News sometimes says things like "Promoter pledge rises to 40%". To understand this, you need two words: promoter and pledge.
Who are promoters?
Promoters are the people or groups who started or control a company. They usually own a large part of its shares. For example, the family that founded our made-up Sunrise Biscuits Ltd might own 60% of its shares. Listed companies must tell the stock exchange how many shares their promoters own, every quarter.
What is a pledge?
When you take a loan, the lender often asks for something valuable as security, so they can get their money back if you don't repay. That security is called collateral. Promoters can use their shares as collateral. This is called pledging.
Example: the Sunrise family pledges 1 crore of its shares, worth ₹200 crore, to borrow ₹100 crore. The shares stay in their name, but the lender has a right over them until the loan is repaid.
Why does news report on it?
If the share price falls a lot, the pledged shares are worth less than the lender needs. The lender may ask for more shares or money, or it may sell the pledged shares in the market. That selling can add pressure on the price. This is why pledging gets attention, especially when a large share of the promoters' holding is pledged.
But pledging is legal and common, and there can be many reasons for it. A pledge alone doesn't tell you what will happen to the company or its share price.
Where to find the facts
Promoters must disclose when they create or release a pledge, and companies share their shareholding details with the stock exchanges. These appear in official exchange filings. Headlines usually round numbers or skip details, so the filing is the best place to see the exact figures. Our Sources page explains where official filings come from.
Words you will see
- Encumbered shares: shares with a claim on them, such as a pledge.
- Invocation: when a lender uses its right and takes or sells pledged shares.
- Release / revocation: when a pledge is ended, usually after a loan is repaid.