Promoter pledge

Shares owned by the promoter that have been given to lenders as collateral for a loan, usually a loan taken outside the listed company.

The arithmetic that matters is the pledge as a share of the whole company, not of the promoter's stake. A promoter holding 62% who has pledged 45% of that holding has pledged 27.9% of the entire equity, and that is the figure to carry.

The mechanism is what makes it dangerous. If the share price falls, the lender demands more collateral. If the promoter cannot provide it, the lender sells the pledged shares into an already falling market, which pushes the price down further and can trigger the next margin call. Minority holders are carried down by a chain of events they had no part in.

It also distorts incentives. A promoter whose personal borrowing depends on the share price has a reason to support that price and to delay bad news, and that reason has nothing to do with running the business well.

Pledge levels are disclosed each quarter. A rising trend is among the strongest negative signals available.

Compute it against the whole company, not the stake.