The Reserve Bank of India (RBI) is in discussion with banks to revise guidelines for syndicate loan arrangements of ₹2,000 crore and above. This may entail a detailed single point inspection of syndicated loan accounts and norms for a more structured approach by lenders to take care of the entire life cycle of the loan.
“In order to mitigate the shortcomings in the existing arrangements for credit delivery, it was decided to relook at the model of syndicated loans for large value credits,” said an official aware of the matter, adding that Indian Banks’ Association (IBA) has submitted a report to the RBI in this regard.
The banking regulator supervises loan syndication through various circulars on loans and advances. An executive involved in finalising the report said the new framework will ensure that in the long-term borrowers need not approach all lenders for funding and getting sundry clearances.
“IBA will also be addressing issues such as information portal, drafting of common documents and identification of service providers, once there is an agreement on the framework,” said the executive, who did not wish to be identified.
At present, most consortium lending is down-selling of large value loans by the lead bank, while each bank comes up with its own additional terms and conditions.
The IBA also proposed strengthening the current ecosystem for the syndicated loan system and aligning it to international models such as those being practised in more developed financial markets.
“The recommendations are in sync with the current framework followed in the US through Loan Syndications and Trading Association,” said the executive, adding that the new framework may come up with specifics on minimum retention requirement, centralised supervisory oversight and audit, and development of secondary market for corporate loans.
Banks will also explore whether such a model can deal with existing issues such as stressed assets and the issues relating to non-performing loans can be taken up while structuring security documents.
