Pari Passu Letter
Formal banking document issued by an existing lender to confirm equal ranking of charges for consortium members.
Letter Wizard
Step 1 of 3Legal Binding
Confirm that charges created in favor of new lenders will rank equally ("on equal footing") with existing lenders as per the Inter-Se agreement protocols.
Filing Requirement
Pari Passu Letter vs. Pari Passu Agreement
Understand the critical distinction between bank-to-bank consent letters and formal consortium agreements.
| Feature | Pari Passu Letter (This Tool) | Pari Passu Agreement |
|---|---|---|
| Legal Nature | Unilateral/Bilateral consent or "No Objection" letter issued by an existing charge-holding lender. | Comprehensive tripartite/multipartite contract executed between Borrower, Lead Bank, and all Member Banks. |
| Primary Purpose | Enables immediate credit facility disbursement and provisional ROC charge creation (Form CHG-1). | Defines permanent, binding contractual covenants on security ranking, title custody, and liquidation sharing. |
| Parties Involved | Issued by one bank to another co-lender / Lead Bank. | Signed by the Corporate Borrower, Lead Bank, and all Participating Consortium Lenders. |
| Stamping & Registration | Standard bank letterhead or nominal state stamp paper. | Properly stamped agreement registered under State Stamp Act and NeSL DDE framework. |
| Recovery Waterfall | Contains basic agreement to share charges equally. | Sets out exhaustive waterfall protocols for distribution of asset realization proceeds strictly pro-rata. |
FAQs on Pari Passu Letters
Practical guidance for credit officers, relationship managers, and consortium documentation teams.
What is a Pari Passu Letter in banking?
A Pari Passu Letter (also known as a Letter of Cession or Pari Passu Consent Letter) is a formal communication issued by an existing charge holder (e.g., Lead Bank or co-lender) confirming that it agrees to share its charge on the borrower's secured assets on an equal (pari-passu) footing with incoming or other member banks.
What is the difference between a Pari Passu Letter and a Pari Passu Agreement?
A Pari Passu Letter is an interim consent/NOC exchanged bank-to-bank to facilitate immediate credit disbursement and ROC Form CHG-1 charge modification. In contrast, a Pari Passu Agreement is a comprehensive, legally binding multipartite contract executed between the Borrower, Lead Bank, and all Consortium Lenders specifying detailed recovery sharing covenants, title deed custody, and default enforcement rules.
When is a Pari Passu Letter required?
It is required whenever a corporate borrower avails new or enhanced credit facilities from another lender or consortium member, requiring existing lenders to confirm in writing that new credit facilities will rank pari-passu without prior charge claims.
Is a Pari Passu Letter legally binding?
Yes, it binds the issuing lender to concede priority and agree to share charges equally, but lenders must subsequently execute a formal registered Pari Passu Agreement for complete legal security enforcement.
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