Beruflich Dokumente
Kultur Dokumente
ON
“LOAN SYNDICATION”
(SEMESTER V)
Submitted
Submitted by,
1
DECLARATION
SUMIT S VANJARE
{T.Y.BBI}
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ACKNOWLEDGEMENT
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INDEX
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INTRODUCTION
A Bank is a financial institution which deals with deposits and advances and
other related services. The term banking has undergone tremendous changes
over the years. The traditional and commercial banking activities of
accepting deposits and lending have been replaced by the concept of
universal banking and now international banking. Banks are expanding their
operations, entering new markets and trading in new asset types. The change
in financial system has created new opportunities along with new risks.
The banks plays a vital role in modern business without banks, it would be
highly difficult to conduct business activities in a smooth manner. A bank is
a vital aid-to-trade. Thus bank is an evolutionary concept. It acts as a
connected link between borrowers and lenders of money. For the past three
decades India’s banking system has several outstanding achievements to its
credit. The most striking feature is its extensive reach. It is no longer
confined to metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote countries of the world. This is the
main reason of India’s growth process.
Not long ago, an account holder had to wait for hours at the bank counters
for getting a draft or for withdrawing his own money. Today, he has a choice.
Gone are the days when the most efficient bank transferred money from one
branch to another in two days. Now it is simple as instant messaging or dial
a pizza. Money has become the order of the day. The modern day banking
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consist of all activities viz .accounts of non residents, financing exports and
imports, financing in foreign currencies, cross border financing, syndication
of loans and many other activities. With the introduction of new products
and services in the banking sector it has made the life of a common man
more simple and easy.
Innovation in banking:-
1) Internet Banking
2) Mobile Banking
3) Payment and Settlement Systems(RTGS)
4) Benefits of Technology in Banking
1) Personal Banking
2) Retail Banking
3) NRI Services
4) Bancassurance
5) Any Branch Banking
1) Universal banks
2) Smart Cards
3) Outsourcing BPO
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Meaning of the term Loan
A loan is a type of debt. All material things can be lent. Like all debt
instruments, a loan entails the redistribution of financial assets over time,
between the lender and the borrower. It is also defined as:-
For example: - An act of lending; a grant for temporary use: asked for
the loan of a garden.
A temporary transfer to a duty or place away from a regular job: an
efficiency expert on loan from the main office.
Loans represent the majority of a bank’s assets. a bank can typically
earn a higher rate of interest on loans than on securities. Loans
however, come with risk. If a bank makes bad loans to consumers or
businesses, the banks may suffer on defaulter of repayments.
-The loans are granted to meet long term working capital needs and
for expansion and modernization. Interest is charged on the actual
amount sanctioned, whether withdrawn or not. Loans may be short-
term, medium-term or loan term. Long term loans are generally for
meeting the working capital requirements. Such loans are also called
as term loans. When a loan is meant for meeting both fixed and
working capital requirement of a borrower, it is called as a
“Composite loan”.
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Financial discipline on the borrower
Periodic review of local Account
Profitability
The system is quite simple
It is given for a fixed period and specific purpose.
Meaning of syndication
An association of individuals formed for the purpose of conducting a
particular business or a joint venture.
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transact specific business.
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continuum between traditional private bilateral bank loans and
publicly traded bond market.
The need for syndication arises as the size of the loan is huge and a
single bank cannot bear the whole risk of lending. Also the corporate
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going for the issue is not aware about the banks which are willing to
lend. Hence syndication assumes significance.
The advantages of syndicated loans are the size of the loan, speed and
certainty of funds, maturity profile of the loan, flexibility in
repayment, lower cost of funds, diversity of currency, simpler banking
relationships and possibility of renegotiation.
In the last several years the popularity of this type of loan has
exploded. By 2000, the total annual volume of syndicated loan
issuance had risen to $1.2 trillion, a $100 billion increase over the
year before. The businesses that are choosing this option to finance
their growth have expanded beyond the Fortune 500 companies that
were its first users.
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They have now become a flexible funding source for both mid-sized
companies and smaller companies that are on the cusp of moving into
mid-sized status.
