A mortgage syndication is headed by a managing financial institution that’s approached by the borrower to rearrange credit score. A syndicated credit is an agreement between two of more lending institutions to provide a borrower a credit facility using common loan documentation. A prospective borrower intending to raise resources through this method awards a mandate to a bank as ‘Lead Manager’ to arrange credit on his behalf. The mandate spells out the commercial terms of the credit and the prerogatives of the mandated bank in resolving contentious issues in the course of the transaction. The mandated bank prepares an Information Memorandum about the borrower in consultation with the latter and distributes the same amongst the prospective lenders soliciting their participation in the credit to be extended to the borrower.

If penal rates of interest or damages have been charged, such charges should be waived from the accounting year of the Unit in which it started incurring cash losses continuously. After this is done, the unpaid interest on term loans and cash credit during this period should be segregated from the total liability and funded. No interest may be charged on funded interest and repayment of such funded interest should be made within a period not exceeding three years from the date of commencement of implementation of the rehabilitation programme. In the case of lending under consortium arrangement, the participating lenders should evolve procedures to complete appraisal of proposals in the time bound manner to the extent feasible, and communicate their decisions on financing or otherwise within a reasonable time. Guidelines in case of Consortium Arrangements are applicable in the case of consortium arrangements, the above norms relating to grant of credit facilities to relatives of senior officers of the bank will apply to the relatives of senior officers of all the participating banks. In the case of borrowers, whose working capital is financed under it multiple banking arrangement, file financial institution should obtain an auditor’s certificate indicating the extent of funds already borrowed, before considering the request of the borrower for further working capital Finance.

CONSORTIUM VS. MULTIPLE BANKING

Charges towards management expenses and cost of credit, share of each participating bank in the credit, etc. The borrower is required to give prior notice to the ‘Lead Manager’ or his agent for drawing the loan amount to enable the latter to tie up disbursements with the other lending banks. Syndication is thus very similar to the system of Consortium lending in terms of disposal of risk and is a convenient mode of raising long term funds by borrowers. Infrastructure projects are often financed through Special Purpose Vehicles. Financing of these projects would, therefore, call for special appraisal skills on the part of lending agencies.

To meet cash losses that may be incurred during the period of implementation of the rehabilitation package. Other sources of funds for rehabilitation should be identified which could include disposal of stocks/assets not required, rapid collection of outstanding bills, etc. Cash losses are likely to be incurred in the initial stages of the rehabilitation programme till the Unit reaches the break-even level. Such cash losses excluding interest as may be incurred during the nursing programme may also be included in the rehabilitation cost and funded by the bank. Promoters infusing more equity into their companies; Transfer of the promoters’ holdings to a security trustee or an escrow arrangement till turnaround of enterprise to enable a change in management control, if lenders favour it.

Consortium Financing

Within stipulated time period.No penal interest due to any non-compliance of the already accepted covenants on the existing credit facilities may be charged on this product during the sanction time. Entire disbursement out of fund based facility should happen on or before June 30, 2023. No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 30% (50% in case of ECLGS 3.0 and ECLGS 3.0 ] subject to specified cap per borrower) of the outstanding credit that the borrower had with that lender.. Under ECLGS 3.0 Borrowers who have availed assistance under ECLGS 3.0 or New businesses which are eligible under ECLGS 3.0 based on the revised reference date of 31st March 2021 or 31st January 2022 and meet the other terms of these guidelines. Subject to an individual ceiling of term loan for a bank, as per above various banks in consortia/syndicate may give loans uptoRs.500 crore for each project. As per the practice, member banks were following the classification as given by the lead bank in a Consortium.

Several banks comply with collectively supervise a single borrower with a standard appraisal, documentation, and comply with-up and own equal shares in the transaction. Unlike in a mortgage syndication, there’s not one lead bank that manages the financing venture; all of the banks play an equal position in managing the project. But it generally involves international transactions and sometimes different currencies. This managing bank is generally responsible for negotiations of conditions and arranging the loan.

When it comes to loans, the big difference is when the lender cannot repay. With a syndicate there is only one loan, the lender will have to fail on the whole loan which may create legal complexities and make the borrower face other legal consequences. They may look alike and both the terms are used as synonyms to each other yet there exist technical differences when it comes to operations, procedures, relationships, legal complexities etc.

For this purpose non fund based facilities shall be counted @ 50%3 of limits sanctioned and added to total fund based facilities to arrive at total exposure to the borrower. Consortium advances mean advancing loans to a borrower by two or more Banks jointly by forming a Consortium. This will help the Banks to consolidate the appraisal benefit of different Banks and reduce the risks and also help the Banks to keep the exposure within the permissible limit.

