To ensure that there is no delay in decision making on loans, the banking system seeks to reduce the number of members in consortia or multiple banking arrangements.
“There is a delay, especially when there is more than one bank (involved in granting a loan). And the more the banks, the more the problems.
“And if I want to donate money, I have to take a NOC (certificate of no objection) from a multitude of banks. So how can I speed up my decision, ”said SBI Chairman Rajnish Kumar.
Increase the risk
Whereas previously it was believed that the banking consortium would reduce the risk, the head of the SBI said he has now come to the conclusion that it is increasing the risk due to a delay in decision making. Consortium loans involve collaboration between lenders by pooling capital to finance very large loans. It involves common documentation, joint supervision and follow-up exercises between them.
Multiple banking is an arrangement in which a borrower takes out loans from multiple banks and there is no joint documentation, supervision and monitoring.
“I’m not saying there aren’t any delays in my bank, but what I’m saying is that there are some issues around the consortium and multiple banks and we absolutely have to get that in order. .
“So one way is, of course, to limit the size of the consortium or of several banks. It does not make sense to have too many banks, ”explained the head of the SBI at the annual FICCI-IBA (FIBAC) summit.
And when SBI is part of a consortium, it will examine the possibility of partnering with like-minded banks, Kumar said, although he pointed out that there are banks with risk appetites and risks. different mindsets, which makes the task of managing a multiple bank or a consortium bank. very difficult environment.
Referring to banks making cross-creditors deals to quickly tackle stressed assets, Kumar said that “even for several banks, work is underway. So at least we should have a framework based on the ICA. And decisions must absolutely be taken within a limited time ”. “We should reduce the number of lenders in a consortium. For a 1,000 to 1,500 crore facility, it doesn’t make sense to have 8 or 12 banks. This makes the task of decision making extremely difficult.
For public sector banks, the Department of Financial Services has issued guidelines that they should have a minimum 10 percent stake in a syndicated loan.
“If it’s a 40,000 crore facility, you can’t avoid having a lot of banks in the consortium. We will certainly reorganize many consortia. We will try to withdraw in some cases and take more part in others. It’s not such an easy exercise, ”Kumar explained.
Meanwhile, the head of the SBI said he was convinced that March 2018 was the peak of stress in the banking system. Banks are seeing a decrease in NPAs because resolution is done either through the IBC (Insolvency and Bankruptcy Code) process or outside of the IBC process.