Securities Lending and Borrowing
An exchange-regulated mechanism through which securities are lent for a fee and returned on a set date.
Formula
Lending Fee = Lending Rate x Value of Securities Lent x (Days Lent / 365)
Unit
%
In depth
The SLB mechanism is how a short position in Indian equities can legitimately be carried beyond the trading day, since delivery must be made on settlement and borrowed stock supplies it. Lenders earn a fee on shares they were holding anyway, while retaining the economic exposure and receiving compensation for any corporate actions. The market is thin in India relative to developed markets, so borrowing costs in stocks that are heavily shorted can be very high, and availability is not guaranteed. Without it, an uncovered short goes to auction settlement at a penal price.
Worked example
Borrowing ₹5,00,000 of stock at a 12% annualised lending fee for 30 days costs 5,00,000 x 12% x 30 / 365 = ₹4,932. That is a carrying cost the short position must overcome before it makes anything.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Securities Lending and Borrowing” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.