I don’t know about banks but brokers like Zerodha have a list of securities that they accept as collateral.
Here is the list of securities that Zerodha accepts.
Maybe banks have a different risk management approach, and they lend even if the stocks are small cap, perhaps at a higher interest rate.
And as the value of the collateral decreases, there will be notices to add funds to the extent of the value depreciation to maintain a threshold.
A lot of things are explained in the link I have given in the previous post.
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