Borrowers taking out syndicated loans pay upfront fees and annual
charges to the participating banks, with interest accruing (on a
quarterly, monthly, or semiannual basis) from the initial draw-down
date. "One advantage of syndication loans is that this market allows
the borrower to access from a diverse group of financial institutions,”
In general, borrowers can raise funds more cheaply in the syndicated
loan market than they can borrowing the same amount of money
through a series of bilateral loans.
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Features of syndicated loans
The syndicated loan is a financing method evolved from bilateral loan.
Under the arrangement of syndicated loan, one bank or several banks (as the
arrangers) organize other banks to grant loans to the same borrower under
one loan agreement according to agreed terms.
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multi-currency option allows the borrower to switch the currency of
denomination on a rollover date.
Security in the form of government guarantee or mortgage on assets
is required for borrowers in developing countries like India.
The borrower does not have to deal with a large number of lenders.
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STAGES IN SYNDICATION
PRE-MANDATE STAGE
POST-CLOSURE STAGE
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2) PLACING THE LOAN AND DISBURSEMENT: - At this stage, the
lead bank can start to sell the loan in the marketplace i.e. to
prospective participating banks. this means that the lead bank needs to
prepare an information memorandum, prepare a term sheet, prepare
legal documentation, approach selected banks and invite
participation. A series of negotiations with the borrower are
undertaken if prospective participants raise concerns.
To conclude this stage the lead bank must achieve closing of the
syndication, including signing. If need be, underwriting bank has to
sign the balance portion of the loan.
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Reasons/Purpose for syndicated lending
Like insurance, a loan is an assumption of risk. For a certain
class of loan, with certain rules, the bank might believe that it is
likely that 5% of all borrowers may go bankrupt. If the bank's
cost of funds is a hypothetical 5%, the bank needs to charge more
than 10% interest on the loan to make a profit. In general, banks
and the financial markets use risk-based pricing, charging an
interest rate depending on the risk of the loan product in general
or the risk of the specific borrower.
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would reduce their profit margins, then over the long term a bank
should make more money by not syndicating. This same dynamic
plays out in the investment banking and insurance fields, where
syndication also takes place.
To avoid that the borrower has to deal with all syndicate banks
individually, one of the syndicate banks usually acts as an Agent
for all syndicate members and acts as the focal point between
them and the borrower.
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Benefits to the borrower
Raising a loan which would exceed the capacity of a single bank.
Cutting down on management capacity since the borrower
communicates only with the arranger/agent.
Broadening the financing base through the participation of other
banks.
Typically less costly than numerous lines through multiple
institutions.
It helps to enhance broader financial relationships.
Deals with a single bank.
Quicker and simpler than other ways of raising capital. E.g. Issue of
equity or bonds.
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PROJECT FINANCE AND LOAN SYNDICATION
Working capital finance is done in order to meet the entire range of short-
term fund requirements that arise within a corporate’s day-to-day
operational cycle.
The working capital loans can help the company in financing inventories,
managing internal cash flows, supporting supply chains, funding production
and marketing operations, providing cash support to business expansion and
carrying current assets.
Project Finance
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diversification as well as replacement of equipment may be financed through
the project term loans.
Project finance is quite often channeled through special purpose vehicles and
arranged against the future cash streams to emerge from the project.
The loans are approved on the basis of strong in-house appraisal of the cost
and viability of the ventures as well as the credit standing of promoters.
The corporate term loans can support the company in funding ongoing
business expansion, repaying high cost debt, technology up gradation,
leveraging specific cash streams that accrue into the company, implementing
early retirement schemes and supplementing working capital.
Corporate term loans can be structured under the FCNR (B) scheme as well,
with the option of switching the currency denomination at the end of interest
periods. This will helps to take advantage of global interest rate trends vis-à-
vis domestic rates to minimize your debt cost.
The bank’s corporate term loans are generally available for tenors from three
to five years, synchronized with your specific needs.
The corporate term loans carry fixed or floating rates, as befits the exact
requirement of the client and the risk context. Again, these rates will be
linked to the bank’s prime lending rate.
The corporate term loans can have a bullet or periodic repayment schedule,
as required by the client. The repayment mode may be linked to the cash
accruals of the company.
