The Reserve Bank of India (RBI) has received a proposal to limit the number of participants in lenders’ consortium to ensure better credit monitoring...
The Reserve Bank of India (RBI) has received a proposal to limit the number of participants in lenders’ consortium to ensure better credit monitoring, RBI deputy governor R Gandhi said on Tuesday.
Speaking to reporters on the sidelines of an event, Gandhi said, “It is a suggestion that has come and is related to the number of members in a consortium. If there are too many members then its creates problems as far as credit monitoring is concerned.”
However, he added that there is another side of the story which relates to freedom of the borrower and the banks to decide commercially whether they should be in a consortium or not and whether there should be a regulatory restriction.
Gandhi explained that often banks with a very small portion of the loan pie neither have the incentive nor the inclination to independently assess proposals and they typically blindly go with the decisions taken by banks that have a bigger share. “Even if a bank has in-house technical capabilities with a small share, its voice is not heard.
Therefore, the suggestion is to have a regulatory limit on the number of members in a consortium or multiple banking arrangements,” he said.
He said that since there is just one technical consultancy firm besides some desks in certain banks, there is a crying need for the emergence of additional technical capabilities to undertake evaluation of projects. “Banks will have to strengthen their internal desks as well. RBI, through its centre for advanced research and learning, has taken an initiative to organise capacity building capabilities of banks,” he said.
Gandhi added that the RBI has also received suggestions for improvement in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, one of the suggestion being related to Section 7 of the Act.