What Are Pledged Shares? (And Why They're a Risk)
Pledged shares are shares that a company's promoters have pinned as collateral to borrow money. It's legal and common, but a high level of promoter pledging is a well-known risk signal.
How pledging works
Promoters pledge part of their own shareholding to a lender (often to raise personal or group funds) in exchange for a loan. The shares stay in the promoter's name but are encumbered — the lender can sell them if the loan sours or the collateral value falls.
Why it's a risk
If the share price drops, the pledged collateral is worth less, and lenders can demand more shares or sell the pledged ones on the open market. That forced selling can crash the price further — a vicious cycle. Heavy promoter pledging has preceded several high-profile corporate collapses in India.
How to check
The percentage of promoter shares pledged is disclosed in the quarterly shareholding pattern. A low or zero pledge is reassuring; a high and rising pledge, especially alongside falling promoter holding, warrants caution.