How Does SLB Work?

Last Updated: 23 Oct 2025

Stock Lending and Borrowing (SLB) is a regulated framework that allows one investor to lend shares to another for a fixed period. The lender earns a fee, the borrower gains temporary access to the shares, and the clearing corporation oversees the exchange. By making idle holdings productive and supporting short-selling strategies, SLB adds depth and efficiency to equity markets.

What is SLB?

SLB is an exchange-facilitated mechanism through which the legal owner of shares lends them to a borrower in return for a predetermined fee. Ownership remains with the lender, so corporate actions such as dividends and bonuses continue to accrue to that party. Before going further, remember that SLBM full form is Stock Lending and Borrowing Mechanism. The framework is governed by SEBI regulations and executed through clearing corporations that guarantee settlement.

How Does SLB Work?

Many new investors start by typing “how SLB works” into a search engine. A more formal query is often “how does SLB work?”. In practice, the process begins when a lender places an offer, specifying the stock, quantity, duration, and expected fee, through a registered broker. A borrower submits a corresponding bid.

Once matched, the clearing corporation settles the trade: shares move to the borrower’s account, and the lending fee moves to the lender. At contract expiry, the borrower returns the same number of shares, ensuring that the lender’s ownership position is fully restored.

Documents Required When Opting for SLBM

To participate, investors must complete the following documentation:

• Active demat account.
• Trading account with a broker that supports SLB.
• Executed SLB agreement in the prescribed format.
• Up-to-date Know Your Customer (KYC) records, including PAN and proof of address.
• Power of Attorney (if the broker’s operating model requires it).

Example of SLB

Let’s say Ravi owns 1,000 shares of Alpha Motors but doesn’t plan to sell for years. Meera, a trader, wants to short Alpha for two months after spotting a weak sales report. Ravi lends his shares through SLB for a ₹ 5 per share fee. Meera scoops them up, sells them in the open market, and hopes to buy them back later at a lower price. Two months on, she returns 1,000 Alpha shares to the clearing corporation, which passes them back to Ravi. He pockets ₹5,000 in fees while still owning the stock.

SLB Process Steps

• Lender submits an offer in the SLB order book.
• Borrower submits a matching bid.
• The clearing corporation confirms the match and blocks the shares in the lender’s demat account.
• Shares are transferred to the borrower’s demat account on the settlement day.
• The lending fee is credited to the lender.
• The borrower may sell or hold the shares during the contract period.
• Before or on the due date, the borrower purchases identical shares.
• Shares are returned to the clearing corporation and then to the lender’s demat account.

Benefits of SLB

Here are some of the advantages of SLB –

• Generates additional income on long-term holdings.
• Lenders retain voting rights and entitlement to dividends or bonuses.
• Provides legal access to shares for short-selling strategies.
• Enhances market liquidity and improves price discovery.
• Counterparty risk is mitigated because the clearing corporation guarantees the transaction.
• Contract terms, such as tenure and fee, are transparent and standardised.

Who Can Participate?

• Individual retail investors with a demat and trading account can take part. They lend shares that are sitting idle or borrow stocks they need for a short trade.
• Domestic mutual funds and alternative investment funds join to smooth day-to-day portfolio work and pick up a little extra return for unit holders.
• Foreign Portfolio Investors registered with SEBI use the window to gain quick access to local shares that may be hard to buy in large blocks.
• Proprietary trading desks and other institutions, such as market makers or broker-owned funds, borrow shares to hedge positions and keep trading screens liquid for all market participants.

Daily data on SLBM in stock market segments is published by exchanges after the closing bell.

Interest Rate on Stock Lending and Borrowing

The fee paid by the borrower is quoted as an annualised percentage of the share price but collected upfront for the contract period. The fee is commonly referred to as the SLBM interest rate. Rates vary according to supply, demand, and the liquidity profile of the specific security.

Is SLB the Same as Lending or Borrowing Any Other Asset?

Below is a quick look at how SLB differs from a regular asset loan.

Aspect	SLB (Shares)	Conventional Asset Loan (e.g., Money)
Collateral	Clearing corporation guarantee	Tangible security or credit evaluation
Ownership During Loan	Remains with the lender	Transfers to the borrower
Income to Lender	Lending fee plus corporate actions	Interest income
Settlement Risk	Minimal, centrally guaranteed	Depends on the borrower’s creditworthiness
Primary Market Impact	Increases liquidity and supports pricing	No direct influence on equity markets

Conclusion

SLB enables shareholders to earn additional returns without disturbing their long-term investment plans while allowing borrowers to implement legitimate short-term strategies. Supported by robust clearing mechanisms and clear regulatory guidelines, the facility strengthens overall market function.

Frequently Asked Questions

Is there a minimum quantity required for lending or borrowing?

Each stock in the SLB segment has a predefined lot size, often 500 or 1,000 shares. Orders must meet or exceed that lot size.

Do lenders lose the right to dividends during the contract?

No. Dividends, bonuses, and other corporate benefits are transferred to the lender by the clearing corporation on the payout date.

Can a lender recall shares before the contract ends?

Yes. A recall request can be placed, subject to exchange-specified timelines. Once accepted, the borrower must return the shares within the stipulated period.

What happens if the borrower defaults?

The clearing corporation purchases the required shares from the market and delivers them to the lender, ensuring full protection of the lender’s position.