Sole , Multiple Banking Arrangement, Consortium Lending, Syndication

Sole , Multiple Banking Arrangement, Consortium Lending, Syndication  

Sole Banking Arrangement: Sole banking arrangement is a lending by single bank to a large borrower, subject to the resources available with it and limited to the exposure limits imposed by the Reserve Bank of India. Many a times when you propose to approach to new bank for funding, they propose for sole banking that their complete banking should be transferred to their bank. This is done for two reasons one is to get complete business and second is very important is having complete monitoring of fund flow and cash flow of the firm.

 Multiple Banking Arrangement, Consortium Lending, Syndication: Multiple Banking: When the credit requirements of a borrower are beyond the capacity of a single bank or that the bank does not want to take more exposure on a particular borrower, he may then resort to multiple banking. It is an arrangement where a borrower borrows simultaneously from more than one bank independent of each other, under separate loan documents with each bank. Securities are charged to each bank separately. Remember, this is different from Consortium and Syndication

Consortium lending
Consortium lending also called joint financing or participation financing. It is a system of financial emerged due to consequential increase in demand for funds of substantial magnitude and inability of individual banks to take care of the entire fund requirement
of large borrowers. The system of consortium lending provides scope and opportunity to share risk amongst banks. The system is considered to be mutually beneficial to the banks as well as customers. Under multiple banking, there is no coordination among banks regarding appraisal, documentation, other terms and advances. In such a situation borrowers got the upper hand by playing one bank against the other. It was, therefore, necessary to formalize these credit arrangements to safeguard the interest of the banks. It is mainly catered in case of large corporate and certain mid-sized borrowers.

Syndication Lending
 Reserve Bank of India has permitted the banks to adopt syndication route to provide credit in lieu of consortium advance. A syndication credit differs from consortium advance. A syndicated credit differs from consortium advances in certain aspects.

The salient features of a syndicated credit are as follows:

 1. It is an agreement between two or more banks to provide a borrower a credit facility using common documents of the borrower.

2. The prospective borrower gives a mandate to a bank, commonly referred as a lead bank (lead manager), to arrange credit on his behalf. The mandate gives the commercial terms of the credit and the prerogatives of the mandated bank in resolving contentious issue in the course of the transaction of complete syndication.

3. The mandated bank prepares an information Memorandum about the borrower in consultation with the latter and distributes the same among st the prospective banks, inviting them to participate in the credit proposal.

What is a 'Syndicated Loan'
A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of lenders – referred to as a syndicate – who work together to provide funds for a single borrower. The borrower could be a corporation, a large project or a sovereignty, such as a government. The loan can involve a fixed amount of funds, a credit line or a combination of the two.