Consortium Introduction
A collaborative approach to large-scale financing and risk sharing in the banking sector.
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Guidelines for Consortium Advances
Consortium form of lending means financing of a single borrower jointly by two or more banks with or without financial institutions. It is a concept that promotes collective application of banking resources.
Dynamic Collaboration
The concept of consortium lending is dynamic and arises from a deliberate refinement in credit appraisal and lending approaches.
Refined Appraisal
Over time, the system has brought about better regulation of credit flow to borrowing units through collective expertise.
"Accepted as a culture and philosophy of banking by which banks pool resources and collectively apply expertise."
Consortium Arrangements
Presently, the following consortium arrangements are in vogue in the Indian banking landscape:
Involuntary Consortium
Formed at the instance of Government/RBI for financing large credit requirements of government corporations (e.g., FCI, Jute Corporation).
Voluntary Consortium
Formed by banks to share large credit needs of Public Corporations (BHEL, Electricity boards) and Private Sector giants.
RBI Formation Guidelines
- Mandatory for single borrower limits exceeding Rs. 5 Crores.
- Obligatory if aggregate credit limits exceed 1.5% of bank's total deposits.
- Normally restricted to 4 or 5 banks for administrative convenience.
- The bank with the largest share usually plays the role of Consortium Leader.
- Member shares should normally not be less than 10% of aggregate limits.
- Drawals should be in proportion to the percentage share in the consortium.
- Mandatory exchange of relevant information relating to the borrower.
- Participating banks in term loans have a right to seek working capital participation.