateral counterparty risk.
- Tenure Range: Available in monthly contracts ranging from 1 month up to a maximum of 12 months.
- Corporate Actions: Dividends, bonus shares, rights, and stock splits are retained by the lender; dividends are collected by the clearing corporation and paid back.
- Risk Factor: Does not protect against market price decline; shares are subject to contract lock-in.
Introduction
Most investors in India do one of two things with their shares: hold them or sell them. But there is a third option many people never hear about: lend them.
If you hold shares for the long term and they are just sitting in your demat account, SLBM lets you earn a fee on them without selling. And if a trader needs shares they don't own, SLBM lets them borrow instead of buying.
This guide explains SLBM from scratch, with a worked example and answers to common questions.
What is SLBM?
SLBM stands for Securities Lending and Borrowing Mechanism. (Some sources call it Stock Lending and Borrowing Mechanism; both mean the same thing.)
In simple terms, SLBM works like renting out an asset you own. A shareholder (the lender) temporarily transfers shares to another market participant (the borrower) for a fixed period. In return, the borrower pays a lending fee. When the period ends, the shares come back to the lender.
Think of it like renting out a spare flat: you still own it, you earn rent, and you get it back when the agreement ends. The difference is that in SLBM, the exchange stands in the middle, so you never deal with the borrower directly.
In India, this arrangement runs on the NSE platform through its clearing corporation, and the lender and borrower never deal directly with each other.
Why does SLBM exist?
Markets work better when there is enough supply of shares. SLBM helps in two ways:
- Traders sometimes need shares they don't own: For example, someone who sells shares first (short selling) must deliver them on settlement day. They can borrow instead of buying.
- Long-term holders have idle shares: Instead of letting them sit unused, they can earn a fee.
So there is a real need on both sides, and SLBM is the structured, exchange regulated mechanism to meet it.
Key terms every beginner should know
| Term |
Meaning |
| Lender |
The investor who lends shares and earns a fee |
| Borrower |
The participant who borrows shares and pays the fee |
| Lending fee |
The price the borrower pays for using the shares |
| Tenure |
The period for which shares are lent |
| Clearing corporation |
The exchange body (NSE Clearing) that guarantees and settles the transaction |
| Approved intermediary / participant |
The registered clearing member (stock broker) through which lenders and borrowers participate |
| Early repayment |
When the borrower returns shares before the contract period ends |
| Buy-in auction |
The process used if the borrower fails to return the shares |
Who can Lend and Who can Borrow?
All clearing members of NSE Clearing, including banks and custodians, can take part, either on their own account or on behalf of their clients. Before doing so for a client, the participant must sign an agreement with that client in the format NSE Clearing specifies.
For an individual investor, this means you access SLBM through your broker, not directly.
Who typically lends?
- Long-term investors with holdings they don't plan to sell soon
- HNIs and portfolio holders with large, idle holdings
- Institutions and other investors who want extra yield on holdings
Who typically borrows?
- Short sellers who sold shares and need to deliver them
- Arbitrageurs who exploit price gaps between markets
- Participants who need shares to meet delivery obligations
What you need to participate
- An active demat account and a trading account
- Shares that qualify for SLBM, held in demat form only
- SLBM enabled by your broker, with the client agreement signed
Lending and borrowing is permitted only in dematerialised form.
Which Shares Can Be Lent or Borrowed?
Not every stock is eligible. Only SEBI-approved securities are permitted on NSE's platform, including F&O-eligible stocks and select ETFs. The list is updated by the exchange, so always check the current eligible list before planning.
How does SLBM work? Step by Step
- Register: Get SLBM enabled through your broker and sign the required agreement.
- Check eligibility: Confirm which of your holdings are on the exchange's current SLBM list.
- Place an order: The lender instructs their broker to place a lending order on NSE's platform, specifying the stock, quantity, lending fee per share, and tenure.
- Matching: The exchange matches your order with a suitable borrower.
- Transfer: The shares move from the lender to the borrower, and the fee is paid. In the example the source describes, this happens the next business day: the lender delivers the securities and then receives the lending fee.
- During the tenure: The shares stay with the borrower while the clearing corporation guarantees the deal.
- Return: At the end of the series, NSE Clearing returns the securities to the lender.
How long can the tenure be?
The tenure of lending and borrowing ranges from 1 month up to a maximum of 12 months. Monthly contracts are available, so participants can choose the maturity that suits them.
What Happens to Dividends, Bonus and Other Benefits?
This is the question most lenders worry about. Even after lending shares, the lender retains corporate benefits such as dividends, rights, bonus issues and stock splits. In the case of dividends, the clearing corporation collects the amount from the borrower and pays it to the lender.
One thing to be aware of: because the shares are with the borrower during the tenure, you generally cannot exercise voting rights on lent shares. Confirm this with your broker if it matters to you.
A worked example (Illustrative Numbers)
These figures are made up purely for illustration. Actual lending fees depend on market demand and supply for each stock.
Part 1: The Lender's Side
Rohan owns 1,000 shares of Company XYZ, currently trading at ₹1,000. He plans to hold them for long term.
- Value of his holding: 1,000 × ₹1,000 = ₹10,00,000
- He places a lending order for 1 month at a fee of ₹4 per share
- Fee earned: 1,000 × ₹4 = ₹4,000
- That is about 0.4% for the month on his holding, before brokerage, taxes and other charges
Rohan remains the owner of the shares. If XYZ declares a dividend during the month, it is passed on to him. After the month, the shares return to his demat account.
