How to borrow shares via SLB on Zerodha

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Borrowing shares through the NSCCL Securities Lending and Borrowing (SLB) platform on Zerodha allows investors and traders to obtain shares for delivery-based short selling or hedging strategies. Unlike intraday short selling (MIS), which must be squared off by day end, SLB borrowing enables multi-day or multi-month short positions in eligible equity shares. The borrowed shares arrive in your demat account via NSCCL settlement and can be sold on the exchange like regular delivery shares.

For the lender’s perspective on the same platform, see How to lend shares via SLB on Zerodha. For background on the SLB framework, see SLB on Zerodha.

When SLB borrowing is used

The primary use case for SLB borrowing is delivery-based short selling: you borrow shares, sell them on the exchange, wait for the price to fall, buy back cheaper shares, and return them through the SLB platform, pocketing the difference minus the borrowing fee.

Secondary use cases include:

  • Hedging a concentrated equity position: If you hold a large position in a stock and want to hedge against a short-term price decline without triggering a capital gains event (sale), you can borrow the same stock on SLB and sell it as a hedge.
  • Arbitrage strategies: Traders use SLB in conjunction with futures or options positions to construct arbitrage or quasi-arbitrage strategies.

SLB borrowing is distinct from intraday short selling via the MIS product code. MIS shorts are intraday only and do not require share borrowing through the SLB platform; the exchange permits T+1 settlement on the close-out buy. SLB is required for positions held beyond the intraday settlement cycle.

Regulatory and cost framework

The SEBI SLB framework (Circular SEBI/MRD/SE/Cir-27/2007 and amendments) governs SLB borrowing. Key cost elements:

  • Borrowing fee: The annualised lending fee agreed at order matching. This is income for the lender and a cost for the borrower. The fee is paid to NSCCL at settlement (for the full series) or on a prorated basis for early return.
  • Collateral: NSCCL requires the borrower to post collateral equal to approximately 100-125% of the borrowed shares’ value. Eligible collateral includes cash or NSCCL-approved securities. The collateral earns no return while locked up with NSCCL (or a low, NSCCL-prescribed return), which is an implicit opportunity cost.
  • SLB charge: Zerodha charges Rs 100 per SLB order (borrow or lend).
  • Corporate action compensation: During the borrowing period, if the underlying stock pays a dividend or issues a bonus, the borrower must compensate the lender. This is an additional cost for the borrower if a dividend is paid while the short position is held.

Step-by-step procedure

Confirm SLB borrowing is activated

Log in to Console at console.zerodha.com. Navigate to Account then Segments. Confirm that the SLB segment – specifically borrowing – is activated. If borrowing is not listed or not active, contact Zerodha support to activate it. Note that SLB borrowing requires explicit activation separately from SLB lending.

From Console’s main navigation, select SLB. The SLB module displays the list of approved securities, current open borrow and lend orders on the order book, and your existing SLB positions. The order book shows the best available lending fee rates from lenders, which is the cost you will pay to borrow.

Search for the security and review the order book

Use the search box to find the stock symbol you wish to borrow. The platform displays all active series (Series 1 through Series N, each corresponding to a monthly tenure). Select the series that matches your intended holding period for the short position.

Review the order book for the selected security and series:

  • The Ask side (lend orders) shows the fees at which lenders are willing to lend. The lowest ask is the cheapest available borrowing rate.
  • The Bid side (borrow orders) shows existing borrow orders placed by other borrowers.

If the ask side is thin (few lend orders), the cost of borrowing may be high and the availability of shares to borrow may be limited. This is common for heavily shorted stocks or during periods of high demand for borrowing.

Place a borrow order

In the order entry panel, select Borrow as the action:

  • Quantity: Enter the number of shares you wish to borrow. The minimum lot size varies by security.
  • Borrowing fee (maximum you will pay): Enter the maximum annualised borrowing fee you are willing to accept. A higher maximum fee increases the probability of matching with a lender, but increases your cost. A lower maximum may not find a matching lender.
  • Series: Confirm the series selected matches your intended tenure.

Before submitting, verify that your trading account has sufficient cash or eligible collateral to meet NSCCL’s collateral requirement for the borrow quantity and the current market value of the stock. If the collateral is insufficient, the order may be accepted but settlement will fail.

