Shares Pledged by Promoters

Post the Satyam fiasco, the Securities and Exchange Board of India (SEBI), in its recent directive in January, mandated disclosures regarding the pledging of shares by the promoter and persons forming part of the promoter group to the company and by the company to the stock exchanges where the shares of the company are listed.

Ever since the companies started disclosing this information, the market learned the degree of this financial engineering. The majority of Indian companies have been pledging shares for more than two decades, if not longer. The promoters of 467 companies have pledged with lenders an average of 23% of their holdings so far. There are 114 companies whose promoters have pledged more than 50% of their own stake, and promoters of 22 companies (about 5% of disclosing companies) have pledged more than 50% of paid-up shares.