Margin Funding Process 300114

8/11/2019 Margin Funding Process 300114

1/18

NBFC Process & Risk

Management


2/18

Introduction - Margin Funding

RBI is the regulator for a Non Banking Finance Corporation

Margin Funding is a lending facility where client can avail loan to trade in shares

(Cash Segment of BSE & NSE ) against margin amount

The investor pays only an agreed percentage (margins) of the total value of

shares bought and the remaining is funded by Angel Fincap Pvt Ltd (AFPL)

AFPL then charges 18% interest on this loan to the investor on the actual ledger

from T+2 day ( it is computed on daily basis but levied Monthly )

Loan facility will be provided only to those clients who would be providing an

initial margin in cheque, DD, PO or equivalent value of securities after

appropriate haircut as specified


3/18

Margin Funding facility is beneficial to the investors who trades on delivery basis

and holds investment

As per the Exchange guideline Debit is not allowed in Broking beyond T+7

To take high exposure

Why NBFC?


4/18

Process Margin Funding


5/18

Process Margin Funding


6/18

Credit Process

The loan application form is sent to KYC team for verification. Post verification, the loan documents i.e. DP statement, Income source

documents and Bank statements are sent for credit appraisal (if there are no

objections raised) for determining the credit worthiness of the borrower

The Credit appraisal process involves assigning credit score considering the

clientsbackground, name clearance (RBI & SEBI defaulter list), trading history,occupation, source of income, scrutiny of bank statement(last 6 months), risk

profiling by RM and CIBIL score (should be above 600)

Based on income parameters and the credit score, the risk appetite is

ascertained and loan amount is sanctioned

If any of the parameters are not satisfied then the loan application is rejected

and in exception cases it is send to the Credit Committee for approval


7/18

Formulae

Particulars Definition/Formula

Projected Risk (Ledger + holding) ( VaR + ELM (Extreme Loss Margin) considered

for calculating projected risk on open positions ) - Pure risk

Logical Ledger Balance Loan ledger balance in books of AFPL (including unsettled

trades plus outstanding interest)

Actual ledger +/- unsettled + Accrued Interest

Stock before haircut Value of holdings before haircut ( Total holding )

Value after hair cut Net value of securities (after application of scrip-wise

differential margins) purchased and/ or accepted as margin.

Total holdingMargin ( Haircut )

Pure Risk Logical ledger (Dr) > Stock before haircut

Margin Excess / Shortage Value after hair-cut Logical Ledger Balance

If positive, client is in margin excess.

If negative, client is in margin shortage.


8/18

Scrip

Name

Case Scrip Category Exchange

VaR

Angel VaR Final VaR Justification I Projected VaR

margin

Justification II

ABC I

Blue chip or

Good 20% - 20%

Exchange VaR

or Angel VaR

whichever is

higher 10%

Projected VaR

would be 50%

of Final VaR

II Average 20% 40% 40%

Flat 40% or

Exchange VaR

whichever is

higher 20%

Projected VaR

would be 50%

of Final VaR

III Poor 50% 100% 100%

Exchange VaR

or Angel VaR

whichever is

higher

Flat 100% of

holding value

Projected VaR

would be flat

100% of the

holding value

Final VaR & Projected risk haircut


9/18

Example of Projected Risk Calculation

= (Ledger + holding) (VaR + ELM considered for calculating projected risk

on open positions as shown in above table) Pure risk.

Given below is an example for Code AAB123 :-


10/18

Logical Ledger: (50,79,689.51) Dr

Projected Risk would be as follows:

Ledger + holding 50 % of exchange VaR margin for blue chip, good and

average scrip and flat 100% of holding value for poor scrip - Pure risk.

= (50,79,689.51) + 4565359.04(holding with HC applying scrip wise haircuts

for projected risk)

= (5,14,330.47)

Contd


11/18

Contd


12/18

Total

Holding

Logical

Ledger

Ex. VAR %

(Margin)

Holdings

after HC

considering

exchangeVaR

30% of Ex. VAR

for auto square

off projected risk

Min margin to

be maintained

to avoid auto

square off

Margin

shortage

25,000 24,000 15% 21,250 4.5% 1,125 (2,750)

Square off process

The client needs to maintain minimum 30% of the Ex. VAR in order to avoid auto

square off EXAMPLE- Consider Client X, Initial Margin - 1,000 and Margin Funding -

24,000

As we square off to the tune of margin shortage, in the above example, only 2,750

(21,250-24,000) will be squared off and not entire debit of 24,000.

A Square off SMS is sent to the client


13/18

Type of Margin Call Criteria Course of Action

Collection Call All margin shortage clients Daily intimation via SMS to

clients

Final Margin Call (Ledger + holding) (VAR +

ELM considered for calculating

Projected risk on open

position) - Pure risk

(Considering 50%)

Collection to be updated

within 3 days

Liquidation Call (Ledger + holding) (VAR +

ELM considered for calculating

auto square off on open

position) - Pure risk

(Considering 30%)

Compulsory square Off will be

done

Margin Call


14/18

Concentration in single scrip would be restricted up to the limits given

below:

Concentration in BlueChipCategory - Up to 3 crores

Concentration in GoodCategoryUp to 50 lacs Concentration in AverageCategoryUp to 15 lacs

PoorCategory would be allowed purely on Cash& Carrybasis

Single Scrip Concentration


15/18

SMS alerts for margin shortage are sent to all AFPL clients on a daily basis.

Client can view ledger report, margin report, holding report, transaction

statement, etc. any-time through online access to account information.

Can view the Margin available at beginning of the day

Day to day tracking of Margin Shortfall Reports for viewing the holding statement of shares under MF facility

Consolidated view for client Ledger

Reports for details of Interest accrued till date

List of Approved Scrip list

Facilities to clients


16/18

Selling/square off in AFPL only to cover shortfall whereas in Angel broking

to cover the entire debit.

Client has no obligation to square off in a specific tenure if adequate

margins are maintained, unlike broking.

Cannot keep position in broking while it can be done in AFPL.

Any appreciation in the value of the Securities given as margin would

automatically allow enhancement in drawing power.

As compared to derivatives market, where clients can leverage for only

large cap companies, margin funding facility provides lending for selected

Mid Cap as well as Small cap companies.

Comparison of NBFC with broking


17/18

Email ID - [email protected]

Contact Number - 022-29211530/537

Margin Funding Helpdesk
mailto:[email protected]:[email protected]


18/18

Margin Funding Process 300114

Documents

Transcript of Margin Funding Process 300114