Leena Baliga

Mumbai, June 14: The Indian Banks’ Associations’ (IBA) is all set to frame guidelines which will set a common code for banks in multiple banking. The working group is yet to finalise the guidelines and is due to meet early this month. The group formed by IBA is under the chairmanship of Mr AK Purwar, present managing director of State Bank of Patiala.

Multiple banking is an arrangement whereby borrowers have separate arrangement with banks for meeting working capital requirements. IBA sources pointed out that after detailed deliberation on the difficulties faced by banks in multiple banking, the group identified four core areas in which banks need to converge not in respect of issues related to the level of exposure, security, margin and pricing.

Said a senior IBA official: “It was observed that in the interest of the financial system, a certain degree of information is needed. These guidelines will serve as groundrules for sharing information and co-ordination between the financing agencies”.

The four core areas identified were co-ordination in appraisal process, information sharing at the sanction and post-sanction stage on an on-going basis, need for co-ordination in documentation covering basic financial arrangement, sharing of securities and other cash flow and co-ordination in the event of decline in asset-quality.

There are three sub-groups formed within the IBA — the first comprising representatives of State Bank of India (SBI), Bank of Baroda (BoB) and HDFC Bank will design a standard format for furnishing opinion report under multiple banking arrangement. The second sub-group involving the law department of SBI and IBA will examine the feasibility of single-window documentation for secured sharing and the third group comprising SBI, BoB and Punjab National Bank will examine co-ordination issues in recoveries and suggest means for ensuring equitable sharing of securities and cash flow. Multiple banking has gained currency after the Reserve Bank of India (RBI) did away with the mandatory consortium banking arrangement in 1997.

For borrowers, the advantage in multiple banking is that they can bargain for better interest and other terms.