In a post on X, Kamath said the question came up internally on why Zerodha Capital does not offer unsecured credit products that typically carry much higher interest rates. He said the main reason is that Zerodha cannot compete on funding costs. According to him, Zerodha’s cost of funds is around 8.5%, while banks raise money at roughly 3.5% and large non-banking finance companies at around 7%.
Kamath said this makes it difficult to compete on interest rates. He added that in lending, the best borrowers usually go to institutions offering the lowest rates. Without a rate advantage, Zerodha would likely attract borrowers who have been rejected elsewhere, often those with weaker credit profiles.
He also pointed out that unsecured lending involves recovery agents, frequent collection calls and continuous follow-ups for repayments. Kamath said this is an incentive structure Zerodha does not want to be part of and that it does not align with the brand the company has built.
Kamath said loans against securities are structurally different and safer. He noted that RBI rules require a 50% haircut on the value of securities pledged, which means borrowers must hold assets worth at least twice the loan amount. This, he said, provides comfort that borrowers can afford the loan and reduces overall risk.
Because of the lower risk, Kamath said Zerodha is able to offer loans against securities at interest rates of around 10–11%. He added that this approach also fits with the company’s broader philosophy that credit should be used only when genuinely needed and within a person’s means, rather than being pushed simply because it is easy to access.
Kamath said Zerodha’s real advantage is that its customers already hold securities with Zerodha. Loans against securities, he said, are a natural extension of the broking business rather than an aggressive standalone lending strategy.
He also noted that in many markets globally, such lending is treated as a broking function and does not even require a separate NBFC licence.