Member Banks

He should also keep the term lending institutions informed about the position of the Units wherever they are also involved. Branch shall communicate to lead lender status of account as default/stressed immediately on receipt of early warning signals and requisition for consortium meeting at earliest to explore suitable CAP under intimation to other members of consortium. Loan participations allow a lender to take part in a credit settlement without abdicating a lot management over the credit and saying its presence to the borrower and the worldwide mortgage market. Syndicated loans present the other lenders with direct rights towards the borrower and are structured to create ease within the administration and servicing of enormous or complicated loans. To make sure that a lender can structure a credit score facility to accommodate its needs and adequately shield its rights, a lender’s awareness of the key variations between loan participations and loan syndications, particularly when the underlying credit score becomes distressed, is paramount.

Reciprocal arrangement in which the members of a group of firms undertake to help each other in case of an emergency, such as sharing their facilities with a member who suffers a disaster or is under a threat. The scheme is intended to make short-term working capital finance available to exporters at internationally comparable interest rates. All bank borrowings under short term loan are rated by M/s Acuite Rating and Research Ltd as ACUITE A1+. The credit guarantee fund trust for micro and small enterprises , operates the credit guarantee scheme for small and medium sized firms and is operated by the government and SIDBI. Non-bank lenders argue that given the standardised templates employed by rating agencies, size of the NBFC becomes as key input to credit rating, due to which smaller NBFCs end up receiving lower rating, irrespective of vintage and other financial parameters.

Study of the feasibility of operating the Unit at the existing level of installed capacity and within the prevailing business environment should be carried out in addition to reappraisal of management set up and market prospects. After identifying a sick Unit, the causes of its sickness should be diagnosed and remedial measures decided after examination of its viability in consultation with other lenders, as far as practicable. The rehabilitation package should be fully implemented within six months from the date the Unit is declared as ‘potentially viable’ / ‘viable’.

Credit facility under ECLGS 2.0 could be in the form of fund based or non-fund based facility or a mix of the two. In this, more than one lender has been involved in funding a loan for a business or corporate. RBI had also issued lending norms for working capital, under which the banks would decide the levels of holding of inventory and receivables, which should be supported by bank finance, after taking into account the operating cycle of an industry as well as other relevant factors. Other aspects of lending discipline, viz; maintenance of minimum current ratio, submission and use of data furnished under quarterly information system etc. would continue though with certain modifications, which would make it easier for smaller borrowers to comply with these guidelines. Working capital financing is a specialized area and is designed to meet the working requirements of a business. The main sources of working capital financing are trade credit, bank credit, factoring and commercial paper.

Illustratively, the parameters may include the Return on Capital Employed, Debt Service Coverage Ratio, Gap between the internal Rate of Return and Cost of Funds and the amount of provision required in lieu of the diminution in the fair value of the restructured advance. In fact, the viability study itself should contain a sensitivity analysis in respect of the risk involved that in turn will enable firming up of the corrective action matrix. Rehabilitation should be done after looking into cash flows of the borrower and assessing the viability of the projects / activity financed by bank. While identifying and implementing the rehabilitation package, the branches/ Zonal Offices are advised to do ‘holding operation’ for a period of six months.

However, after first disbursement as above, the borrower will be allowed to operate his accounts with different member banks according to his requirements subject to the limits allocated to them. In a Consortium for total fund based credit limits of Rs.50 crates, the minimum share should be Rs.2,50 crores. Under consortium banking arrangement, more than one bank provides finance to a single borrower but chose one of the lender as consortium leader. Regular meetings are arranged by leader bank to discuss various issues related to the particular finance. The draft circular further suggests that while customers (with Rs 5-50 crore credit) may open current accounts with any lending bank , only collection accounts can be run with non-lending banks.

The bank that is awarded/ given the mandate by prospective borrower and is responsible for placing and managing the loan process, its terms and conditions and finalizing the same is known as Lead Manager, Lead Bank, Syndicate Bank. They are entitled to arrangement fees and undergo a reputation risk during this process. Before going into the details and for better understanding, a rough idea about the concepts of Loan Syndication and Consortium is necessary. As per the consortium lending approach, the group of banks would have a common agreement wherein the lead bank would assess the borrower’s fund requirements, set common terms and conditions and share information about borrower’s performance to other lenders.

Reporting Of Consortium Financing

Finance minister Nirmala Sitharaman asked state-run banks to review their business models closely to identify stress points, urging them to remain vigilant amid a deepening banking crisis in the US and Europe. As Banks quite often deal with unlisted companies, disclosure requirements for such companies above a specific turnover may be made akin to those for listed companies, viz. Suitable clause in loan agreements regarding exchange of credit information, have been incorporated. Bank appeals to all the customers not to respond to such phone call/email/SMS and not to share their bank account detail with any one for any purpose. Under ECLGS 1.0upto 30% of their total credit outstanding (net of support received under ECLGS 1.0) up to Rs.50 crore as on 29th February, 2020 or 31st March 2021, whichever is higher.

