If you hold shares in your demat account for the long term, you can potentially earn additional income without selling them. This is possible through the Securities Lending and Borrowing Mechanism (SLBM) — a SEBI-regulated facility that allows investors to lend their shares and earn lending fees.

In this blog, we explain the step-by-step process to enable SLBM in your demat account, along with benefits, risks, FAQs, and key considerations.

What is SLBM?

SLBM (Securities Lending and Borrowing Mechanism) allows:

• Investors to lend shares
• Borrowers to borrow shares (usually for short selling)
• Transactions to be executed via stock exchanges (NSE/BSE)

The lender earns a fee, while ownership of shares is retained (with some temporary rights restrictions).

Step-by-Step Process to Activate SLBM in Demat Account

Step 1: Check Broker Eligibility

Not all brokers offer SLBM services.

• Confirm with your broker whether SLBM is enabled
• Check if your trading and demat account supports securities lending

Step 2: Submit SLBM Activation Request

You will need to:

• Sign an SLBM agreement with your broker
• Accept the terms & risk disclosure document
• Complete any required KYC updates (if applicable)

Some brokers allow activation through their online platform.

Step 3: Activate SLBM Segment in Trading Account

Your broker will:

• Activate the SLBM segment in your trading account
• Provide access to the SLBM order window/platform

Step 4: Check Eligible Securities

Not all shares are eligible for SLBM.

• Exchanges publish a list of eligible securities
• You can lend only approved stocks

Step 5: Place Lending Order

Through your broker’s platform:

• Select stock to lend
• Choose lending tenure (1 month, 3 months, etc.)
• Check lending fee offered
• Place the lending order

Step 6: Order Matching & Confirmation

• If a borrower accepts the offer
• Shares are transferred temporarily
• Lending fee is credited as per settlement cycle

Step 7: Shares Returned After Tenure

• At the end of the agreed period
• Shares are returned to your demat account
• You retain capital appreciation benefit

Important Things to Know Before Enabling SLBM

• Shares are locked during lending period

• Voting rights may not be available
• Corporate actions are adjusted as per regulations
• Lending fees vary based on demand

Advantages of Enabling SLBM

• Earn passive income on existing holdings

• No need to sell long-term investments
• SEBI-regulated mechanism
• Reduced counterparty risk via clearing corporation
• Enhances overall portfolio returns
• Suitable for long-term investors

Disadvantages of Enabling SLBM

• Shares locked during tenure

• Loss of voting rights temporarily
• Lending fees may be low for large-cap stocks
• Limited stock eligibility
• Market price volatility risk
• Operational complexity

Risks of SLBM

• Borrower default risk (mitigated but not eliminated)

• Liquidity restrictions
• Corporate action adjustment complexities
• Demand-dependent returns

Who Should Activate SLBM?

• Long-term equity investors

• HNIs with large holdings
• Investors looking for additional yield
• Those comfortable with temporary share lock-in

Frequently Asked Questions (FAQs)

1. Is SLBM safe for retail investors?

Yes, SLBM is regulated by SEBI and cleared via exchange clearing corporations.

2. Can I sell shares after lending them?

No, shares remain locked during the lending period.

3. How is SLBM income taxed?

Lending fee is treated as Income from Other Sources.

4. Do I lose ownership of shares?

No, ownership remains but voting rights may be restricted temporarily.

5. Is SLBM available for all stocks?

No, only exchange-approved securities are eligible.

6. What is the minimum holding required?

There is no fixed minimum, but liquidity and demand matter.