What happens to his price risk? Nothing changed. If XYZ rose 5%, Rohan's holding gained value. If it fell 5%, it lost value. SLBM adds a fee on top but does not protect against price falls.
Part 2: The Borrower's Side
Meera is a trader who believes XYZ will fall. She sells 1,000 shares at ₹1,000 without owning them, then borrows 1,000 shares for 1 month to deliver them. She pays the same ₹4,000 fee.
| Scenario after 1 month |
What happens to Meera |
| XYZ falls to ₹900 |
She buys back at ₹900 and returns the shares. Gain on trade: ₹1,00,000, less ₹4,000 fee = ₹96,000 (before other costs) |
| XYZ rises to ₹1,100 |
She buys back at ₹1,100. Loss on trade: ₹1,00,000, plus ₹4,000 fee = ₹1,04,000 loss (before other costs) |
This shows why borrowing carries real risk: short selling can lose far more than the fee.
SLBM vs Selling Your Shares
| Factor |
Selling |
Lending via SLBM |
| Ownership |
You give it up |
You keep economic ownership |
| Income |
Sale proceeds |
Lending fee, plus dividends and corporate benefits |
| Exposure to price moves |
Ends |
Continues |
| Flexibility |
Immediate |
Locked in for the tenure (with limited exceptions) |
Benefits of SLBM
- Extra income on idle holdings: Earn without selling.
- Corporate benefits are retained: Receive dividends, bonus, splits, and rights.
- Exchange-guaranteed settlement: All SLB trades happen on the NSE platform and are guaranteed by NSE Clearing, which removes counterparty risk.
- Transparency: You know the lending fee and tenure upfront before you enter the trade.
- For borrowers: Access to shares for delivery and short strategies without owning them.
Risks and Limitations of SLBM
Being clear about risks builds trust, so don't skip this section.
- Price risk remains: Your shares can still fall during the tenure.
- Lock-in: Under the scheme documents, participants and clients do not have a right to recall securities outside the lending and borrowing schedule. Early recall or repayment applies only to securities the exchange announces as eligible, so check before lending.
- Modest returns: Fees depend on demand for the stock, and many stocks see limited demand.
- Loss of voting rights: You do not hold voting rights on lent shares during the tenure.
- Borrower default: The clearing corporation covers this. If a borrower fails to return securities, NSE Clearing conducts a buy-in auction in the capital market segment. This protects lenders, but it is still worth understanding.
- Costs and taxes: Brokerage and other charges reduce your net fee, and the tax treatment of lending income should be confirmed with a tax professional.
- For borrowers: Unlimited loss potential on short positions, plus the lending fee.
Is SLBM Right for You?
SLBM may suit you if:
- You hold eligible shares for the long term and don't expect to sell soon
- You understand that price risk stays with you
- You are comfortable with your shares being locked for the tenure
It may not suit you if:
- You might need to sell on short notice
- You expect to react to news quickly
Frequently Asked Questions
1. What is the full form of SLBM?
Securities Lending and Borrowing Mechanism.
2. Do I lose ownership of my shares when I lend them?
You transfer them temporarily, but you keep economic ownership. Dividends and other corporate benefits are passed back to you, and the shares return at the end of the tenure.
3. Is SLBM safe?
All trades run on the exchange and are guaranteed by the clearing corporation, which removes counterparty risk between you and the borrower. However, SLBM does not remove market price risk.
4. Are all the shares lying in my Demat account eligible for lending?
No. Only securities approved for SLBM, such as F&O-eligible stocks and select ETFs, can be lent, and they must be in demat form.
5. For how long can I lend my shares?
From 1 month up to 12 months, with monthly contracts available.
6. How much can I earn from SLBM?
There is no fixed amount. The fee depends on market demand and supply for that stock and varies from stock to stock and month to month.
7. Will I receive dividends on shares that I have lent out?
Yes. The clearing corporation collects the dividend from the borrower and pays it to you.
8. Can I get my shares back before the tenure ends?
Generally not. Early recall or repayment is possible only for securities the exchange specifically announces as eligible, so check with your broker before lending.
9. Do I need a separate account for SLBM?
You need a demat and trading account, with SLBM enabled by your broker and a client agreement signed.
10. What happens if the borrower doesn't return the shares?
The clearing corporation arranges the shares through a buy-in auction. You should not need to chase the borrower.
11. Is the SLBM income taxable?
Yes, in general, but the exact treatment depends on your situation. Please consult a tax advisor.
12. What is the difference between SLBM and Margin Trading Facility (MTF)?
In SLBM, shares are lent and borrowed for a fee. In MTF, you borrow money from the broker to buy shares. They solve different problems.
Conclusion
SLBM is a regulated, exchange-guaranteed way for long-term investors to earn extra income on idle shares, and for traders to access shares they need. It is not a way to eliminate risk or guarantee returns. Understand the tenure, the lock-in period, the fee, and the price risk before you lend.
Disclaimer
The content provided in this blog is for informational and educational purposes only and should not be construed as investment, legal, or tax advice. While Sushil Finance makes reasonable efforts to ensure accuracy and reliability of the information, we do not guarantee its completeness or timeliness. Readers are advised to consult with their financial advisor before making any investment decisions. Sushil Finance shall not be held responsible for any direct or indirect loss arising from use of this content. Investments in securities are subject to market risks. Read all scheme-related documents carefully before investing.
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