The Bank’s expert credit crew gauges the applicant’s particular fund
requirements and evaluates the company’s credit worthiness, factoring in the
cash flows generated by it.
Structured Finance
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meet the complex fund requirements of large industrial and infrastructure
projects. Structured finance can be a combination of funded and non-funded
facilities as well as other credit enhancement tools, lease contracts for
instance, to fit the multi-layer financial requirements of large and long-
gestation projects.
Channel Financing
Channel finance ensures the immediate realization of sales proceeds for the
client’s supplier, making it practically a cash sale. On the other hand, the
corporate gets credit for a duration equaling the tenor of the loan, enabling
smoother liquidity management.
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PARTIES AND THEIR ROLES WITHIN THE SYNDICATION PROCESS
The lead bank and participating banks are the main parties involved in loan
syndication. In large loan amounts, sometimes there are four parties
involved, other than the borrower, in the syndication process. These are
arranger {lead manager/ bank}, underwriting Bank, Participating Banks and
the facility manager {agent. their roles are defined as follows:-
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3. Participating banks:- These are the banks that participate in the
syndication by lending a portion of the total amount required. These
banks charge participation fees. These banks carry mostly the normal
credit risk i.e. risk of default by the borrower. As like any normal loan.
These banks may also be led into passive approval and complacency
risk. It means that these banks may not carry rigorous appraisal of the
borrower and has proposed project as it is done by the lead manager
and many other participating banks. It is this banker’s trust that so
many high profile banks cannot be wrong. This may be seen in the
light of reputation risk of the lead manager.
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Loan Syndicating Financial Institutions
Union Bank of India, has entered into a Memorandum of
Understanding [MOU] with IDFC, one of the leading Infrastructure
Financing Institution and Bank of India, another leading Public Sector
Bank for jointly Syndicating & Financing the large Infrastructure &
core industrial projects, which are coming up in the country.
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- Single point contact with the Lead Arranger.
- Submission of papers only to the Lead Arranger.
- Joint Appraisal leading to quick decisions.
- Possibility of securing competitive terms.
At the national level, they provide long and medium term loans at
reasonable rates of interest. They subscribe to the debenture issues of
companies, underwrite public issue of shares, guarantee loans and
deferred payments, etc. Though, the State level institutions are mainly
concerned with the development of medium and small scale
enterprises, but they provide the same type of financial assistance as
the national level institutions.
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Other Financial Institutions Include: - NABARD (National Bank for
Agriculture and Rural Development) EXIM (Export Import Bank of
India) IFCI (Industrial Financial Corporation of India).
LOAN DEPOT
The Loan Depot Inc was incorporated in Canada in October 1998 by a group
of Finance and Real Estate professionals with experience in the Domestic
and International Finance Markets and International Real Estate Hedge
Markets for over 10 years.
The main businesses of The Loan Depot are Domestic and International
Finance, Loan Syndication from International Funding Agencies and Major
World Banks, Project Financing, Real Estate Acquisition syndication and
hedging.
In 2000 the Corporation moved its head quarters from Ontario, Canada to
Chattanooga, TN. In 2001, the company expanded its operations to include
conventional and government guaranteed lending products. The Surviving
Company is now know as "THE LOAN DEPOT, LLC", and is committed to
provide the highest level of service to our customers, borrowers and brokers.
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Their Mission at The Loan Depot is to anticipate and successfully meet the
changing needs of our client and match them with the requirements of the
capital market. The standard of excellence is upheld through our innovative
thinking, our unique competitive advantage, and most importantly, our
dedication to our client.
Their goal is to provide you attractive financing options that will best serve
your individual financing needs. They have successfully laid a firm
foundation for financing a broad range of loans. They look forward to
working with people and helping them in their business.
They pride themselves in being one of the most innovative, diversified group
of financial service companies in the United States and Canada and plan on
staying that way.
Mortgages
Loan Depot offers a wide variety of options for all mortgage needs offer the
best rates and with over 150 products we specialize in self employed and not
so perfect credit situations(i.e.: bankruptcy, divorce). Their programs include
100% financing for purchase or re-finance to consolidate debt or for
investment purposes.
