Zerodha, an online retail brokerage firm launched its ‘loan against securities‘ product. This new product was launched with the aim of enabling easy loan processing against portfolio investments. The company intends to open this product firmly to the larger customer base.
As part of the new offering, the company would broaden its financing facility against a customer’s investment portfolios and impose the rate of interest anywhere between 12-13 percent. Loan against securities is a usual augmentation to the retail brokerage business, and currently, the brokerage house is depositing its capital for this mode of lending. If a consumer has an investment value of 1 lakh in the market, the brokerage will provide them a loan in contra to 60% of their portfolio.
The considerations were enormous, with some jury members insisting that Zerodha’s potential capability to scale up and have a tremendous impact may not be as much as that of the other contenders. What leaned the scales in Zerodha’s esteem was the portrayal of building a self-sustainable business over a decade. This was noticeable from its FY20 revenue of Rs 950 crore and a profit of Rs 350 crore.
Besides its central business, the company has commenced lending and selling mutual funds directly through its platform, “Coin” which proposes additional products such as trading in government bonds and treasury bills. Zerodha also has its grant enterprise fund called Rainmatter, which is nurturing 12 startups in the wealth management section. Another rationale for new customers crowding to invest in capital markets involves the act of bank’s releasing the interest rates on fixed deposits, which has pushed the investors to focus on the stock markets to grow their investments.
Last year, the Securities and Exchange Board of India (SEBI) had revised some principles around ‘lending against security’ and so the online retail brokerage firm, Zerodha decided to rebuild their entire products. Furthermore, the company was operating on a platform that allows users to invest in US securities but currently, it is on its work to solve the remittance difficulty, concerning the launch of their new loan offering.