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A working group constituted by the Indian market regulator is discussing measures to improve the country's stock lending and borrowing framework through greater custodian participation and digitization of the Securities Lending and Borrowing Scheme (SLBS) processes, three people aware of the development said.
The move is part of a push by chairman Tuhin Kanta Pandey to deepen cash markets and offer investors alternatives to the risky derivatives segment.
The key part of the discussions is a plan to push custodians to actively pitch the scheme to investors whose shares they safeguard. Currently, the process is hampered by ‘prohibitive’ 125% margin requirements and a manual trading system that relies on phone calls rather than digital screens.
The regulator aims to link cash and derivatives markets better to improve price discovery systems. If successful, the reforms could unlock billions in idle shares held by institutional players, providing the liquidity necessary for a more robust short-selling ecosystem in India.
“The working group members have individually sent their preliminary suggestions on strengthening the SLBS framework to the regulator. The group is slated to meet again and discuss the suggestions exhaustively,” said the first person mentioned above.
"This is a preliminary process whereby Sebi will receive the inputs from a regulatory committee's splinter group before bringing out a consultation paper for public feedback on the proposed changes," he added.
Custodians are banks or specialized firms that hold and safeguard assets on behalf of individuals, corporates or institutional investors such as mutual funds, banks, pension and insurance funds and foreign portfolio investors.
India has 17 custodians, including domestic and foreign entities.
Since the scheme was launched in April 2008, nothing major has been done to reinvigorate it until now.
Queries emailed to Sebi and the stock exchanges remained unanswered.
Mint reported in November 2025 that experts believe that steep margin requirements, tax inefficiencies, and low awareness among retail investors are key reasons the scheme has struggled to gain traction in the 17 years after its launch.
"For the SLBS to take off, custodians should be encouraged to participate by spreading awareness of the product among their clients. Say, a client is a long-term investor. The custodian can acquaint her with the benefits of lending her idle shares, without their title being transferred, and maximising returns before signing a client agreement to lend under the scheme," said the second person mentioned above.
"Apart from increasing custodial participation, it is imperative to make the process more seamless and digital-based than it is currently," said another person.
He explained that once a custodian had a client agreement in place, the bank or firm's head of trading would have to physically call around half a dozen brokers who are active in the SLBS to apprise them of their clients' willingness to lend the shares.
"This process has to be digitised, similar to buying or selling shares online, and made less cumbersome," he added.
The third person flagged the 125% margin on borrowers as being a ‘hurdle’ and ‘prohibitive’ to making the product more accessible to investors.
"If I wanted to borrow a share to short sell, I would rather pay a margin of 15-20% to sell a stock futures contract instead," he explained.
Around 213 stocks eligible for derivatives and others stipulated by the exchange are available for SLBS.
SLBS allows an investor to lend idle stock in return for a fee. The minimum lending tenure is a month, and the maximum is 12 months. The lending fee can range from an annualized 0.5-10%, based on market conditions.
The borrower is an investor who wishes to short-sell a stock to gain from an anticipated correction in its value, or exploit a mispricing between the cash and futures market or to meet a settlement obligation.
As the entire mechanism is exchange traded, unlike being over-the-counter in other countries, the trades are guaranteed by the clearing corporations of the exchanges—the borrower will get the shares upon payment of margin and lending fee, and the seller will receive the lent shares on the reverse leg of the transaction.
Since its launch in April 2008, the SLBS segment has been open to all categories of investors, including both retail and institutional participants.
Alarmed by sustained losses faced by investors trading derivatives, the regulator is keen to deepen the cash market. A Sebi study of July found that the net loss of individual traders widened by 41% to ₹1.06 trillion in FY25 from ₹748 billion in the preceding fiscal.It desires to do so by, among others, strengthening the SLBS, which facilitates short selling in cash over a longer period than the intraday period under the T+1 rolling settlement.
Currently, most investors who want to take a bearish bet on stocks prefer to sell futures or call options on the underlying stocks or buy put options rather than use SLBS.
Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.
Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them. She holds a postgraduate diploma in business and financial journalism from the Asian College of Journalism, where she developed a strong foundation in markets, companies, and economic policy. She began her journalism journey with an internship at Bloomberg, where she worked across beats such as real estate, infrastructure, capital markets, and deals, which helped her understanding of business and finance.She is guided by the belief that everything in this world can be explained in simple and fewer words, and that idea shapes how she approaches her writing. She aims to cut through complexity and present nuanced regulatory and financial developments in a way that is both accessible and meaningful to readers.When she is not tracking market chatter, Apoorva can usually be found deep into a fiction novel or out on a long run. She is also a trained classical dancer in Bharatanatyam, Mohiniyattam, and Kathakali.