Auto Loans
Offer a variety of finance plans for the purchase or re-finance of new and
pre-owned vehicles.
Loans
Loan Depot is a full service loan placement firm. They offer secured
and unsecured loans available to people in every credit situation. Their rates
are competitive and all situations are welcome.
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Recreational Vehicles
Loan Depot offers financing on all recreational vehicles they offer
competive rates on boats, R.Vs and ATVs etc.Their programs allows to
finance new or used purchase or to-re-finance the existing vehicle at a lower
rate or better terms.
Credit Cards
Loan Depot offers a secure visa to help establish or re-establish credit with
all the convenience and services one can access with a visa card.
There has been a notable change in large corporate lending over the
past decade, as the old bilateral bank-client lending relationships have
been replaced by a world that is much more transaction-oriented and
market-oriented. The Canadian syndicated loan market has been
strongly influenced by its U.S. counterpart, but it is not yet at the same
level of development. It also explores potential risk issues for the new
corporate loan market, including implications for the distribution of
credit risk in the system, risks in the underwriting process, the
monitoring function, and the potential for risk arising from
asymmetric information.
The development of the market for syndicated loans, and has shown
how this type of lending, which started essentially as a sovereign
business in the 1970s, evolved over the 1990s to become one of the
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main sources of funding for corporate borrowers. The syndicated loan
market has advantages for junior and senior lenders. It provides an
opportunity to senior banks to earn fees from their expertise in risk
origination and manage their balance sheet exposures.
The development of the secondary market for syndicated loans has led
to the creation of a new asset class with greater return per unit of risk
than many other fixed-income assets and low correlations with most
other classes of assets. The leveraged portion of the market, the part
of the market where most innovation has occurred, receives special
attention. Syndicated loans are an integral part of capital raising for
these markets.
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most rapidly growing and innovating sections of the U.S. capital
market in the past 20 years. It explores issues related to the main
features of the primary market using the most recent data available
and details the characteristics of the secondary market. Investment
returns, as well as the risks of the asset class, particularly credit risk,
receive special attention.
The syndicated loans market has grown rapidly in recent years, driven
primarily by an increase in corporate takeovers, private equity
transactions and infrastructure deals. Strong liquidity means there is
plenty of cash to invest, and banks are willing lenders.
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market’s rapid growth can be seen from the fact that in 1993
the total volume of the market worldwide was USD 1.4.
trillion, whereas in 2005 it exceeded USD 3 trillion (dialogic)
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Overview of ICICI Bank
ICICI Bank is India's second-largest bank with total assets of Rs. 3,446.58
billion (US$ 79 billion) at March 31, 2007 and profit after tax of Rs. 31.10
billion for fiscal 2007. ICICI Bank is the most valuable bank in India in
terms of market capitalization and is ranked third amongst all the companies
listed on the Indian stock exchanges in terms of free float market
capitalisation*. The Bank has a network of about 950 branches and 3,300
ATMs in India and presence in 17 countries. ICICI Bank offers a wide range
of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised
subsidiaries and affiliates in the areas of investment banking, life and non-
life insurance, venture capital and asset management. The Bank currently
has subsidiaries in the United Kingdom, Russia and Canada, branches in
Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance
Centre and representative offices in the United States, United Arab Emirates,
China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our
UK subsidiary has established a branch in Belgium.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange
and the National Stock Exchange of India Limited and its American
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Depositary Receipts (ADRs) are listed on the New York Stock Exchange
(NYSE).
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banking services. The merger would enhance value for ICICI Bank shareholders through
a large capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments, higher market
share in various business segments, particularly fee-based services, and access to the vast
talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of
ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail
finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital
Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI
and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March
2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in
April 2002. Consequent to the merger, the ICICI group's financing and banking
operations, both wholesale and retail, have been integrated in a single entity.
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ICICI SYNDICATION
They have a primary focus on Indian clients and can provide with
insightful credit information and help to extract more value from
the transactions. They are very active in granting and arranging
various forms of External Commercial Borrowing (ECB)
facilities for the Indian corporates.
