What changed
Earlier, banks could finance up to ₹10 lakh per employee under ESOP with a 40% margin. Now, the maximum loan is 90% of the purchase price or ₹20 lakh, whichever is lower. The 5% capital market exposure ceiling remains unchanged.
What it means for you
Banks can now offer more attractive ESOP financing, potentially boosting employee participation and loyalty. However, higher loan amounts increase credit risk, so banks must strengthen their underwriting and monitoring processes. The relaxed margin also means lower upfront cash from employees.
What you must do
- Update internal ESOP loan policies to reflect the new ₹20 lakh cap and 10% margin.
- Ensure ESOP loans are classified under capital market exposure and stay within the 5% overall ceiling.
- Review and strengthen risk assessment for higher loan amounts, including employee repayment capacity.
- Communicate revised terms to corporate clients and HR departments for employee awareness.
Who it affects
All scheduled commercial banks (excluding RRBs), Employees eligible for ESOP in listed companies, Corporate HR and finance teams managing ESOP schemes
What is the new maximum loan amount for ESOP financing?
The maximum loan is 90% of the share purchase price or ₹20 lakh, whichever is lower.
Does this change affect the capital market exposure limit?
No, ESOP loans continue to count toward the 5% overall capital market exposure ceiling.
Are there any other conditions that remain unchanged?
Yes, all other instructions from the February 6, 2004 circular remain in force, including margin on IPO financing.