Confiscation is the transfer of a client's pledged securities from their demat account to the NBFC's demat account, in order to recover outstanding dues under a loan against securities. It is used only as a last resort, after multiple reminders and notifications.
What triggers it
- LTV stays above the permitted limit of 50% for 6 consecutive days (notice day plus 6 days) with no corrective action taken.
- LTV reaches 60% or higher, in which case action may be taken immediately.
- Interest remains unpaid for 90 consecutive days, that is 3 consecutive months.
- The loan tenure has ended and the outstanding loan is not repaid by the due date.
How to avoid it
- Pledge additional approved securities, or
- Repay part of the loan to bring the LTV within the permitted limit
What happens when it is triggered
Pledged securities may be transferred and sold to recover the outstanding loan balance or shortfall. Securities are sold only to the extent required to recover the outstanding principal and interest, and any excess amount is credited back to your bank account.
Zerodha Capital notifies clients through email, SMS and voice calls before initiating this process. Confiscation charges apply as per the charges list: 0.7% + GST of the sell value for equity, and 1.5% + GST for equity mutual funds.