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ICICI Bank has also formed syndication teams in various
overseas offices (USA, UK, Singapore and Bahrain). These teams
consist of specialists who are veterans in international syndicated
loans market and have strong understanding of the Indian ECB
market. International presence has not only increased ICICI
Bank's reach to the international investor community but also
significantly enhanced the underwriting capability.
Service Offering
ICICI Bank services the financial sector for the entire set of
banking requirements and provides a complete range of
solutions. The Financial Institutions and Syndication Group
(FISG) are responsible for ICICI Bank's relationship with the
financial sector.
Under this umbrella, the Bank caters exclusively to the needs
of Domestic Financial Institutions.
• Banks.
• Mutual Funds.
• Insurance Companies.
• Fund Accounting.
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Transaction Banking
Loan Syndication
1. Project Finance
2. Corporate Term Loans
3. Working Capital Loans
4. Acquisition Finance, etc.
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SYNDICATION ADVISORY AND OTHER SERVICES
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Acting as an Initial Public Offer (IPO) monitoring agency - As per
guidelines of Securities and Exchange Bureau of India (SEBI), any
IPO of the size more than Rs. 500 crore requires a financial institution
to certify the end use of funds on semi annual basis.
Offering advisory and other services for Mergers/Acquisitions -
Advising companies in their plans of mergers/acquisitions including
identifying target companies, undertaking financial due diligence,
working out the financial projections, structuring of purchase
consideration etc.
The market for syndicated loans is huge. The standard forces for why
banks join forces in a syndicate are risk diversification. The banks in
the syndicate share the risk of large indivisible investment projects.
Syndicates may also arise because additional syndicate members
provide informative opinions of investment projects. The motive for
syndication is to control the risk of the loan portfolio, rather than
sharing the risk.
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Survey for Project on Loan syndication
NAME:
DESIGNATION:
SIGNATURE:
CONTACT NO:
1) Are you aware of the syndicated loan facilities provided by the bank?
YES NO
Simple Complex
Increasing Decreasing
COMMENTS:
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PROJECT GUIDE: Prof.Nishikant Jha Survey conducted
by
Chandni Gala
Signature: T.Y.B.B.I
Roll No: 18
1) Are you aware of the syndicated loan facilities provided by the bank?
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2) To whom are they more beneficial?
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4) What according to you is the demand for syndicated loans is?
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Analysis for the better understanding of the ICICI account holders was
carried out. The purpose of analyzing was to know the customer satisfaction,
awareness of the syndicated loan facilities provided by the bank and they
would like to have any improvements suggested for better working of the
bank and higher satisfaction.
Questionnaire method was used to carry out the survey. Some interesting
facts came up which will be dealt in a detail later. A set of around 7-8
questions was used in the questionnaire, which varied from objective types
to descriptive type of questions. Questionnaire was formed and designed in
such a manner that it could be filled within 5 minutes by the person thus
saving the time of the interview.
The sample size of the survey was taken out to be 50. Out of this 50 people
20 professional and the remaining from other categories. Questions ranged
from getting information about the purpose of these loans, to whom are they
more beneficial and the demand for these loans.
ICICI Branches
ICICI Websites
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A questionnaire is a device for securing answers to questions by using a
form which the respondent fills in himself.
Q.1) What are the fees charged by the banker for undertaking the work of
loan syndication?
ANS:- The fees charged by the banker for undertaking the work of loan
syndication is 1% of the total loan amount.
Q.7) From what time has the demand for these loans start increasing?
ANS:- The demand for these loans is increasing for over past fifteen years.
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Conclusion
Banking sector has seen lot of transformation in the past post liberalization
period, it has become very important for bank to give services best to their
capabilities. if the customers are not satisfied with the services provided by
the bank, they will transfer their account to some other bank. result is loss of
revenue for the bank and the loss of goodwill.
Perhaps the oldest form of services sector known to human is going through
a radical change not only throughout the world but also in India. The
greatest beneficiary of this change is none other than the human itself.
Expectations from the study are that it may contribute to the real scenario of
loan syndication demand and accordingly the banks can go for new
innovative schemes. It will also specify some recommendations and based
on that banks can make suitable arrangements in a particular sector.
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BIBLIOGRAPHY
www.goggle.com
www.banknet.com
BOOKS REFFERED
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