• A group of Organizations, sharing the same goals, which combine their resources and risks.
• Syndicated credit generally include a provision whereby a bank could novate its rights and obligations to another bank.
• Credit facility under ECLGS 2.0 could be in the form of fund based or non-fund based facility or a mix of the two.

The company has during the period under review, advanced loans, given guarantees and provided securities amounting to Rs. ____________ to its directors and / or persons or firms or companies in which directors are interested. Borrowers who have availed assistance under ECLGS 1.0 and are eligible for restructuring as per RBI guidelines of May 05, are permitted to avail of the same. GECL loans in such cases would be allowed a repayment tenure of upto 5 years, i.e, period upto 24 months during which only interest shall be payable and the principal instalments shall be payable thereafter in 36 monthly instalments.

After the unadjusted interest portion of the cash credit account is segregated as indicated at and above, the balance representing principal dues may be treated as irregular to the extent it exceeds drawing power. This amount may be funded as Working Capital Term Loan with a repayment schedule not exceeding 5 years. The rate of interest may be reduced by upto 33 in case of micro/decentralized sector Units and upto 23 for other small enterprises, subject to the floor of Bank’s base rate. The decisions agreed upon by a majority of the creditors (75% by value and 50% by number) in the consortium would be considered as the basis for proceeding with the restructuring of the account, and will be binding on all lenders under the terms of the Inter-Creditor Agreement. If the consortium decides to proceed with recovery, the minimum criteria .for binding decision, if any, under any relevant laws or Acts shall be applicable. When organizing a specific credit deal, lenders should assess the varied loan buildings and the related advantages and risks.

Hence in our opinion Consortium of Bank itself is a community of interest and member brigs its resources in certain percentage in the common pool formed under statutory directives and documents are obtained as per the IBA formats strictly devised as per directions of RBI. That in terms of the guidelines which has statutory force the consortium of banks has a force of community of interest and bank documentation is to be strictly construed as Homogenous transaction and not separate transaction as apprehended. That in the consortium lending meaning above case old celebrated judgments were relied on in deciding previously it was held in Davis v. Williams , Bowen v. Ashley , Good-son v. Forbes and other cases. That if the interests of the executants are separate, the instrument must be construed as comprising distinct matters. Disposal of loan application- 60 days for fresh loans or enhancements, 45 days for renewal and 30 days for ad hoc facilities. Where the participating banks are unable to adhere to the time frame, borrowers are free to bring in new banks.

For restructuring of dues in respect of listed companies, lenders may be, ab-initio, compensated for their loss or sacrifice by way of issuance of equities of the company upfront, subject to the extant regulations and statutory requirements. 7.3 Provided further, that the consortium may, with the consent of all creditors recognized, provide such loans higher priority than any existing debt. 7.2 If the existing promoters ore not in a position to bring in additional funds the consortium may allow the enterprise to raise secured or unsecured loans. It may be liable if it fails to do its finest endeavours to accumulate lending events, these differ depending on the legislation of illustration and fiduciary obligation within national regulation. Syndication is usually initiated by the grant of a mandate by the borrower to the arranging bank or ‘lead managers’ setting out the financial terms of the proposed loan. A syndicated credit settlement may take the place of a number of bilateral credit score agreements between the borrower and each lender or be utilized in lieu of a participation as a result of all the lenders are in privity with the borrower.

The consortium bank dissolves after the consortium bank meets its objective. Banks might create a consortium bank to finance a specific project (such as providing affordable housing to low or moderate-income home buyers) or to perform a specific deal . The appraisal of the loan is done by the consortium leader or jointly in consultation with member banks. Quantum of finance is decided in the consortium meeting The share of each consortium member is also decided in Consortium Meeting.

8)If there are any adverse developments in the transactions of the borrower, the same should be informed all the consortium Banks and borrower should abide by the decision taken in the Consortium Banks. 1)Furnishing of necessary documents, financial statements to the entire member Banks so as to enable them to make quick processing of loan proposals. 5)The consortium Banks should not demand the refund of loans by taking own decision. 4)The Consortium Banks are not supposed to change their lending share without obtaining prior approval from the consortium members. 14)Ensuring of utilisation of working capital sanctioned limit only for production activities. 6)Convening of Consortium meeting for execution of documents and Registration of Charge on the assets of the loanee.