by A consortium bank is a subsidiary bank, which numerous other banks create. These banks might create a consortium bank to fund a large-scale project that is too large for one bank to complete itself, such as providing affordable homeownership for low- and moderate-income home buyers or to execute a large deal, such as selling loans in the loan syndication market.
The consortium leverages individual banks’ assets to achieve their objectives. All member banks have equal ownership shares and no one member has a controlling interest. After the consortium bank meets its objective, it typically dissolves.
RBI allowed the individual consortium, to frame their own norms for consortium lending.
Compulsory consortium formation: Banks have to ensure that their exposure does not exceed the prudent credit exposure ceiling (max 15 % of their capital fund for individual borrowers and 40 % for group borrowers).
No. of banks and new banks: There is no ceiling on the no. of banks to participate. Without the consent of the existing consortium members, no bank can extend any credit facility.
Disposal of loan application: 60 days (45 for export) for fresh loans or enhancements, 45 days (30) for renewal and 30 days (15) for ad hoc facilities. Where the participating banks are unable to adhere to the time frame, borrowers are free to bring in new banks.
Appraisal: The lead banks is responsible for preparation of appraisal note, its circulation, arrangement for convening meeting etc. It receives fee from the borrower for this.
Documentation: The documents are obtained under the Single Window Scheme, i.e. for all banks, one set of documents is obtained.
Asset classification: Each bank is to classify the loan account, according to conduct of accounts with the bank concerned, irrespective of the classification with other banks.
Post sanction follow–up: Regular meeting of consortium members is a normal requirement where the banks share information about conduct of account & performance of the borrowing unit.
Interest Rate: Since Jan 1995, the banks can fix their own rates.
Charge on securities: The banks have pari – passu charge over the securities which means they share the charge in the ratio of their exposure approved by the consortium through a formal agreement.
