Question

Q6. Consider the following statements about Promoter pledging:

1. Promoter pledging refers to the practice of promoters giving their shares as collateral.

2. Promoters, in order to raise funds for either personal or company needs, pledge their holding shares to any financial institution.

Which of the above statements are correct?

• A. a) 1 only
• B. b) 2 only
• C. c) Both 1 and 2
• D. d) Neither 1 nor 2

Answer 1

The correct option is C

c) Both 1 and 2

• Promoter pledging refers to the practice of promoters giving their shares as collateral to financial institutions to raise funds to meet short-term capital requirements or, at times, even for capital expansion when other avenues are difficult to tap
• Promoters, in order to raise funds for either personal or company needs, pledge their holding shares to any financial institution. Non-banking financial institutions are more active than banks in providing such loans.
• There can be several reasons. It can be for either personal needs or business expansion. Sometimes, promoters collateralize their shares for converting warrants into shares.