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To ensure that there is no delay in decision-making on loans, the banking system is looking at reducing the number of members in consortium or multiple banking arrangements.
“There is a delay, particularly when there is more than one bank (involved in giving a loan). And more the banks, more the problems.
“And if I want to give money, I have to take an NOC (no-objection certificate) from a host of banks. Then how do I expedite my decision,” said SBI Chairman Rajnish Kumar.
Increases the risk
While earlier it was thought that consortium banking would reduce the risk, the SBI chief said he has now come to a conclusion that it is increasing the risk because of delayed decision-making. Consortium lending involves collaboration among lenders by pooling in capital to finance very large loans. It entails common documentation, joint supervision and follow-up exercises between them.
Multiple banking is an arrangement where a borrower takes loans from several banks and there is no joint documentation, supervision, and follow-up.
“I am not saying that delays are not happening in my bank, but what I am saying is that there are certain problems around consortium and multiple banking and definitely we need to put this in order.
“So, one way is, of course, to limit the size of the consortium or multiple banks. It does not make sense to have too many banks,” elaborated the SBI chief at the annual FICCI-IBA (FIBAC) summit.
And when SBI is in a consortium, it will look at roping in like-minded banks, Kumar said, even as he emphasised that there are banks with different risk appetites and mindsets, which make the task of managing a multiple banking or a consortium banking environment very difficult.
Referring to banks entering into inter-creditor agreements for expeditiously tackling stressed assets, Kumar said “even for multiple banking work is going on. So, at least we should have an ICA-based framework. And decisions definitely have to be in a time-bound manner”. “We should reduce the number of lenders in a consortium. For a ₹1,000-1,500-crore facility, it does not make sense to have 8 or 12 banks. It makes the task of decision-making extremely difficult.”
For public sector banks, the Department of Financial Services has issued guidelines that they should have a minimum share of 10 per cent in a consortium loan.
“If it is a ₹40,000-crore facility, then you can’t avoid having a large number of banks in the consortium. We will definitely reorganise many consortiums. We will try – pull out in some cases and take more share in others. It is not that easy an exercise,” explained Kumar.
Meanwhile, the SBI chief said his belief is that March 2018 was the peak vis-a-vis stress in the banking system. Banks are seeing a decline in NPAs as the resolution happens either through IBC (Insolvency and Bankruptcy Code) process or outside the IBC process.
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