When the companies needs more money and are not able to raise funds from other debt instruments or any means, they pledge shares.
It means, they give their shares to the banks as a collateral and raise their loan. It is called as pledging of shares.
It is basically seen in the companies where they are facing hardships in running the business and not getting enough funds from the stock market or any other means.
Investors should take a bay from these type of companies because of high volatility found in the stock movement.
However, it may be good for traders because of high volatility.
It is recommended that the pledging should not more than 50 percent in largecaps and midcaps and 30 percent in smallcaps to invest in it.
Recently promoters in gitanjali gems have increased the pledging up to 79 percent.
Just for your information, gitanjali gems owner is Nirav Modi who did a fraud to PNB Bank of close to $2 billion.
Now you know which type of companies pledge their share up to that extent.
However it is easy for the company to raise money by this method but if they failed to provide additional collateral, the stock can plunge very bad in the market.
It is advisable to the investors to stay away from these stocks where the promoters are pledging recklessly.