Online retail brokerage firm Zerodha, which recently ascribed itself a valuation of $1 billiion, after a share buyback from employees, is launching its 'loan against securities' product
Bengaluru: Online retail brokerage firm Zerodha, which recently ascribed itself a valuation of $1 billiion, after a share buyback from employees, is launching its 'loan against securities' product in September.
The retail stock brokerage, which received its non-banking finance company (NBFC) license from the Reserve Bank of India (RBI), in 2018, has been working on launching this product since two years.
"Last year, Securities and Exchange Board of India (SEBI) changed some rules around 'lending against security' and we had to rebuild our entire product. We launched our 'loan against securities' product in closed beta, a month back and the feature should go live in the next 4-5 weeks. We plan to steadily open this product to our larger customer base," added Nithin Kamath, founder and CEO, Zerodha.
Through its 'loan against securities' product, Zerodha aims to provide loans to its consumer base, against their portfolio investments in the public market, levying an interest rate of 12% -13%.
"Loan against securities is a natural extension to our retail brokerage business, and at present we are putting our own capital for this type of lending. If a consumer has investments worth ₹1 lakh in the market, we can provide them loans against 60% of their portfolio," Kamath added.
The product at present is in beta, with an early-access provided to almost 50,000 of its most active customers.
The covid-19 crisis has caused several first-time investors to take a plunge and start investing in stock markets. Reaping from that, Zerodha has been witnessing an uptick in new users, joining its platform to trade.
Currently, Zerodha sees close to 250,000 new monthly accounts opened on its platform, post-covid, which was trending at about 80,000 new monthly accounts, in the last quarter of 2019.
"There was the SBI Card IPO in January, and on top of that NIFTY, which fell, showed some signs of recovery. Hence, individuals opened new accounts, in hope of greater recovery from NIFTY [...] Usually when there is a large IPO, more users get interested to invest," explains Kamath.
Another reason for new customers flocking to invest in capital markets, also involves banks dropping the interest rates on fixed deposits, which has caused investors to look at stock markets to grow their investments.
Zerodha, at present has close to 3 million customers, of which 1 million were added only in the past 5 months. Post-covid, 65% of Zerodha's customer base is new to trading and the platform executes close to 5 million to 7 million trades daily.
The Bengaluru-based firm is now working on user retention by developing technology products to help users avoid basic mistakes around investments.
"User retention isn't much of a problem in the stock brokerage busienss, since customers don't want to go through the pain of shifting accounts. Rather mortality rate is high, especially when a user loses large sums of money, they become inactive. Hence, we are helping users follow basic rules of investing by nudging them about their exposure, while making a trade, and helping them reduce risk through accounting other aspects of their portfolio, ," added
In February, Zerodha also applied for an AMC licence, approvals of which are taking longer, due to covid.
Zerodha also has its direct mutual fund platform Coin, which has ₹7000 crore as active asset under management. It was reported earlier that the company was also looking to allow users to invest in US stocks.However, with remittance as a challenge, and high tax-deducted at source (TDS), the company is looking to solve the remittance challenge, with the product expected to be rolled out by the end of this year, Kamath added.
In August, Paytm Money also launched stock broking services on its platform, and currently has 90,000 users who are on wait list.