Click Submit. The borrow order appears in the SLB order book with a Pending status.

Confirm matching and settlement

On matching, NSCCL settles the SLB transaction:

  • Your collateral is transferred to NSCCL’s pool on the settlement date (T+1 after trade date).
  • The borrowed shares are credited to your demat account on the settlement date.

In Console, the status changes to Executed and the position appears under Active SLB positions showing the borrowed quantity, the agreed borrowing fee, and the expiry date.

In Kite Holdings, the borrowed shares appear as a regular holding (the platform labels them as SLB-borrowed if it identifies them). You can now place a sell order for these borrowed shares through the regular Holdings sell flow.

Sell the borrowed shares

Navigate to Holdings in Kite. Find the borrowed shares (they are credited to your demat account from NSCCL). Click Sell and place a sell order with the desired price and quantity (using CNC product type for a delivery sell). On execution, the sale proceeds are credited to your trading account.

You now hold a short position via SLB: you owe the equivalent shares to NSCCL at the series expiry, and you hold the sale proceeds (minus charges) as cash.

Return borrowed shares at or before expiry

To close the short position, you must buy back an equivalent quantity of the same shares on the exchange before or at the series expiry date, and return them through the SLB platform:

  1. Place a regular CNC buy order in Kite for the required quantity of the same stock.
  2. After T+1 settlement, the shares are credited to your demat account.
  3. In Console’s SLB module, initiate the return process for the active borrow position. The shares are transferred from your demat to NSCCL, closing the borrow.
  4. NSCCL releases your locked collateral, and the borrowing fee (for the actual period borrowed, if returning early) is deducted and paid to the lender.

If the share price has fallen as anticipated, the repurchase price is lower than the sale price, and the net gain is the price difference minus the borrowing fee, brokerage, STT, and other charges.

If the series expires without return, NSCCL closes out the position by purchasing shares in the market using your collateral and returning them to the lender. Any shortfall between the collateral and the purchase cost, plus penalties, is charged to you.

What can go wrong

  • Insufficient liquidity in the borrow order book. The stock you wish to borrow may have no lenders at an acceptable rate. This is common for stocks with low institutional ownership or stocks not widely traded in the cash market.
  • Collateral insufficient at settlement. If your posted collateral falls in value (if it is securities-based collateral rather than cash), NSCCL may require top-up. Monitor collateral adequacy.
  • Short squeeze. If the stock price rises sharply and lenders initiate early recalls (see How to handle an early SLB recall), you are forced to return shares within one to three business days. If the market is illiquid, buying back in a squeeze scenario can be costly.
  • Dividend or bonus during borrowing period. You must compensate the lender for any corporate action benefit accruing during the lending period. Factor in known dividend dates before entering a borrow.
  • Tax treatment. Short selling via SLB creates a short capital position. The tax treatment of profits from SLB short selling (short-term capital gains or speculative income) is a nuanced question and depends on the overall trading activity. Consult a tax adviser.
  • Position closed at a loss if price rises. SLB borrowing for short selling carries unlimited upside risk on the short position (theoretically unlimited, though bounded by the available collateral). Enter shorts with defined risk limits.

References

  1. SEBI Circular SEBI/MRD/SE/Cir-27/2007, Securities Lending and Borrowing Scheme, 22 October 2007.
  2. SEBI Circular SEBI/HO/MRD/MRD-PoD-1/P/CIR/2022/085, amendments to SLB framework.
  3. NSCCL SLB operational framework and approved securities list, https://www.nseindia.com/products-services/securities-lending-borrowing.
  4. SLB – how to borrow shares on Zerodha, Zerodha Support Portal, https://support.zerodha.com/category/trading-and-markets/margins/articles/slb.
  5. CDSL operational instructions on SLB demat transfers, https://www.cdslindia.com/Publications/operationsinstruction.aspx.

Conflict-of-interest disclosure: WebNotes Editorial Team has no financial relationship with Zerodha or any broker. This guide is produced for informational purposes only and does not constitute investment or financial advice. Short selling via SLB carries significant risk of loss; consult a SEBI-registered investment adviser before engaging in short-selling strategies.

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WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

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