Zerodha will launch a “loan against security” product in September, which will enable its customer to take loan against their portfolio investment in the market.
The online retail brokerage launched the ‘loan against securities’ product in closed beta, a month back and the feature will go live in the next 4-5 weeks. Zerodhaplans to steadily open this product to the larger customer base
Last year, the Securities and Exchange Board of India (SEBI) changed some rules around ‘lending against security’ and the retail stock brokerage had to rebuild the entire product.
Zerodha’s loan against security product
Loan against securities is a natural extension to the retail brokerage business, and at present, the brokerage house is putting its own capital for this type of lending. If a consumer has investments worth ₹1 lakh in the market, the brokerage will provide them loans against 60% of their portfolio.
Through its ‘loan against securities’ product, Zerodha aims to provide loans to its consumer base, against their portfolio investments in the public market, levying an interest rate of 12% -13%, as opposed to the industry average of 23% for collateral-free loans.
Loans can be availed on Zerodha with just a click, with client data in place and a good understanding of the collateral held on the platform,.
As banks are not pitching collateral credit products unless you have collateral worth Rs 50 lakh with them, Zerodhawants to grab this opportunity and bring that collateral at a much lower amount.
With an early-access provided to almost 50,000 of its most active customers, the product currently is in beta.
Zerodha’s entry in the lending business
Zerodhareceived its non-banking finance company (NBFC) license from the Reserve Bank of India (RBI), in 2018.
While loan against the security being a common product, the company’s intention was very clear since the beginning, they wanted to start by offering a smaller value loan, which they could disburse at a click of a button. The company started with a minimum ticket size of Rs 5000 for these loans.
Loans against security have always been a product for the high net worth individuals. Zerodha aims to make it a retail product and also keep interest rates in the range of 12 to 13%.
Perfect time to launch the product after adding more than 1 million customers during the lockdown
The COVID-19 crisis has caused several first-time investors to take a plunge and start investing in stock markets. Reaping from that, Zerodha has been witnessing an uptick in new users, joining its platform to trade.
Currently, Zerodha sees close to 250,000 new monthly accounts opened on its platform, post-COVID, which was trending at about 80,000 new monthly accounts, in the last quarter of 2019.
“There was the SBI Card IPO in January, and on top of that NIFTY, which fell, showed some signs of recovery. Hence, individuals opened new accounts, in hope of greater recovery from NIFTY. Usually, when there is a large IPO, more users get interested to invest
Another reason for new customers flocking to invest in capital markets, also involves banks dropping the interest rates on fixed deposits, which has caused investors to look at stock markets to grow their investments.
Zerodha, at present, has close to 3 million customers, of which 1 million were added only in the past 5 months. Post-COVID, 65% of Zerodha’s customer base is new to trading and the platform executes close to 5 million to 7 million trades daily.
Mutual funds on Zerodha can be used as collateral
There is another advantage here as well. Not only shares, but mutual fund units held on the Zerodha platform can be used as collateral.
Zerodha had launched its direct mutual fund platform Coin in March 2017, and it has close to Rs 1,100 crore in assets under management at present. Since mutual funds offer a diverse stock portfolio, the risks are balanced out and consumers can get a higher amount of credit, making it safer for the platform, and more lucrative for the customer.
Lending against a single stock is obviously riskier as compared to lending against a mutual fund, which already has a basket of 25 stocks. Further, mutual funds are held longer by an investor.
Paytm launched stockbroking services
Paytm Money has also launched stockbroking services on its platform In August, with over 90,000 users currently on its waitlist.
Paytm, one of the biggest financial players in the market also seems to be gearing up to take these challenges enter the market, especially after receiving approval from SebiforPaytm Money, its investment arm.
Zerodha kick-started its operations on the 15th of August, 2010 with the goal of breaking all barriers that traders and investors face in India in terms of cost, support, and technology. Zerodha is a combination of Zero and “Rodha”, the Sanskrit word for the barrier.
The disruptive pricing models and in-house technology have made Zerodha, the biggest stockbroker in India in terms of active retail clients.
Over 3+ million clients place millions of orders every day through the powerful ecosystem of investment platforms, contributing over 15% of all Indian retail trading volumes.
In addition, Zerodharuns a number of popular open online education and community initiatives to empower retail traders and investors.
Rainmatter, the fintech fund and incubator, has invested in several fintech startups with the goal of growing the Indian capital markets.