If you hold shares in a demat account for the long term and rarely sell them, those shares are sitting idle. The Securities Lending and Borrowing Mechanism (SLBM) is a SEBI-regulated system that lets you put those idle shares to work by lending them to other market participants in exchange for a lending fee.

This post explains how SLBM works, who can lend and borrow, what fees to expect, and what the tax treatment and risks are for Indian investors.

 

Key Takeaways• SLBM lets long-term shareholders lend idle shares and earn a lending fee without selling the shares or losing ownership. • SLBM is exchange-traded in India (unlike most global markets where it is OTC). Transactions are cleared and guaranteed by NSE Clearing Ltd or Indian Clearing Corporation Ltd. • Borrowers use SLBM for short selling, hedging, and avoiding settlement failures. • Lending fees typically range from 0.5 to 10 percent annualised depending on demand for the specific stock. • SLBM income is treated as business income for Indian tax purposes, not capital gains. • The lender does not retain voting rights on lent shares during the lending period.

 

 

 

What Is SLBM?

SLBM (Securities Lending and Borrowing Mechanism) is a SEBI-regulated framework that allows shareholders to lend and borrow securities through a platform operated by the stock exchange. In India, SLBM operates through NSE and BSE, with NCL (NSE Clearing Ltd) and ICCL (Indian Clearing Corporation Ltd) acting as central counterparties.

SEBI introduced the concept in May 1997. What makes India’s SLBM unique globally is that it is exchange-traded: every transaction is matched, cleared, and settled through the exchange, with the clearing corporation guaranteeing each trade. In most other countries, SLB is an over-the-counter product with counterparty risk. India’s exchange structure eliminates that counterparty risk for lenders.

 

Why Would Anyone Lend or Borrow Shares?

Why lenders participate

Long-term investors, mutual funds, insurance companies, and HNIs often hold shares for months or years without trading. These shares earn nothing between dividends. SLBM lets them earn a lending fee on idle holdings without selling.

Why borrowers participate

• Short selling: A trader expecting a price fall borrows shares, sells them at the current price, and buys them back cheaper before the loan expires.
• Hedging: Borrowing shares enables hedged positions against existing portfolio exposure.
• Settlement failure avoidance: A participant who cannot deliver shares for a settlement can borrow temporarily to avoid auction penalties.
• Arbitrage: Enables certain arbitrage strategies between cash and derivative markets.

 

How SLBM Works: Step by Step

1. Lender instructs their broker to list shares on the SLBM platform, specifying quantity, minimum fee, and tenure.
2. The exchange matches the lending offer with a borrower’s request based on price and quantity.
3. The lender’s shares move to the clearing corporation, which holds them during the lending period.
4. The borrower provides 100 percent collateral (cash, bank guarantees, or approved securities).
5. The lender receives the lending fee directly through their broker.
6. On the expiry date (first Thursday of the expiry month), the borrower returns the exact shares through the clearing corporation.
7. The lender’s shares are restored to their demat account.

 

Detail	How It Works
Tenures	Monthly contracts from 1 month to 12 months. Settlement on first Thursday of each month.
Eligible stocks	Approved monthly by NSE. Typically includes F&O stocks and liquid Nifty 200 stocks. Approximately 200 eligible stocks as of 2025.
Borrower collateral	100 percent of lending price. Eliminates counterparty risk for the lender.
STT / SEBI turnover fee	Not applicable. Lending is not a sale of securities.
Corporate actions	Dividend and split equivalents are passed to the lender by the borrower through the clearing corporation.

 

What Lending Fees Can You Expect?

Lending fees are market-determined, quoted as an annualised percentage of the stock’s value:

• Large cap stocks with abundant supply: typically 0.5 to 2 percent annualised.
• Stocks with high short-selling demand relative to available supply: up to 8 to 10 percent annualised.
• Fees fluctuate with market conditions, F&O expiry periods, and corporate event timing.

 

These are general estimates. Actual fees depend on live supply and demand on the exchange platform at the time of lending.

 

Risks for the Lender

• No voting rights: The lender cannot vote on any shareholder resolution while shares are on loan.
• Corporate action complexity: The mechanics of receiving dividend equivalents varies by broker. Confirm the process before lending.
• Early recall limitations: Early return of shares by the borrower or early recall by the lender depends on contract terms.
• Borrower default: The clearing corporation absorbs this using the 100 percent collateral. Structural risk is low but not zero in extreme conditions.

 

Tax Treatment

Income from SLBM lending fees is business income in India, taxed at your applicable income tax slab rate. It is not capital gains. STT does not apply to SLBM transactions. The shares remain in your ownership during the lending period, so there is no sale for capital gains purposes. Consult a Chartered Accountant for your specific situation.

 

 

Frequently Asked Questions

What is SLBM in India?

SLBM (Securities Lending and Borrowing Mechanism) is a SEBI-regulated exchange-traded system allowing shareholders to lend idle shares and earn a fee. Transactions are cleared and guaranteed by the exchange clearing corporations (NCL for NSE, ICCL for BSE), eliminating counterparty risk for the lender.

Who can lend shares through SLBM?

Any investor holding eligible shares in a demat account with a broker offering SLBM can participate as a lender. Institutional lenders like mutual funds and insurance companies dominate by volume, but retail investors can also participate. Borrowers must be clearing members of the respective clearing corporation.

Is SLBM safe for lenders?

SLBM is generally lower risk for lenders because the clearing corporation guarantees settlement and requires 100 percent collateral from the borrower. The main risks are loss of voting rights during lending and the mechanics of corporate action treatment. Confirm these details with your broker before lending.

How is SLBM income taxed?

SLBM lending fee income is classified as business income and taxed at your income tax slab rate. STT is not applicable because lending is not a sale. The shares remain in your ownership throughout the lending period. Consult a Chartered Accountant for your specific tax treatment.

Which stocks are eligible for SLBM?

Only stocks approved by the exchange are eligible. The approved list is updated monthly by NSE and typically includes F&O segment stocks and liquid large and mid cap stocks. Approximately 200 stocks were eligible as of 2025. Check the NSE website’s SLB market data section for the current eligible securities list.

How long can I lend shares?

SLBM contracts run from 1 month to 12 months in monthly intervals. Settlement happens on fixed dates (first Thursday of each expiry month). You can choose the tenure that suits your intended holding period. Early recall may be possible subject to contract terms and your broker’s policies.

Do I receive dividends on lent shares?

You are entitled to receive the dividend equivalent. The borrower pays the dividend amount to the clearing corporation, which passes it to the lender. However, the exact mechanics vary by exchange rules on shut periods and timing of corporate actions. Confirm the process with your broker before entering a lending transaction if a dividend announcement is expected.

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