Breaking the Stalemate

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"Bureaucracy in banking is often a shield for indecision. When a multi-bank consortium gets trapped in endless legal revisions, the lead bank must step up, take ownership of the mandate, and execute at the speed of business."

In my years in the Credit Wing of the bank, I had the privilege and pride of participating in, convening, and leading several large consortium lending meetings. These meetings involved prominent corporate giants across India, including IFFCO, Garware Plastics, Tamil Nadu Cements, MRF, Best & Crompton, Ashok Leyland, and Apollo Hospitals. Managing these large accounts taught me a vital lesson: multi-bank lending is as much about managing relationships and consensus as it is about evaluating financial ratios. This lesson proved to be the key to unlocking the stuck Indonesian joint venture (JV) portfolio that was saddled with massive Non-Performing Assets (NPAs) and bad debts.

1. The Stalemate: A Clean Record in a Stuck Account

When I took charge of the Indonesian files, the first thing I did was read through all the volumes of documentation patiently. What I discovered surprised me. Unlike many typical bad loans, there was no indication of falsification, misrepresentation, diversion of funds, or wrong decisions by the promoter. The customer had not siphoned off money or acted in bad faith. The project had simply been crushed by external economic factors: double devaluation of the Indonesian Rupiah and the disastrous Japanese Yen conversion trap.

Because the customer’s intent was clean, I saw this not as a dead asset, but as an operational challenge. We needed to reactivate the consortium and find a path to recovery.

2. Sourced for Lunch, Stuck in Legal

I convened a meeting of all participating banks and the borrower. In consortium banking, the lead bank has a duty to make these meetings substantive, but the atmosphere on the day of the meeting was typical of corporate apathy. As we assembled, I was told by a senior executive to "quickly finish the formality and clear the room" because the bank's top management was hosting a lunch in the penthouse shortly. The message was clear: do not expect any real results; just check the box and go.

The clients and their representatives had flown all the way from Indonesia with zero expectations. They had come simply to say hello and size me up, assuming they would have to live with a stagnant, stuck account for another two years until the next credit officer took over.

The borrower politely explained the gridlock: The borrower had been waiting for restructured loan approvals for over eight months. The crucial consent letter required by the Indonesian local banks—which had agreed to provide fresh funding to keep the company afloat—was stuck. The draft was going back and forth between the legal departments of the Indian consortium banks, with each bank's legal counsel removing or adding words, blocking consensus. Furthermore, the client noted that in the past, getting the signed minutes of a consortium meeting took at least a month.

Without the consent letter and agreed-upon debt terms, the company could not produce its "Opening Balance Sheet" for the Indonesian lenders. This was a critical crisis because this was the final financial year the company could use its massive carry-forward tax losses to set off against projected future profits. If they missed this window, the tax shield would expire, making recovery impossible.

3. The Private Caucus: Securing the Mandate

I realized that if we allowed the letters to continue traveling between legal departments, the company would go bankrupt, and the banks would recover nothing. We needed to break the loop.

I requested the representatives of the participating banks to join me in a private room. I laid out the stakes: "It is time we give life to the restructuring decisions already approved by our respective boards. I need you to give me a mandate to deal with the customer and finalize the text of this letter today. I promise my action will not prejudice the total recovery amounts or compromise your security." I explained that as long as we adhered to the core financial parameters approved by their boards, they should authorize the Lead Bank to finalize the phrasing and sign the document on behalf of the consortium.

Except for one bank, all representatives agreed on the spot. The holdout representative was hesitant, fearing head office pushback. I sat with him, helped him contact his senior management, explained the legal safety clauses, and eventually secured his agreement as well. The consortium had given the lead bank a mandate to act.

4. Minutes on a Silver Platter

I returned to the main conference room and made an announcement that left the clients stunned: I told them they would receive the fully signed, official minutes of the meeting before they left the bank building that evening. I also announced that I was prepared to sign and issue the final consent letter that very day, utilizing the combined feedback of the legal departments, with no debt reduction of the total debt principal stipulated by the banks.

The client representatives literally started jumping up and down in emotional relief. Late that evening, both the signed minutes and the crucial consent letter were delivered to them "on a silver platter."

5. From Indonesia to a Rs 700 Crore Reversal

Armed with our consent letter, the company finalized its restructuring. The local Indonesian banks agreed to fund the unit, permitting the fresh loan proceeds to be remitted directly to the Indian consortium banks to service our debt. However, the Indonesian banks wanted to verify that the Indian Lead Bank and our representations were genuine. They invited us to meet them. With the permission of my bosses, I flew to Indonesia, met the local bankers over tea at their corporate premises, and convinced them of our institutional backing. They realized we were not a "ghost bank" or a hoax, and that our commitments were real.

The results were immediate and historic: Within six days of our initial consortium meeting, we received $26,000 USD as an advance payment towards future interest remittances. Stagnant accounts that had seen no credit activity for years began receiving regular interest payments and roll-over fees. Over the recovery period, Indian Overseas Bank (IOB) alone recovered foreign currency remittances equivalent to Rs. 700 crore Indian rupees. The massive provisions we had made for these bad debts were fully reversed and written back into our books, yielding substantial cash profits. This massive recovery allowed the bank to repay the capital contribution provided by the Government of India during our clean-up, paving the way for a highly successful, oversubscribed public issue (IPO).

While chronicling these massive recovery efforts from the Indonesian joint venture advances and other heavily provisioned overseas accounts, the role played by our branch managers and teams in Hong Kong, Singapore, and Colombo must be written in letters of gold. They stood by me steadfastly, backed my decisions, and worked tirelessly until our recovery targets were achieved. Their local operational support and superb execution of Head Office directives were indispensable. Without their proactive contribution, recoveries of this magnitude would have been impossible. Their efforts deserve our deepest and most heartfelt appreciation.

Key Takeaways on Consortium Leadership

• Take Ownership of the Lead Bank Role: A lead bank must not act as a mere post office. When deadlock occurs, the lead bank must caucus the members, secure a flexible operational mandate, and make executive decisions.
• Speed of Execution is a Credit Tool: Bureaucratic delays kill borrowers. Delivering decisions, minutes, and documents in hours rather than months preserves borrower viability and accelerates recovery.
• Build Cross-Border Trust: In international credit, physical presence and face-to-face meetings with foreign lenders are essential to validate representations and ensure smooth cash remittances.