Leader and Participant Bank Roles in a Consortium

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Consortium Lending

Consortium Lending - Roles and Responsibilities

Role of Leader Bank

Normally the major participant assumes the leader role.

The leader may act through a committee referred to as the “Consortium Committee”.

The leader plays a major role in

1. Convening the consortium meetings from time to time.

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2. Having dialogue on a continuing basis with the borrower and obtaining the necessary papers, clarification, etc.

3. Involving all the members in the joint appraisal.

4. Preparing and circulating the Joint Appraisal Memoranda among member banks and finalizing the assessment after deliberation.

5. Seeking their own boards approval for the total credit limits.

6. Approaching RBI for CAS clearance wherever necessary and obtaining it.

7. After or before the CAS clearance indicating the credit limit determined among participating banks.

8. Preparing independently or through accepted solicitors and finalizing the documents required to be executed by the borrower.

9. Convening a meeting for the execution of the common documents and completing the formalities connected there with including the registration of charge in the books of the Registrar of Companies wherever required.

10. Holding the charge securities, mortgage title deeds and all other documents on their own behalf and also on behalf of all the other participants.

11. Conducting inspection of securities charged to the consortium, either by themselves or jointly with other members of the consortium.

12. Handling correspondence with the All India Financial Institutes or the state level financial institutions were applicable on matters relating to mutual interest of the consortium banks, the term lending institutions.

In addition to the above, the leader bank is expected to

1. Ensure that the borrower submits periodical stock statements. All the participating banks advised the operating drawing power and the drawing limits.

2. Receive the quarterly information forms, fix the drawing limit with each of the banks for the ensuing quarter and advised them.

3. Ensure that the inventory levels, receivable levels of holding are in accordance with accepted norms during appraisal.

4. Take corrective disciplinary measures, such as levying of the penal interest provided for in the core committee recommendations, including the freezing of the limit, etc.

5. Identify that portion of the cash credit limit that could be brought under the drawer bills method of financing.

6. Detect incipient sickness, diversion of funds consequently affecting the banks interest adversely and to suggest and take remedial measures in consultation with the member banks.

Role of Participating Banks

Participating banks are expected.

1. To take up a share in the annual or adhoc increases in proportion to the original share allotted to them.

2. To participate in the periodical meetings actively , without fail, and to contribute their expertise for the common good of the consortium without any reservation or inhibitions.

3. As far as possible, accept the majority decision of the Consortium on any matter relating to smooth functioning of the Consortium.

4. To advise their firm decision on the extent of participation after a quick reference to their sanctioning authority, where necessary.

5. Not to unduly delay decisions in respect of

a. extent of participation,

b. approval of document.

c. Hold on any other important references made to them.

6. Not to arbitrarily vary the quantum of participation, or the margin, or the interest rate, etc, without specific reference to consortium and without ascertaining the views of the other members.

7. Not to recall the advance by a unilateral decision.

8. Carry out periodical inspection of stocks at centres allotted or assigned to them.

9. To furnish the relative inspection reports to the leader and the other participating banks.

10. Not to show any indulgence to the borrower with a view to soliciting a major share of the other remunerative business of the borrowers, which will jeopardize the interest of the other participants.

11. To keep the leader and the other participants informed of any adverse features noticed while servicing the account, which will adversely affect the bank's interest and anyway and hamper these smooth functioning of the consortium.

12. Not to hesitate to seek the legitimate share in any ancillary or foreign exchange business to make the participation effective, lucrative and profitable. In the process keep an eye on the borrowers welfare as well as. So that the terms are competitive and the borrower does not suffer by consenting to such extended participation of banks in their business.

13. As far as possible, represent the bank at any consortium meetings by officials at the required senior level or if necessary, are empowered to take on the spot decisions under unavoidable circumstances.

Role of the Borrower in Consortium setup

1. To actively help their bankers and identifying one or more partners for the formation of the consortium or for its enlargement. It is not the sole responsibility of the leader Bank to identify one or more partners for syndication.

2. To furnish all applications, financial papers for cost etc that are required in time to all the participating banks so that the processing, assessment etc are made easy and quick.

3. To submit periodical stock statements, quarterly information forms and other required data to each of the participating banks without any delay

4. To help pay for whatever assistance needed during the godown / factory inspection held jointly. Or individually by the consortium banks from time to time.

5. Register cost to be registered, all the charges created with the Registrar of Companies without fail and promptly.

6. To render all possible assistance to the leader Bank in preparing the minutes of the meeting held and arranged for the circulation of it among member banks, besides extending assistance for fixing the venue and dates of the periodical meetings.

7. To strictly and fully abide by all the decisions taken by the Consortium.

8. To distribute the availment under the cash, credit, and other ancillary business equitably among all participating banks, without preferring one or few banks to the exclusion of others.

9. To do all that is necessary to contribute to the successful working of the consortium and keep up the consortium.

10. To divulge adverse circumstances situation and developments in the demand / production for the product, change in management, ownership, symptoms of identifiable causes for the approaching sickness, if any, or the company's future plan for expansion / investment and their proposed funding arrangements for the same.

Advantages to the borrowers

1. Funds constraints in one bank, and its consequential effect will not be felt severely where more than one bank landowner, consortium basis.

2. The knowledge and expertise of more than one bank is available to the borrowers

3. Extended geographical representation by having more than one bank, thereby facilitating smooth handling of the borrowers transactions on all parts of the county.

4. Growing credit needs of the borrower year after year can be well taken care of in a consortium setup, regardless of individual banks growth and land double surplus.

5. Where term loans are granted in consortium with IDBI, the formalities connected with the obtaining of the credit authorization of RBI is waived.

6. Dislocation of work on account of strike, etc in one bank does not affect the day-to-day operation when more than one bank is involved in joint financing as the borrower has the facility of transacting their business with the other funds.