When most people think about earning from the stock market, they think of capital gains and dividends. But there’s another way investors can generate income using stock lending and borrowing which is a mechanism that allows you to lend your shares to other traders and earn fees in return. This facility is known as SLBM (Stock Lending & Borrowing Mechanism), and it’s available on Indian stock exchanges.

What Is SLBM?

SLBM stands for Stock Lending & Borrowing Mechanism. It’s a system where holders of shares (lenders) can lend their securities to other market participants (borrowers) for a short period. The borrower, in turn, pays a fee for borrowing those shares. Once the agreed period ends, the shares are returned to the lender.

SLBM facilitates trading strategies and settlement needs for market participants who want temporary access to shares without buying them outright.

Why Does SLBM Exist?

In normal settlement cycles (T+1 or earlier), there can be situations where a seller does not have the shares by the settlement date. Or a trader might want to sell first and buy later (short-selling strategies). The SLBM framework supports this by:

• Helping buyers and sellers meet settlement obligations
• Allowing traders to implement short selling and hedging strategies
• Increasing market liquidity by making shares available to active traders

It effectively allows the market to function more efficiently, especially when shares are in high demand or tight supply.

How SLBM Works?

1. Registration
   Investors who want to lend their shares must first register for the SLBM facility through their broker. Not all brokers offer SLBM, so you should check if yours supports it.
2. Selection of Shares to Lend
   After registration, you can submit a list of eligible shares you are willing to lend. Typically, shares need to be in your demat account and not pledged.
3. Matching and Transaction
   When a borrower needs those shares, a match is made through the exchange’s SLBM platform. The borrower pays a lending fee - this is the income you earn.
4. Settlement and Return
   The borrower holds the borrowed shares for the agreed period and returns them at the end of the contract. The lender receives the shares back into their demat account.

How Investors Earn Through SLBM?

The primary income for the lender comes from the lending fee paid by the borrower. This fee is often expressed as an annualised percentage but applied only for the period the shares are on loan.

For example, if you lend shares worth ?1,00,000 and the annualised lending fee is 6%, over a shorter loan period you would receive a prorated portion of that 6% as income.

Unlike dividends, this is not a guaranteed payment from the company it comes from market demand for borrowing your specific shares.

Eligibility and Requirements

To participate in SLBM as a lender:

• You must hold the shares in your demat account
• The shares must be eligible for lending (exchanges maintain lists of eligible scrips)
• You should have SLBM enabled through your broker
• Shares should not be pledged or blocked

Once you lend the shares, they will be temporarily replaced with an equivalent amount during the loan period.

Typical Scenarios Where SLBM Is Used

SLBM isn’t just for long-term investors looking for extra income. It also serves traders and institutions who:

• Want to short sell a stock (sell first, buy later)
• Hedge portfolios against volatility
• Cover settlement obligations when shares are short

Because of these needs, some stocks especially those with high trading interest may attract borrowing demand, leading to better lending fees.

Risks and Considerations

Lending your shares isn’t risk-free. Investors should consider:

1. Return of Shares
Although the framework ensures shares are returned at the end of the contract, the process depends on market infrastructure and proper broker handling.

2. Price Movements
While your shares are lent out, their market price may move sharply. Even though you retain beneficial ownership, you won’t be able to sell those shares until they are returned or you recall them.

3. Borrowing Demand
Lending fees depend on demand. Shares with low borrowing interest may earn minimal fees.

4. Contract Duration
The income you earn is tied to the duration your shares are on loan. Shorter periods mean smaller realised fees.

How to Avail SLBM Through Your Broker?

If you want to generate extra income via SLBM:

• Check with your broker whether they provide the SLBM facility
• Complete any registration or consent requirements
• Submit shares you are willing to lend
• Monitor borrowing requests and lending fees offered
• Decide whether to lend based on expected return and replacement needs

Different brokers may have slightly different interfaces or requirements, but the underlying mechanism is common across platforms.

Is SLBM Suitable for You?

SLBM is best suited for:

• Investors holding shares for the long term
• Those who are comfortable with temporarily lending their securities
• People looking to earn passive income on holdings that might otherwise sit idle

However, if you need quick access to your shares for selling or portfolio rebalancing, consider whether temporary lending fits your investment plan.

Final Thoughts

The Stock Lending & Borrowing Mechanism (SLBM) is a lesser-known but useful way for equity investors to earn extra income from shares they already own. It works through established exchange infrastructure, linking lenders and borrowers in an orderly way.

SLBM doesn’t replace dividends or capital gains, but it provides another dimension of return especially for long-term holders with eligible shares. Understanding how the mechanism works, its requirements, and its risks helps you decide whether it’s an appropriate part of your investment strategy.