SLBM Explained: How to Earn Extra Income From Shares You Already Own

Do you hold stocks that you intend to keep for a long time? SLBM (Securities Lending and Borrowing Mechanism) will enable you to potentially make extra money from your shares if you don’t need to sell them right now.

Through SLBM, you can lend eligible shares to a borrower for a specified period and receive a lending fee. Your shares are not permanently sold. They are returned through the applicable settlement process.

But SLBM income is not fixed. It depends on borrowing demand, the lending fee, the quantity of shares, and the contract period.

What Is SLBM?

SLBM stands for Securities Lending and Borrowing Mechanism. It allows investors to lend eligible shares to borrowers in exchange for a lending fee.

In simple terms:

You own shares → lend them through SLBM → earn a lending fee → receive the equivalent shares back.

The important point is that eligible shares do not guarantee income. If there is no borrower for your shares, your lending order may not get matched.

To learn more about SLBM, watch the video.

Why Do Traders Borrow Shares?

Borrowers may need shares for different market activities, including:

Short Selling

A trader expecting a stock to decline may borrow shares, sell them in the market and then buy them back to repay to the lender, according to the appropriate restrictions.

Learn more about how short selling works in the stock market.

Arbitrage

In order to profit from price disparities across connected markets or assets, traders may also borrow shares as part of specific arbitrage tactics.

F&O Delivery

Borrowed shares can also be used to meet certain delivery obligations arising from derivatives transactions.

You can learn more about physical delivery in F&O trading.

The key point for a lender is simple: borrowing demand determines whether your shares can generate lending income.

How Much Can You Earn From SLBM?

Income is determined by the number of shares.

SLBM Income = Number of Shares Lent × Lending Fee Per Share

For instance, suppose you lend 1,000 shares for ₹4 each:

1,000 × ₹4 = ₹4,000

Therefore, your transaction would be gross lending income.

This includes lower brokerage, lower brokerage, lower brokerage.

Depending on the stock, market demand, and available loan opportunities, the lending charge is not set in stone.

How to Check Eligible Shares for Stock Lending 

In SLBM, not every stock is automatically available. The exchanges, including NSE and BSE, provide the list of eligible securities, and you can also view the applicable securities through the RMoney platform.

Eligible securities include F&O stocks, Index ETFs, Liquid ETFs, and select Group 1 non-F&O securities meeting SEBI-defined criteria. The exchange publishes the updated list monthly. Investors should check the current NSE SLBM eligibility list before placing an order.  

Also remember:

• Pledged shares cannot be lent through SLBM.
• Your shares must meet the applicable eligibility requirements.
• A stock being eligible does not mean there will be borrowing demand.
• Contract periods can vary, so check the available tenure before placing an order.

What Are the Risks of SLBM?

SLBM involves both lenders and borrowers, and the risks can differ for each side.

Risks for Lenders

Borrowing Demand
If there is minimal demand to borrow a certain security, you may not locate a lending opportunity or earn the predicted lending fee.

Liquidity and Recall
It’s possible that shares under an SLBM arrangement won’t be sold right away. Before making a loan, lenders should be aware of the relevant recall and settlement procedure.

Variable Lending Income
Lending costs are not set and can change depending on the security’s supply and demand.

Corporate Actions
Splits, dividends, and other corporate actions are managed in accordance with the relevant SLBM regulations and may require modifications.

Charges
Brokerage, GST, depository charges and other applicable costs can reduce the net income from lending.

What Should You Check Before Lending?

Before you begin ordering SLBM, make sure to:

• Demand for borrowing: Is your stock in demand?
• Lending charge: What is the available fee right now?
• Can you retain the shares under the agreement for the duration of the contract?
• Corporate actions: Do you have any forthcoming events planned?
• Charges: What will your net income be after applicable costs?

SLBM may be a means for long-term investors to potentially generate extra income from their current holdings if they do not require instant access to their qualified shares.

How to Start Stock Lending With RMoney

You can use RMoney to activate the SLBM facility if you have shares that qualify for it.

Depending on the available loan terms and market demand, you can place an SLBM order for qualified securities once it has been activated.

You can also check our  SLBM page for product details and applicable terms.

Conclusion

Despite having to liquidate their assets permanently, SLBM enables investors to lend qualified shares and maybe earn a lending fee.

The demand for borrowing, lending fees, contract terms, and other relevant expenses all affect the income, which is not fixed.

Before making an SLBM order, if you are a long-term investor, confirm your stock’s eligibility, current loan demand, liquidity requirements, and any related fees.

Frequently Asked Questions

1. What is the full form of SLBM?

Securities Lending and Borrowing Mechanism is referred to as SLBM. In exchange for a lending fee, it enables investors to lend qualified securities to borrowers for a predetermined amount of time.

2. How does SLBM work?

Using the SLBM framework, an investor lends qualified shares. The comparable shares are returned in accordance with the relevant settlement procedure after the borrower pays a lending fee.

3. How much can you earn from SLBM?

The return is not fixed. The loan fee, quantity of shares, duration of the contract, and demand for borrowing all affect your income.

4. Which shares can be lent through SLBM?

Only securities that meet the requirements can be lent. Before placing an order, investors should review the current exchange eligibility list.

5. Can pledged shares be lent through SLBM?

No SLB shares can be lent. Holdings must be eligible and unpledged.

Disclaimer: This blog is for educational purposes only. SLBM involves market risks. Please read all scheme-related documents carefully before investing.