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Consortium lending is back with a bang
Anindita Dey in Mumbai | September 14, 2005 11:11 IST
Consortium banking that had faded away with the demise of financial institutions is back with a bang in the domestic loan syndication market.
According to banking sources, banks are appointing a single security trustee which will draft the terms and conditions for the entire group of banks involved in lending.
This is in contrast with the concept of multiple banking wherein each bank drafts its own terms and conditions for lending to a corporate house.
This has been the norm in most of the recent loan syndication deals. Some of these deals include the Rs 4,200-crore (Rs 42 billion) loan syndication by Reliance Port and Terminal and a Rs 750-crore (Rs 7.50 billion) loan by Indian Rayon.
Reliance Port and Terminal, a subsidiary of Reliance Industries, is raising the loan for expanding its port facility. This is likely to increase imports of crude oil by Reliance Petrochemicals, from 33 million tonnes to around 66 million tonnes. A total of 20 banks syndicated the loan with the security trustee being the UTI Bank.
Similarly, Indian Rayon is raising Rs 750 crore to acquire 50 per cent of AT&T's stake in Idea Cellular. The balance of the AT&T stake, valued at Rs 1,500 crore (Rs 15 billion), will be picked up by the Tatas.
The same applied for a loan syndication of Rs 5,000 crore (Rs 50 billion) for Hindalco a few days back and for Rs 1,000 crore (Rs 10 billion) for Bhushan Steel.
Consortium lending had become passť due to problems in settling non-performing assets through the corporate debt restructuring (CDR) method.
Disagreement among bankers† used to cause the entire process to fall through. In extreme cases in the past, even major lenders had gone ahead with the debt restructuring process without the full consent of lenders.
Therefore, each bank had decided to have its own terms and conditions for lending to a corporate account. However, consortium banking has made a comeback after the legal procedure for settling bad accounts has been simplified and streamlined by the Reserve Bank of India, and through the enactment of the Securitisation Act.
Out of the closet