New headache for Indian biz titans: Harder to get loans by pledging stakes

If the funding channel keeps drying up, one silver lining could be less damage from margin calls

India’s business titans are facing a worrying new development: in recent weeks, shadow lenders have been cutting them off from a key financing channel.

Company founders have long fueled dreams to expand their business empires with loans they get by pledging stakes in their firms. But recent scares have prompted at least two major shadow banks to turn off the faucet in the past month, the longest dry spell in six years, people familiar with the matter say.

Observers say the amount of such share-pledged loans, currently at about 1 trillion rupees ($14 billion), will shrink further, raising risks of a broader