IBA mulls bringing framework to address consortium lending issues

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Published: December 22, 2019 6:57:35 PM

To address these issues, there are two things which are happening, one is at the IBA level and another by RBI to develop secondary market for loan to corporates.

The Indian Banks’ Association (IBA), headed by SBI Chairman Rajnish Kumar, will come out with a framework around April to address issues related with consortium lending to industry and finding solution for alternate sources of borrowing for them.

Industry faces problem, particularly in consortium and multiple lending and if even a small NOC (no objection certificate) is required, the borrower keeps going around the banks, so it may take six months or one year or even one-and-a-half years to get the funding, Kumar said at an industry event.

“And the NOC may come or may not come and all your (industry borrower) plan goes for a toss. So there has to be a system in the decision making where these decisions can be taken on time,” he said while speaking at the FICCI Annual Convention here on Saturday.

And to address these issues, there are two things which are happening, one is at the IBA level and another by RBI to develop secondary market for loan to corporates.

“I have decided to set up a working group that will examine all these issues around consortium and multiple banking lending and see to it that standardisation happens and it becomes hassle free as far as the borrowers are concerned,” Kumar said.

“We will try to make an arrangement that if there are some dissenting lenders, how we can give them exit (from consortium of lenders), all these issues will be deliberated. So that is a step you will see next three months or at least from April, IBA should be able to come out with a framework,” said the SBI Chairman addressing concerns of the industry regrading borrowing.

He said the working will comprise six members with representatives from public, private and foreign banks.

“IBA has taken members from foreign, private and public sector banks so that there is a commonality of approach. It is not that public sector banks are going in one direction, foreign banks in other and private sector banks are going in another direction,” Kumar said.

For creating an alternative source of funding, he said the industry is aware that the Reserve Bank has already set up a working group for developing the secondary market for corporate loans.

“With what the decision IBA has taken along with the plan to develop secondary market for corporate loans, a market mechanism will be created for trading of loans as well as the availability of credit and timely decision making.”

Thus, discipline will come among the bankers as well as the borrowing companies,” he said.

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