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Regulatory Compliance

Consortium Regulations

RBI guidelines and CAS formalities governing Bridge Loans, L/Cs, and DPGs.

Letters of Credit (Machinery Import)

Specific regulatory expectations for banks opening LCs for project machinery:

  • Verification of beneficiary credit ratings and reputation.
  • Alignment with project report and financial institution endorsements.
  • Obtaining No-Objection Certificate (NOC) from participating institutions with clear payment undertakings.
  • Ensuring LC wording is unambiguous and free of restrictive subjective clauses.

Bridge Loans & CAS Guidelines

CAS Cut-off Points

Bridge loans are subject to CAS formalities. Cut-off points are Rs. 50 Lacs for Private Sector and Rs. 100 Lacs for Public Sector.

CAS Waivers

Exemptions apply if bridge loans are against bank's own term loans or committed assistance from All India Financial Institutions (IDBI, ICICI, etc.).

Bhuchar Committee Recommendations (Bridge Loan Guarantees)

The committee recommends that Commercial Banks should not freely extend bank guarantees for bridge loans due to risks of defective titles and non-compliance.

Disbursal should be on promoters' personal guarantees.
Hypothecation of proposed assets is preferred.
Saves guarantee commission for the borrower.
Voluntary guarantees permitted only with high security.

Combined Mortgage & Second Charge

Equitable mortgages are widely accepted due to lower stamp duty. In combined legal/equitable setups:

Legal Token

Registered mortgage for a token amount to satisfy rules.

Equitable Bulk

Remaining amount covered by equitable mortgage to save duty.

Lead Agent

Lead Bank holds deeds as agent for all participants.

Second Charge on Security

Legal Perspectives (Title Deeds):

Banks follow C. K. Daphtary's view that second charges can be created via re-deposit of title deeds, even though H. M. Seervai held conflicting opinions.

  • Requires consent of the first mortgagee.
  • First mortgagee acts as agent for the second.
  • Security adequacy and residue valuation are critical.
Limitation Warning:

Equitable mortgages expire after 12 years. Title deeds must be re-deposited well in time to prevent limitation risks.

Ceding Pari-Passu vs. First Charge

Strategic decision framework for ceding charges to new lenders. Analysis based on margin dilution vs. improvement:

Scenario 1: Dilution
Decline Pari-Passu

When our loan (40L/20L o/s) with 35L assets (45% margin) is combined with a new large loan (90L). Margin drops to 29%.

Recommendation: Cede First Charge on NEW assets only.
Scenario 2: Improvement
Accept Pari-Passu

When our loan (40L/36L o/s) with 45L assets (20% margin) is combined with a small new loan (20L) against 30L new assets. Margin improves to 25%.

Recommendation: Agree for Pari-Passu charge on ALL assets.
"Ceding pari-passu charge means we cannot take unilateral action in recalling advances. Coordination is legally mandatory."